2015 New Jersey Class-Action Litigation Update

Ever since United States District Judge Jerome Simandle ruled, in Martinez-Santiago v. Public Storage, 38 F. Supp. 3d 500 (2014), that provisions of the Public Storage rental agreement may run afoul of the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), drafting a sound rental agreement in the state has not been easy. A ruling by U.S. District Court Judge Katharine Hayden, in Gomes v. Extra Space Storage, Inc., 2015 U.S. Dist. LEXIS 41512, on a motion to dismiss, provides some additional information in a very confusing environment.

Gomes’s complaint contained multiple allegations that the Extra Space rental agreement violated TCCWNA and the New Jersey Consumer Fraud Act (NJCFA). The complaint included allegations that Extra Space violated the NJCFA by imposing a $25 late fee ($10 at five days late and $15 at 15 days late) and an $85 pre-foreclosure fee on delinquent tenants. Plaintiffs contended these charges were excessive and an unconscionable commercial practice. The court dismissed these allegations. The court concluded the fees were clearly stated liquidated damages and the plaintiffs pled no facts that demonstrated the fees were excessive or unconscionable. The mere allegation that they were too high was insufficient to state a valid claim.

Extra Space did not fare as well on the plaintiffs’ other claims. The judge ruled that plaintiffs were able to plead facts that supported plausible allegations that provisions of the Extra Space rental agreement violated TCCWNA. Therefore plaintiffs’ complaint survived Extra Space’s motion to dismiss. Most of the allegations concern conflicts between the New Jersey self storage lien law and provisions in the rental agreement.

The judge also allowed plaintiffs to proceed on claims that the rental agreement provision that reduced the time to bring suit to one year was a violation of the TCCWNA. In this she agreed with the prior ruling by Judge Simandle in the suit against Public Storage. New Jersey self storage operators should consider not including such a provision in their rental agreements, in light of the rulings in Gomes and Martinez-Santiago that a rental agreement provision shortening the time to bring suit may be a violation of TCCWNA.

Ten Most Frequently Asked NJ Lien Law Questions

1. Question: The newspaper we use to advertise our lien sale did not receive the email notification we sent them because they had an email system problem. The advertisement was supposed to be printed on 09/04 and 09/11. Our sale is set for 09/28. This is a weekly paper, Thursday only. The newspaper is now only able to advertise our upcoming sale on 09/11 and 09/18. Are we permitted to still sell the units?

Answer: The New Jersey lien law requires that you advertise the sale once a week for two consecutive weeks and the sale can be scheduled no sooner than 15 days after the final advertisement of sale appears (See 2A:44-191(c)(3)). If you publish the advertisement of sale on 9/11 and 9/18 and hold your sale on 9/28 that is 10 days after the final advertisement and would not be in compliance with the lien law's advertising requirements..

2. Question: We published an advertisement of lien sale stating that the sale would be on the 15th of the month. Our auctioneer has informed us he cannot conduct the sale on that date but can conduct the sale on the next day. Can we hold the auction?

Answer: No. The sale date must be the date stated in your lien notice and advertisement (2A:44-191(c) (5)). The sale must be rescheduled. You must send out a new statutory lien notice and re-advertise because under the New Jersey Self-service Storage Facility Act, the date of the sale must appear in both the lien letter and in the advertisements.

3. Question: We took a check from an account in lien status. Our practice is not to remove the lock until the check clears. The check was returned NSF. Do we have to start the lien process over once we find out the check is an NSF?

Answer: An NSF check is not a payment on the account. If you have not sent the statutory lien notice or advertised the space for sale the NSF check has no effect on your lien rights. Even if the NSF payment is made after the statutory notice was sent and the space advertised for sale, you can proceed with the lien sale. However, it would be wise to contact the customer by telephone and send notice that the check was returned by the bank.

4. Question: Can a delinquent tenant bid on his own space on auction day?

Answer: Yes, provided the tenant can demonstrate that he has cash to pay for the space if he is the highest bidder. You would not take a check from a customer who owes you money. Also he must agree to conduct himself in a businesslike manner and not try to disrupt the sale or discourage others from bidding. However, if the tenant has cash to bid on the space you should try to resolve the payment problem with him. It is in your interest and his to resolve the payment problem and avoid a lien sale. The customer may believe that he may be able to get his contents for less than the amount owed. You should make it clear to him that you will refer the debt to collections if the winning bid is less than the full amount owed.

5. Question: We have a tenant who is active duty. He is stateside. Currently he is 3 months behind, and about to enter his 4th month of delinquency. It is our understanding that we cannot auction his goods, because he is active duty. Can we give him a 30 day notice to move out? Our rental agreement states we only have to give 10 days, but we would give him a full 30 days. What advice can you give on how to legally get remove this tenant? Do you know of any websites that lay out the facts?

Answer: The Servicemembers Civil Relief Act does not prevent you from selling a customer's goods pursuant to your self storage lien. It does require that you file suit in New Jersey state court and get a judge's order to foreclose. The law applies if either the customer or spouse is on active duty service or within 3 months of discharge. A self storage operator is a landlord and has all remedies available to landlords. You can also go through the eviction process. However, you would need to go to court and get a court order if he does not vacate. Just keep in mind that you cannot force this customer to leave or dispose of their goods without a court order and you will be ok. We strongly advise that you retain an attorney familiar with landlord/tenant law to assist you if you decide to give this customer notice and intend to evict them. Such an attorney may be familiar with landlord liens and can determine your best remedy.

6. Question: Now that Storage Wars is being televised, we're getting more money at our auctions. Sometimes, we get more then what is owed by the tenant. What are we supposed to do with the proceeds?

Answer: Under the New Jersey Self-service Storage Facility Act, Section 2A: 44- 191(j): "The owner may satisfy his lien from the proceeds of the sale, but shall deposit the balance, if any, in an interest-bearing account with notice given to the occupant of the amount and place of the deposit and of his right to secure the funds." Therefore, you have to send the tenant a letter notifying them of the existence of the proceeds funds and you must deposit them in a separate interest bearing account. The self storage law does not clarify how long you have to hold the funds, but general laws in New Jersey provide that after three years the funds are considered unclaimed and should be turned over to the State.

7. Question: Is the limitation of value of the limitation of liability provisions enforceable in our New Jersey leases?

Answer: That is a great question because the answer was not always very clear in New Jersey. Earlier cases decided in New Jersey held against self storage facilities finding that self storage operators were bailees of their tenant's stored property. However, in 2009, another case was decided where the Court found that the limitation of liability provision in the self storage contract was enforceable. The trial court judge explained in Varasteh v. Storage USA, 2009 WL 2045251 (not published) (N.J. Super. A.D. 2009) that the decision was limited where the storage facility meets the definition of a self storage facility under N.J.S.A. 2A:44-188 (the New Jersey Self Service Storage Facility Act). The appellate court affirmed the lower court's decision granting summary judgment to the self storage facility. The court also addressed the tenant's argument that the facility had violated the New Jersey Consumer Fraud Act. The Court held that the facility's actions did not "rise to the level of what the New Jersey Courts have found to constitute unconscionable commercial practices under the CFA."

8. Question: If a self storage operator chooses not to foreclose on their lien to remove a tenant from the facility, what other option is there to remove a tenant?

Answer: The best alternative to enforcing the lien process is to proceed with the eviction process which involves the action of the courts to rule in favor of a landlord to remove a tenant from the landlord's property. In order to proceed with such an eviction action, the self storage operator must first provide to the tenant a Notice to Quit, or notice to vacate the premises. The advance time for a Notice to Quit should match the time permitted under the lease for such termination notices. If the tenant doesn't vacate after such a notice, then the landlord self storage operator can file the action in the Court. If the Court awards the landlord a possessory judgment, then a Judgment for Possession may issue. This judgment typically gives the tenant 3 days to leave the premises. If the tenant does not leave then the landlord must go back to the court and request a Warrant of removal. The Warrant of Removal is served on the tenant by the Sheriff and the Tenant is given another three days to leave the premises. After that time, the Sheriff can physically remove the property from the rented space. The Landlord will need to hire movers for that purpose.

9. Question: Do we have to collect sales tax in New Jersey on our rentals and on what we collect from bidders at our lien sales?

Answer: New Jersey is one of a handful of states that requires self storage operators to collect sales tax on rent. Accordingly, it is the responsibility of the operator to charge the tax in addition to the rental charge. The tax must be accounted for and reported to the Division of Taxation either quarterly or monthly. It is very important to maintain the required paperwork to track the collection of sales tax since the tax is the obligation of the facility to pay once collected from the tenant. Any shortfall will be the facility's responsibility.

When conducting lien sales the sales tax must be added to the successful bid unless the buyer is exempt. Buyers who are purchasing the property for resale are not required to pay the sales tax on their purchases. It is not unusual for the overwhelming majority of bidders at a self storage lien sale to be tax exempt buyers. You must charge tax unless the successful bidder has a New Jersey Resale Certificate (ST-3) or the Streamlined Sales and Use Tax Exemption Certificate (ST-SST) to prove there tax exempt status. Facility operators should either copy the certificate or the relevant information from the forms and keep it in their lien sale file for audit purposes.

10. Question: I have a tenant that has paid us previously with a credit card. We still have the credit card information on file. Now the tenant has not paid us for two months. Can I go back and simply use the credit card information previously given to me by the tenant or do I need specific authorization from that tenant to use the credit card?

Answer: We know that it might be tempting to simply use the credit card information previously given to you- but you must have authorization to use the credit card for monthly charges. The authorization should be in writing (email authorization is acceptable). If your tenants have credit or debit cards, it might be helpful to get the information from them when they rent and obtain a written approval from them to use the credit or debit card on an automatic basis.