HB 97-SELF-STORAGE UNITS: LIENS; SALES  3:55:56 PM VICE CHAIR RUFFRIDGE announced that the final order of business would be HOUSE BILL NO. 97, "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." 3:56:27 PM REPRESENTATIVE PRAX, as the prime sponsor, introduced HB 97 and read from the sponsor statement [copy in the committee packet], which read as follows [original punctuation provided]: 49 states and the District of Columbia have self storage lien statutes. Alaska is the last remaining state without a self storage lien statute. These laws provide for a non-judicial foreclosure process to address and remedy nonpayment issues between the facility owner and the unit renter. Storage liens are the national standard for settling disputes between facility owners and unit renters. Self storage lien laws provide protections for unit renters. HB 97 would require facility owners to include specific information regarding the facility owner's lien rights in the rental agreement. HB 97 would also require the facility owner to wait at least ten (10) days after the unit renter's default to begin lien enforcement. After ten (10) days, the facility owner would be required to send a default notice to the unit renter. 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 that provides an additional 20-day window for the unit renter to cure the default. If the payment issue is not remedied, then HB 97 would permit the facility owner to proceed with a sale. The bill details that process and how proceeds from that sale must be applied. HB 97 also provides certainty and protection for storage facility owners. The bill would provide a specific statutory process for facility owners to follow to enforce their lien rights in the state. 3:58:48 PM CHADWICK VANCE, Staff, Representative Mike Prax, Alaska State Legislature, on behalf of Representative Prax, prime sponsor, gave the sectional analysis for HB 97 [copy included in the committee packet], which read as follows [original punctuation provided]: Section 1 (page 1, lines 5-7) Amends AS 28.11.025 relating to claims of ownership by private property owners to add a new subsection (d) stipulating that AS 28.11.025 does not apply to a vehicle in a self- storage facility under AS 34.35.600 through AS 34.35.670. Section 2 (page 1, lines 8-10) Amends AS 34.35 to add a new section to article 5 stipulating that AS 34.35.220 Persons entitled to carrier, warehouse, and livestock liens and AS 34.35.225 Sale to enforce liens, do not apply to a self-storage facility. 4:04:15 PM MR. VANCE continued with Section 3 of the sectional analysis, which read as follows [original punctuation provided]: Section 3 (page 1, line 11 - page 6, line 10) - 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. A late fee is considered reasonable if the fee does not exceed the greater of $20 or 20 percent of the monthly rental fee. 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 AS 28.10.401. (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. 32.35.610. Attachment of storage lien. (Page 2, lines 13-17) This section stipulates that a storage lien attaches on the date on which property is placed in a storage unit. This section further stipulates that 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. Sec. 34.35.615. Enforcement. (Page 2, lines 18-19) 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, lines 20-31) 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 1-23) Requires a facility owner to notify the unit renter as part of enforcing a storage lien. The lien notice must include an itemized statement and the date when the default occurred. The notice must include a statement of how the unit renter can cure the default, including a demand that the unit renter cure the default before the date stated in the lien notice. The date for curing the default must not be less than 20 days after the date the facility owner provides the lien notice. The lien notice must also include a conspicuous statement noting that, unless the unit renter cures the default the facility owner will dispose of the unit property. Sec. 34.35.630. Authority to dispose of unit property. (Page 3, lines 24-27) This section 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 3, line 28 - page 4, line 3) 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 4-14) 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 15-19) A person who purchases unit property in good faith and without notice of noncompliance takes the unit property free of any rights of the unit renter, the facility owner, and any lienholders, even if the facility owner has not complied with AS 34.35.600 - 34.35.670. Sec. 34.35.650. Vehicle title. (Page 4, lines 20-23) This section stipulates that if a vehicle is sold at a public sale and is titled, the Department of Administration shall transfer title to the vehicle to the purchaser who purchased the vehicle and who requests the transfer. Sec. 34.35.655. Proceeds of sale. (Page 4, lines 24- 29) This section details how the storage facility owner is to apply the proceeds from the disposal of private property to satisfy a storage lien. If disposal proceeds remain after a storage lien is paid off, facility owners must hold proceeds for the unit renter or a recorded lienholder for a period of three years after the disposal sale. If excess proceeds are not claimed within the three-year period, the funds shall be considered abandoned and remitted to the Department of Revenue. Sec. 34.35.660. Limit on value of property stored. (Page 4, line 30 - page 5, line 2) This section details that if a rental agreement specifies a limit on the value of property that a unit renter may store in the storage unit, the specified limit is considered to be the maximum value of the unit renter's property stored in the rented unit. Sec. 34.35.665. Additional rights and obligations. (Page 5, lines 3-7) This section stipulates that the provisions of AS 34.35.600 34.35.670 do not prevent a rental agreement from containing other rights, duties, and obligations. The rights provided to a facility owner by AS 34.35.600 34.35.670 are in addition to other rights provided by law to a creditor against a debtor. Sec. 34.35.695. Definitions. (Page 5, line 8 - page 6, line 10) This section defines terms used in the Act including amount due, default, electronic mail, facility owner, rental agreement, self-storage facility, storage lien, storage unit, unit property, unit renter, vehicle and watercraft. Section 4 (Page 6, lines 11-13) Amends AS 34.45 to add a new section to article 1, Sec. 34.45.095 Application. This section clarifies that AS 34.45.010 34.45.085 do not apply to a self-storage facility under AS 34.35.600 34.35.670. Section 5 (Page 6, lines 14-18) Amends the uncodified law of the State of Alaska to add a new section that stipulates this Act only applies to rental agreements entered into on or after the effective date. 4:07:30 PM DANIEL BRYANT, Legal and Legislative Counsil, Self Storage Association, gave a PowerPoint presentation, titled "Bringing a Self Storage Lien Law to Alaska." He began on slide 2 through slide 4 and stated that there are approximately 150 self storage facilities across Alaska, with almost all being locally owned and operated small businesses. He explained that the relationship between a self storage operator and the individual storing property is a commercial landlord-tenant relationship. He said that storage unit rental agreements are generally month- to-month tenancies, with the majority of these agreements successful for both parties. 4:09:38 PM MR. BRYANT continued to slide 5 through slide 7 and stated that Alaska is the only state with no self storage lien laws. Self storage lien laws provide for a non-judicial process in which operators can foreclose on tenants who have failed to pay rent. He said that the proposed legislation would provide protection for both operators and tenants by creating a process for a tenant to recover property; however, if the tenant fails to do so, the operator would be allowed to remove the property and find another tenant for the storage unit. He stated that the lien process is an uncommon procedure, and at most 3 percent of leased spaces require this process. He said that the Servicemembers Civil Relief Act protects active-duty service members from having their property sold, and the failure to comply with the act carries civil and legal penalties. 4:12:10 PM MR BRYANT moved to slide 8 through slide 15 and stated that HB 97 would provide requirements for rental agreements and notices of default. The agreement would be a written and signed agreement, and the lien date would be based on the date of the agreement, if applicable. He said that the first notice of default would be required to be sent by electronic mail (email) or first-class mail, after the tenant has been in default for at least 10 days, and the second notice would be sent at least 10 days after the first notice, giving the tenant 20 days to cure the default. He stated that the reason for allowing the use of email to notify tenants is because many tenants are in transition and not able to receive first-class mail. He said that the proposed legislation allows for a late fee of up to $20 or 20 percent; whichever is greater. He added that 37 states have a late fee as part of the state's storage facility lien law. After the period in which the tenant has been given the opportunity to cure the default, he said, if a tenant does not respond to the default notices, the owner of the facility then can tow, sell, or otherwise dispose of the tenant's property. 4:15:42 PM MR. BRYANT continued to slide 16 through slide 22 and stated that the reason towing would be an option is because of the complications of selling a titled vehicle. He displayed a map of the 45 states which allow for towing under such circumstances. He said that a storage facility owner is "lucky" to receive 30 cents for every dollar lost when selling defaulted property, and the primary goal of a sale is to clear the unit so it can be rented to another tenant. The sale would be required to be held at the storage facility, the nearest suitable facility, or online. The tenant would have the opportunity to redeem the property before a final sale. He added that online sales increase the number of bids on property, and 41 states allow this. He displayed a map showing the states which allow online sales. 4:17:52 PM MR. BRYANT continued to slide 23 through slide 26 and stated that the proposed legislation would allow for the disposal of property if unsold. If there are proceeds in excess of the default amount, the facility owner must hold the funds for three years. If the amount is unclaimed, the facility would be required to remit the excess funds to the State of Alaska. He concluded by giving a final overview of HB 97. 4:19:28 PM REPRESENTATIVE CARRICK questioned the current process if tenants default on their rental agreement. REPRESENTATIVE PRAX answered that it takes significantly longer to foreclose on a storage unit because it must go through a process similar to foreclosure on a vehicle. In response to a follow-up question, he said that if a tenant only provides email as a form of contact but was unable to access the email account to see the notice of default, the tenant would be "out of luck." 4:22:33 PM VICE CHAIR RUFFRIDGE asked whether HB 97 is modeled after existing legislation in other states. MR. BRYANT answered that it draws from legislation from multiple states and is most like legislation in North Dakota. 4:23:46 PM REPRESENTATIVE CARRICK asked what the justification is for a specific late fee in statute. MR. BRYANT answered that 32 states have this same late fee in statute. REPRESENTATIVE PRAX added that the fee is a standard fee based on conversations with storage facility owners. 4:25:10 PM REPRESENTATIVE SADDLER asked what effect defaulting on a storage unit would have on the credit of an individual. REPRESENTATIVE PRAX answered that he is unsure. MR. BRYANT added that it would be unlikely for a self-storage facility owner to report this scenario to a credit reporting agency. In response to a follow-up question, he reiterated that active-duty service members are protected from storage unit liens by federal statute. 4:28:50 PM REPRESENTATIVE CARRICK asked how the legislation is beneficial to the tenant of a self-storage unit. REPRESENTATIVE PRAX responded that HB 97 would add the benefit of a written contract for the tenant, and it would create a standard procedure for the owner of the facility. In response to a follow-up question, he said that facility owners are not trying to make money from lien sales, only recover lost revenue and make the unit available again. 4:33:39 PM VICE CHAIR RUFFRIDGE announced that HB 97 was held over.