BILL ANALYSIS SENATE JUDICIARY COMMITTEE Senator Ellen M. Corbett, Chair 2009-2010 Regular Session AB 655 (Emmerson) As Amended May 20, 2010 Hearing Date: June 29, 2010 Fiscal: No Urgency: No BCP:jd SUBJECT Self-Service Storage Facilities DESCRIPTION This bill would revise the existing declaration of objection that permits an occupant of a self-service storage facility to object to a lien sale of their items, and additionally: standardize the time frame in which the owner may deny an occupant access to a space, enter the space, and remove the property for safe keeping; enhance the notice of lien sale; permit a person claiming a right to stored goods to pay the lien amount and one month's rent in advance, but if a court order is not obtained within 30 days, the claimant must pay the owner a monthly rental charge, and if that is not paid, the owner may sell or dispose of the property without liability; and make other clarifying changes. BACKGROUND Existing law, the California Self-Service Storage Facility Act, governs self-service storage facilities and specifies certain procedures to be followed when their occupants are delinquent in their payments. When an occupant is delinquent, the owner must first send a preliminary lien notice that informs them that if they do not pay the amount due that their right to use the space will terminate, they will be denied access, and an owner's lien will be imposed on all stored property. If the occupant fails to pay the amount, the owner may then send a notice of lien sale, which states that the property will be sold to satisfy the (more) AB 655 (Emmerson) Page 2 of ? lien on or after a specified date (not less than 14 days after mailing) unless: (1) the amount of the lien is paid; or (2) the occupant executes and returns a declaration in opposition to the lien sale. If that declaration is returned, the owner must file a court action to enforce the lien. This bill, sponsored by the California Self Storage Association, would modify existing law by, among other things, modifying the process for that declaration of objection, enhancing the notice of lien sale, and standardizing the time frame between the sending of the preliminary lien notice and the ability to deny an occupant access, as specified. CHANGES TO EXISTING LAW Existing law , the California Self-Service Storage Facility Act, specifies remedies and procedures for self-service storage facility owners when occupants are delinquent in paying rent or other charges. (Bus. & Prof. Code Sec. 21700 et seq.) Existing law provides that if an owner sends an occupant a preliminary lien notice by certified mail, the owner may, upon the effective date of the lien, deny the occupant access to the space, enter the space, and remove property to safe keeping. However, if the owner sends the preliminary lien notice by first-class mail with certificate of mailing, the owner may not remove the property for at least 14 days following the effective date of the lien. (Bus. & Prof. Code Sec. 21705.) Existing law requires owners to send occupants a notice of lien sale that states the property will be sold to satisfy the lien after a specified date that is not less than 14 days from the date of mailing unless: (1) the amount of the lien is paid; or (2) the occupant returns a declaration in opposition to lien sale in a specified form under penalty of perjury. (Bus. & Prof. Code Sec. 21705 (c).) Existing law permits a person claiming a right to the stored goods, prior to any lien sale, to pay the lien amount and reasonable expenses. In that event, the goods shall not be sold, but shall be retained by the owner subject to the court's disposition of the property. (Bus. & Prof. Code Sec. 21709.) This bill would revise the current declaration in opposition to, instead, inform the occupant that if they oppose the lien sale, they can return the declaration and file a lawsuit for hearing AB 655 (Emmerson) Page 3 of ? on the validity of the lien no later than 21 days after returning the declaration. This bill would provide that if a Declaration in Opposition to Lien Sale is received by the owner, as specified, the owner may enforce the lien only as follows: (1) the owner shall not sell the property for 30 days from the date of receipt of the declaration; (2) if the occupant files a complaint, and serves the owner as specified, the owner shall not sell the property until the court issues a judgment on the complaint in favor of the owner's lien; or (3) if the occupant does not serve the owner, or the owner is granted a judgment in favor of the lien, the owner may advertise and sell the property. This bill would provide that if a preliminary lien notice has been sent and the total sum due has not been paid within 14 days of the specified termination date, the owner may deny the occupant access to the space, enter the space, and remove the property for safe keeping. This bill would require an owner, after sending a preliminary lien notice, to send the occupant a notice of lien sale that states all of the following: the occupant's right to use the storage space has terminated and that the occupant no longer has access to the property; the stored property is subject to a lien, the current amount of the lien, and that the lien will continue to increase if rent is not paid; that the property will be sold to satisfy the lien after a specified date that is not less than 21 days from the date of mailing the notice; a statement that the occupant may regain full use of the space by paying the full lien amount prior to the (above) specified date; a conspicuous statement that the occupant may challenge the sale by filing an action in any court having jurisdiction to render a judgment in the amount of the lien; and that any excess proceeds of the sale (over the lien amount and costs of sale) will be retained by the owner and may be reclaimed by the occupant or claimed by another person at any time for a period of one year from the sale and that the proceeds will then escheat to the county where the sale takes place. This bill would provide that prior to any lien sale, any person claiming a right to the goods may pay the amount necessary to satisfy the lien together with one month's rent in advance. In AB 655 (Emmerson) Page 4 of ? that event the goods shall not be sold, but shall be retained by the owner pending a court order directing the disposition of the property. This bill would provide that if a court order is not obtained within 30 days, as specified, the claimant shall pay the owner the monthly rental charge for the space where the property is stored. If the claimant does not pay that rent, the owner may dispose or sell the personal property in accordance with the above lien sale provisions. Furthermore, this bill would provide that the owner shall have no liability for the sale or other disposition of the personal property to any claimant who fails to secure a court order or pay that rental charge. COMMENT 1. Stated need for the bill According to the author: AB 655 will make several changes to the California Self-Service Storage Facility Act that will make it more consistent with other statutory lien enforcement procedures in California as well as other states. 2. May 20, 2010 amendments reinsert the ability of an occupant to send a declaration of opposition to delay the sale of property In response to concerns raised last year about the elimination of the Declaration in Opposition, which permits occupants of self-storage facilities to object to the sale of their goods, the May 20, 2010 amendments reinsert a modified version of that declaration. Under existing law, the current declaration is sent to an occupant who may fill it out and return the document. To inform the occupant of the consequences of returning the declaration, the document itself requires the occupant to sign, under penalty of perjury, that: "I understand that the lienholder may file an action in court against me, and if a judgment is given in his or her favor, I may be liable for the court costs." Once that declaration is signed and returned, the storage facility must file suit to be able to sell the property. The policy question raised by this bill, and the May 20, 2010 amendments, is who should have the burden of filing an action in AB 655 (Emmerson) Page 5 of ? court when an occupant objects to the sale of their goods. Unlike existing law, the revised declaration proposed by this bill would place the burden to file an action on the occupant, not the self-storage facility (in other words, the occupant would have to sue the storage facility to stop the sale of their items). In support of the revised declaration and shifting the burden to file an action onto the occupant, the proponents assert that the current declaration does not act as a consumer protection and that: Out of 98 suits filed by storage operators against tenants who had returned Declarations the customer requesting the hearing failed to appear in 91 of those suits. The storage operator won all 98 suits filed either because the delinquent customer failed to appear or the tenant had no viable defense. Despite that assertion, the fact that one side nearly always prevails in litigation does not mean that the process by which the actions are brought is flawed - the litigation process itself serves the function of having a neutral third party decide a dispute. Since the occupant failed to appear in 91 out of the 98 cases described above, it is difficult to determine the number of cases in which tenants would have actually prevailed if they had appeared in court. Given that this bill represents the policy choice to shift the burden of filing a legal action onto people who are already struggling to make payments on their storage units -- the Committee should consider whether that burden shift is, in fact, appropriate in the present economic climate where individuals are already facing financial troubles due to unemployment, furloughs, and a struggling economy. SHOULD THE BURDEN OF FILING AN ACTION BE SHIFTED TO THE OCCUPANT? As an alternative to that shifting of the burden, the Committee should consider whether to, instead, modify the existing process for the Declaration in Opposition to permit the storage facility to bring the action in small claims court. That ability would reduce the costs of the facility when they are required to bring these actions - that clarification should also include any appropriate modifications to the declaration (such as ensuring that the occupant fills out his or her address) that may facilitate the bringing of those actions. AB 655 (Emmerson) Page 6 of ? SHOULD THE BILL BE AMENDED TO RESTORE THE EXISTING PROCESS, BUT PERMIT THE FACILITY TO BRING AN ACTION IN SMALL CLAIMS COURT? In addition to revising the Declaration in Opposition, this bill would also enhance the notice of lien sale that would accompany the declaration. That enhanced notice would warn the occupant that the lien will continue to increase until it is paid, that the occupant may regain the full use of the space by paying the full lien amount, and must include a conspicuous statement that the occupant may challenge the sale by filing an action in any court having jurisdiction to render a judgment in the amount of the lien. While that enhanced notice, combined with the revised declaration, would appear to provide consumers with notice of their rights, as discussed above, the bill would also shift the burden of filing an action in a way that could diminish the bargaining power of an occupant. Although not addressing the issue of shifting the burden, the following clarifying amendment is suggested to strike changes to Section 21708 of the Business and Professions Code that are no longer necessary after the recent amendments: Clarifying amendment: On page 6, strike out lines 13 through 25, inclusive. 3. Immunity provision Under existing law, any person claiming a right to goods that have been stored may pay the amount necessary to satisfy the lien and the reasonable expenses incurred. In that case, the goods shall not be sold, and are retained by the owner pending a court order directing disposition of the property. This bill would modify that provision by, instead, requiring that person to pay the amount necessary to satisfy the lien together with one month's rent in advance. If a court order is not obtained within 30 days following the date of that payment, the claimant must pay the owner the monthly rental charge for the space, and if they do not make that payment, the owner may sell or dispose of the property. The bill would additionally provide that the owner shall not be liable for the sale or other disposition of the personal property to any claimant who fails to secure a court order or pay the required rental charge. It is unclear how an owner would be liable if they are complying with their proposed statutory duties thus, the following AB 655 (Emmerson) Page 7 of ? amendment is suggested to clarify that the immunity applies only when the owner has fully complied with the requirements of the chapter. That same immunity appears in Business and Professions Code Section 21708 that governs the issue of the owner delivering possession of any personal property to a person with a perfected security interest that has paid the total amount due, as specified. Suggested amendment: On page 7, line 2, after "section" insert: , provided the owner has fully complied with the requirements of this chapter. 4. Additional provisions Under existing law, an owner may send a preliminary lien notice either by certified mail or by first-class mail with certificate of mailing. When the notice is sent by certified mail, the owner may deny an occupant access to the space, enter the space, and remove property, if the lien is not paid by the date specified in the lien notice (the termination date). An owner must wait 14 days to take the above actions if the notice is sent by first-class mail with a certificate of mailing. This bill would standardize that time frame by providing that an owner who has sent a preliminary lien notice (by either type of mailing) may enter the space, deny the occupant access, and remove property if the occupant has not paid the lien amount within 14 days of the termination date specified in the notice. This bill would also extend the sale date from not less than 14 days after the notice of lien sale, to not less than 21 days, and make other technical and clarifying changes. Support : Over 120 individuals Opposition : None Known HISTORY Source : California Self Storage Association Related Pending Legislation : None Known AB 655 (Emmerson) Page 8 of ? Prior Legislation : AB 790 (Frommer, Chapter 267, Statutes of 2003), authorized an owner to provide preliminary lien notice by regular first-class mail (in addition to certified mail) if he or she obtains a certificate of mailing indicating the date of mailing, but prohibited the owner from removing property until 14 days after the lien date if using this method rather than certified mail. Prior Vote : Assembly Business and Professions Committee (Ayes 8, Noes 0) Assembly Judiciary Committee (Ayes 10, Noes 0) Assembly Floor (Ayes 76, Noes 0) **************