HB 97-SELF-STORAGE UNITS: LIENS; SALES  2:40:42 PM CHAIR BJORKMAN announced the consideration of CS FOR HOUSE BILL NO. 97(JUD) am "An Act relating to self-storage facilities for personal property, including vehicles and watercraft; distinguishing self-storage facility liens from another type of storage lien; and excluding self-storage liens from the treatment of certain unclaimed property." 2:41:11 PM REPRESENTATIVE MIKE PRAX, District 33, Alaska State Legislature, Juneau, Alaska, Sponsor of HB 97 said HB 97 is about storage liens for self-storage units. He made the following statements regarding HB 97: • Storage lien laws are the national standard for settling disputes between facility owners and unit renters. • These laws provide protections for both the unit renters and the storage facility owners in the event that rent is not paid and that contents of a storage unit are abandoned. • Alaska is the last remaining state without a self-storage lien law, consequently we have no consistent process for resolving these liens, creating confusion for facility owners and tenants and there is relatively little consumer protection for self-storage renters. • In states with self-storage lien laws there are clear statutory guidelines and procedures for handling delinquent tenants. The absence of such laws in Alaska makes it harder for such customers to understand their rights and responsibilities. • Self-storage facility owners in Alaska face legal challenges dealing with delinquent tenants because it follows the warehouse lien laws, a court-driven process. • The absence of clear regulatory guidelines in how to handle non-payment in abandoned storage units makes it difficult to recover unpaid rent, evict delinquent tenants or properly dispose of abandoned items. • Self-storage facility owners rely on rental income to cover their costs and generate income. Without a stream-lined legal process, these facility owners face financial losses due to unpaid rent and delays in recovering abandoned units. This results in higher rental rates for customers when facility owners must account for potential losses when setting rental prices. • HB 97 provides a process for addressing these situations in which self-storage unit renter fails to pay their rent or otherwise abandons their unit. The facility owner needs to access the unit to sell the unit owners' property to recover the debt or simply to clean debris out of the unit to make it available for the next renter. • National data from the self-storage association indicates that facility owners only sell approximately one to three percent of spaces annually. It's an infrequently used procedure but it is necessary for the successful operation of the facility, because they must deal with the other 90 percent which are abandoned with no commercially valuable property in the storage unit. • HB 97 would require facility owners to include specific information regarding their facility owners' lien rights and the lease that governs the relationship between the parties. • HB 97 would also require the facility owner to send a default notice to the unit rental before lien enforcement can begin. If the unit renter does not cure the default, the facility owner would then be required to send a second notice of default to the unit renter at least ten days after the first note. The second notice must provide an additional 20-day window for the unit renter to cure the default and pay the rent owed. After all this, if the rent is not paid, then HB 97 would allow the facility owner to proceed with the sale of the abandoned items and recover the rental unit. • HB 97 details the process and how proceeds from a sale must be applied in a fair and equitable manner. 2:45:37 PM SENATOR BISHOP sought to clarify whether one to three percent of the storage units were sold. 2:45:56 PM REPRESENTATIVE PRAX corrected his statement, explaining that one to three percent of the lien enforcements involved commercially valuable property stored inside. He said the other 90 percent of the liens enforcement enable the facility owner to access the unit simply to clean it out. He said, ideally they find an empty unit that doesn't require cleaning, otherwise they find packing material and basically junk with no commercial value. 2:46:36 PM SENATOR BISHOP clarified that 3 percent of stuff they deal with on nonpayment has some value and can be sold; the other 90 percent goes to the dumpster. 2:47:02 PM ERICK CORDERO-GIORGANA, Staff, Mike Prax, Alaska State Legislature, Juneau, Alaska presented the sectional analysis for HB 97. [Original punctuation included.] House Bill 97  Sectional Analysis Version U  Section 1 (Page 1, lines 5-7) Amends AS 28.11.025 relating to abandoned vehicles by stipulating that it does not apply to a vehicle in a self-storage facility under the sections of this bill. Section 2 (Page 1, lines 8-10) Amends AS 34.35 by adding a new section stipulating that AS 34.35.220 and 225 do not apply to a self-storage facility. Section 3 (Page 1, line 11 - Page 6, line 14) - Amends 34.35 to add a new section titled Article 13A. Self-Storage Facilities. Sec. 34.35.600. Self-storage facility liens; fees. (Page 1, line 12 - Page 2, line 7) This section details that a facility owner has a storage lien on unit property if the unit renter fails to abide by a written rental agreement, including paying the rental charges and reasonable late fees. Sec. 34.35.605. Priority of storage lien. (Page 2, lines 8-12) (a) This section notes that if a vehicle is an item of the unit property, a storage lien is superior to a lien or encumbrance established under AS 28.10.371 401. (b) Stipulates that a storage lien is superior to a security interest perfected under AS 45.29. A storage lien is also superior to another lien or security lien, except a tax lien. Sec. 34.35.610. Attachment of storage lien; rental agreements. (Page 2, lines 13-20) Stipulates that a storage lien attaches on the date property is placed in storage. A rental agreement must contain a statement notifying the unit renter of the existence of the storage lien and the method by which the facility owner may enforce the lien. This section also requires the unit renter to disclose any lienholders with an interest in the stored property. 2:49:06 PM MR. CORDERO-GIORGANA continued the sectional analysis for HB 97. Sec. 34.35.615. Enforcement. (Page 2, lines 21-22) Gives facility owners the right to enforce a storage lien after a unit renter has been continuously in default for at least 10 days. Sec. 34.35.620. Denial of access; removal of unit property. (Page 2, line 23 - Page 3, line 3) Stipulates that after a default, the facility owner may deny the unit renter access to the storage unit and move property to another place for storage. The section also allows the facility owner to tow or otherwise remove a vehicle or watercraft from the storage facility. Sec. 34.35.625. Default notice (Page 3, lines 4-27) Requires a facility owner to notify the unit renter and any lienholders identified in the rental agreement that a unit renter is in default before enforcing a storage lien. Sec. 34.35.630. Authority to dispose of unit property. (Page 3, lines 28-31) Allows the facility owner to dispose of the unit property if a unit renter does not cure a default and pay the amount due by the deadline stated in the lien notice. Sec. 34.35.635. Sale and disposal of unit property. (Page 4, lines 1-7) Section (a) allows a facility owner to sell unit property at the storage facility or nearest suitable location, or on the internet. Section (b) Allows the facility owner to privately sell, give away, donate, or throw away unit property that is not commercially viable to dispose of by a public sale. Sec. 34.35.640. Redemption by unit renter, vehicle owner, or vehicle lien holder. (Page 4, lines 8-18) Section (a) notes that, before the sale of the property, the unit renter may redeem the unit property by paying the amount due, in which case, the facility owner shall immediately return the unit property to the unit renter. Section (b) states that if a vehicle owner of record or a lienholder pays the amount due before the facility owner disposes of the vehicle under AS 34.35.635, the facility owner shall transfer possession of the vehicle to the vehicle owner or lienholder who pays the amount due. Section (c) states that a facility owner is no longer liable for property after it is returned under (a) or (b) of this section. Sec. 34.35.645. Good faith purchasers. (Page 4, lines 19-23) A person who purchases unit property in good faith takes possession of the property free of any rights of the unit renter, the facility owner, or any lienholders. Sec. 34.35.650. Vehicle title. (Page 4, lines 24-27) Stipulates that if a vehicle is sold at a public sale and is titled, the Department of Administration shall transfer the vehicle title to the purchaser. 2:51:47 PM MR. CORDERO-GIORGANA continued the sectional analysis for HB 97. Sec. 34.35.655. Proceeds of sale. (Page 4, line 28 - Page 5, line 2) This section details how the storage facility owner is to apply the proceeds from the disposal of private property to satisfy a storage lien. Sec. 34.35.660. Limit on value of property stored. (Page 5, lines 3-6) This section details that if a rental agreement specifies a limit on the value of stored property, that limit is the maximum value. Sec. 34.35.665. Additional rights and obligations. (Page 5, lines 7-11) Specifies that a rental agreement may contain other rights, duties, and obligations not required in the provisions of this bill. Sec. 34.35.670. Definitions. (Page 5, line 12 - Page 6, line 14) This section defines terms used in the Act. Section 4 (Page 6, lines 15-17) This section clarifies that AS 34.45.010 34.45.085 do not apply to a self-storage facility. Section 5 (Page 6, lines 18-22) Amends the uncodified law stating this Act only applies to rental agreements entered on or after the effective date. 2:53:24 PM SENATOR BISHOP referred to Sec. 34.35.655 in the sectional analysis and asked whether this would be further defined in regulation. He asked whether the proceeds from a sale would be held in an escrow account in this person's name. He asked whether it would be an interest-bearing account, checking account, cash box etc. 2:54:16 PM REPRESENTATIVE PRAX answered that it would be up to the facility owner. As HB 97 is currently written, the facility owner is entitled to past due rent and expenses dealing with cleaning up the unit and selling the property. He said, if there is extra money the facility owner has to keep it for three years and return it to the renter if the renter shows up or to the lienholder in the case of a vehicle. He said the facility owner is not making a profit on the sale. He suggested that if a painting or some item that was of considerable value were sold, he said there is no lien on the painting. If the item sells at auction, the facility owner would keep what is due him for the past due rent and the cost of selling the painting and then he holds on to the rest of the money and the renter can claim the difference when and if they return. He said, if the renter never shows up, then the money goes to the state as unclaimed property. He suggested the next question would be regarding protection for the unit owner. He explained HB 97 requires notification before they can start the sale process and it takes about a month to get through that. 2:56:05 PM SENATOR DUNBAR referred to a letter from Global Credit Union with concerns and asked whether there were any proposed amendments to address those concerns, for example: the priority of the lien, title issues, proceeds of sale, etc. In particular, he wondered about the priority of lien and suggested a scenario involving child custody that resulted in a lien for unpaid child support. He asked whether HB 97 would supersede child support. 2:57:21 PM REPRESENTATIVE PRAX said he had not considered child support. He noted you can't get ahead of the IRS; he didn't know if you could get ahead of child support. 2:58:05 PM CHAIR BJORKMAN opened public testimony on HB 97. 2:58:13 PM GARY JENKINS, Owner, Space Unlimited Inc., Juneau, Alaska, said he had several specific concerns about HB 97. He suggested that there were assumptions in HB 97 that are not correct and provisions that are extremely egregious from a public fairness perspective. He said there is a lien law in Alaska which HB 97 referred to as though it were not effective. He said Alaska has been operating under that lien law for 50 years and he said the law is short, but effective. He said HB 97 takes all the provisions of the warehouseman's law, embellishes it and puts it in HB 97. He acknowledged that time was short and said he would like an opportunity to speak in more depth about some of the provisions that would be extremely unfair to the committee's constituents who would be the renters and perhaps themselves if any of the committee rent space. 3:00:09 PM SENATOR DUNBAR asked whether Mr. Jenkins could submit his comments in writing. 3:00:25 PM MR. JENKINS said he could, but he said the details of the business can be difficult to explain in an email. He said he would comply with the wishes of the committee. 3:00:44 PM SENATOR DUNBAR said that he would not speak for the chair, but that he always finds written comments to be helpful. 3:00:54 PM SENATOR MERRICK asked whether Mr. Jenkins had found others in the storage space industry who reached the same conclusions he had. 3:01:01 PM MR. JENKINS said he spoke with a gentleman who is the largest self-storage operator in Alaska. He said they stated they would operate as they always had and they would prefer not to get into a hassle over the language of HB 97. He said that is what he would do as well. He said he found HB 97 to be skewed too far in favor of the owners of storage facilities. He said his own policies were more fair than what he considered to be very bad public policies set forth by HB 97. 3:01:54 PM CHAIR BJORKMAN asked Mr. Jenkins to highlight provisions of HB 97 that he found problematic with explanations for his objections. 3:02:09 PM MR. JENKINS concurred. 3:02:15 PM CHAIR BJORKMAN held public testimony for HB 97 open. 3:02:20 PM CHAIR BJORKMAN held HB 97 in committee.