by Mark Lusky
As with preventive medicine, practicing preventive law and accounting can spare self-storage owners many hours of headaches and heartaches--not to mention dollars. Costs of litigating or defending a legal claim or tax issue can skyrocket quickly.
It doesn't take many motions or other meanderings by the other side of a dispute to make costs soar. So, by far the best protection in the self-storage industry is to put in place a solid legal and accounting infrastructure before you need to defend it. Following are suggestions to help succeed:
1. Spare no expense to develop/update good contracts, develop legally-sound policies, and establish an accounting infrastructure fully defensible to the IRS. One of the biggest reasons businesses fail is a penny-wise-pound-foolish mentality. While much information can be accessed economically through the industry and via internet research, it's wise to have trusted advisors who can make sure everything is airtight-or as close as reasonably possible. And make sure these advisors are up to speed on the latest legal and financial regulations and rulings that may impact today's rules of engagement tomorrow and beyond. Most important, periodically review everything with legal and accounting/financial advisors in the same room, to be sure everything is buttoned down in both arenas. In the long run, you'll likely save money not going back and forth between lawyers and accountants who often suggest seeking input from one another.
2. Spend time researching changes in the self-storage industry that may impact your legal or financial framework either now or down the road. These changes can show up in many areas, from new municipal regulations impacting permitted uses of self-storage, to how your facility is taxed. In essence, this is your crystal ball to help scope out what to anticipate, and to be able to maneuver accordingly. The UK is now directing some self-storage facilities to charge tenants a 20% value added tax (VAT). With the US looking for new tax revenues, might we see new taxes impacting the self-storage industry here? If so, this needs to be addressed by an accounting advisor to avoid later confusion and complications.
3. Make sure you know the latest ins and outs in such areas as specialized storage (e.g., vehicles) that may differ from other stored contents, abandonment of storage unit contents and subsequent selling/disposal of those items, new or pending municipal or state legislation that may impact the self-storage industry, and legal maneuvers such as subpoenas. Find out for sure what you can and can't do legally. If, for example, an authorized law enforcement officer serves you with a court order to release tenant information or take other action, do you know your legal rights? Does everyone working at the facility know them? Being too compliant or non-compliant because you don't know the rules can create a thorny situation. Avoid it by being in the know ahead of time.
4. Examine opportunities that may go away or become active starting in 2013, particularly based on new tax code provisions. For example, the Section 179 provision allowing qualifying items to be expensed 100% in the year purchased, may drop from $139,000 to $25,000 plus inflation allowance in 2013. (Or, it may not, as Congress may increase it again before year-end.) Again, this is why it's wise to have trusted advisors who are up-to-date on critical issues. Or, as Ronald Reagan was fond of saying, "Trust, but verify."
5. Identify potential industry "hot buttons" that could prove to be both controversial and convoluted. The first one that comes to mind is the push to make it legal for self-storage units to become "hydroponic" growing centers (translate: medical marijuana). One Washington state municipality is addressing this issue currently. It remains to be seen if/how/where it will expand. Regardless, one constant in the medical marijuana world is that it may be legal at state and municipal levels, but it remains illegal federally. Among other issues, it opens the possibility that a zealous US prosecutor could tag a self-storage owner for illegal trafficking or possession. So, make very sure you're on firm footing in areas such as these (or at least as firm as reasonably can be determined).
To sum it up, a paraphrase of Reagan's "trust, but verify" statement is in order: Read, but verify. Don't trust any one article (including this one), blogpost or other writing as being accurate without verification.