The Impact of COVID-19 on New York Self-Storage Facilities

The article was written by Richard Mancino, Brenton Clarke, and Romane Paul of Willkie Farr & Gallagher LLP

The State of New York, like almost every other state, has issued various executive orders and passed numerous pieces of legislation to provide relief to millions of its residents who face eviction or foreclosure due to the COVID-19 pandemic.  While the intent and purpose of these executive orders and laws can for the most part be established (particularly, in the case of real property tenants facing eviction for failing to make rent payments due to financial difficulties caused by the pandemic), it is uncertain whether the measures taken to date with respect to evictions and foreclosures would apply or otherwise extend to occupants of self-storage facilities who are unable to make monthly payments because of the pandemic.  As a result of this uncertainty, thousands of New Yorkers who are unable to pay their monthly self-storage facility fees due to financial difficulties caused by the pandemic stand to be negatively impacted in the coming months – a point recently highlighted by press coverage and sure to gain public attention as the pandemic grinds on and eviction moratoriums are either further extended, or allowed to expire.  In light of this, we wanted to highlight some helpful information on the laws governing self-storage sales in New York, the uncertainty in the State’s response to date on providing relief to such self-storage occupants, and some ways in which a moratorium on evictions and liens with respect to self-storage occupants could possibly be implemented to address this uncertainty.

What laws currently govern New York self-storage operators?

Self-storage facilities are governed under N.Y. Lien Law § 182.  Under this law, a self-storage facility owner is granted a lien on the property stored at the self-storage facility for rental fees owed to them by the occupant.  In the event that the occupant is unable to pay the monthly fees, the self-storage facility owner has the right, subject to compliance with certain procedural requirements, to conduct a sale of the items to defray outstanding and unpaid fees.

What has the State of New York done to provide relief to occupants of self-storage facilities in light of COVID-19?

To date, the New York Legislature has not passed any COVID-19 relief bills that specifically address self-storage facility laws.  On March 20, 2020, Governor Andrew Cuomo issued an executive order, which placed a complete moratorium on all commercial and residential tenant evictions, as well as commercial and residential property foreclosures until June 20, 2020.  He amended that order on May 7, 2020, with another order as follows (the “Foreclosure Moratorium”): “There shall be no initiation of a proceeding or enforcement of either an eviction of any residential or commercial tenant, for nonpayment of rent, or a foreclosure of any residential or commercial mortgage, for nonpayment of such mortgage, owned or rented by someone that is eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic for a period of sixty days beginning on June 20, 2020.”  The Governor on subsequent occasions extended the duration of the Foreclosure Moratorium, which is now set to expire on January 1, 2021.  While it is clear that the Foreclosure Moratorium covers tenants with respect to real property, it is uncertain whether it is intended to apply to occupants of self-storage facilities for nonpayment of rent.  In particular, the Chairman of the New York Self Storage Association, the representative body of self-storage facility owners and others in the State involved in the self-storage industry, advised the association’s members to “exercise caution” in proceeding with the application of late fees or conducting lien sales.

Although it is unclear whether self-storage sales are covered under Governor Cuomo’s executive orders, a recent New York County Supreme Court case indicates that they may not be, particularly in the case of non-real property foreclosures.  There, the plaintiff, a single-purpose entity whose only asset consisted of a membership interest in another company (which was pledged as collateral for a certain amount of money advanced to the defendant), filed suit to stop the defendant from conducting a sale of its membership interest in that other company under the Uniform Commercial Code of New York (the “UCC”).  The Plaintiffs relied in part on the Foreclosure Moratorium from Governor Cuomo’s order.  The judge ruled, however, that had Governor Cuomo wanted this non-judicial foreclosure to be covered in the applicable Executive Order, he would have specifically referenced the UCC.  The effect of this decision on self-storage facilities is two-fold in that: (1) in the event that a self-storage occupant brought suit against a facility owner to stop a potential lien sale, a judge could similarly find that had Governor Cuomo intended for self-storage facilities to be covered in the applicable Executive Order, he would have specifically referenced the N.Y. Lien Law; and (2)  New York self-storage facility owners may, in light of this decision, be more likely to proceed with lien sales particularly for those occupants facing financial hardship due to the COVID-19 pandemic.

Has this issue been addressed elsewhere?  

To date, several cities in California have specifically addressed the issue of self-storage sales.

Los Angeles, California: On May 27, 2020, Los Angeles became the first major city in the United States to specifically prohibit Self-Storage Sales during the COVID-19 pandemic.  Under the ordinance, sponsored by Councilman David Ryu, storage unit occupants have three months following the local emergency to repay any missed rent, and during that time, self-storage facility owners would be prohibited from putting units up for auction and/or otherwise disposing of property contained therein.  Furthermore, occupants are required to inform the self-storage facility owner within seven days of rent being due if they are unable to make payments due to COVID-19-related impacts, which can include loss of work or income, increased childcare costs, and caring for a family member with COVID-19.

City of Livermore, California: On March 25, 2020, City Manager Marc Roberts issued Executive Order No. 20-3, which established a temporary moratorium on residential and commercial evictions resulting from loss of income, increased medical expenses, or childcare needs related to COVID-19.  The order was amended a second time on May 5, 2020, to expand the definition of a “tenant” beyond renters in residences and business locations to include anyone who leased space in self-storage facilities.  The moratorium was, per the initial Executive Order, scheduled to end on May 30, 2020, but was extended by 60 days by the second amendment.  In the event that Governor Newsom decides to issue another extension for the state of emergency, the date of the moratorium will also change.  Once the local emergency is lifted, residents of the City will have up to 12 months to repay the missed rent.

Pasadena, California: On May 4, 2020, the Pasadena City Council agreed to amend the city’s eviction moratorium to expand the definition of “tenant” to include self-storage occupants, and add new provisions that would: (1) encourage landlords to establish payment plans or allow partial rent payments and (2) ban the charging of interest or late fees on unpaid rent.  Tenants, under the proposed legislation, would have to pay rent back within six months of the expiration of the emergency period.

Can local town and city governments in New York follow these California cities’ lead and implement a moratorium on self-storage sales?

Probably not.  Executive Law 29-A gives the Governor of New York the power to temporarily suspend state and local laws during a state disaster emergency, if compliance with such laws would prevent, hinder, or delay action necessary to cope with or assist in coping with the disaster.  On March 18, 2020, Governor Cuomo issued Executive Order 202.5, preventing localities from issuing their own emergency orders without state approval.  The consequences of such an order is that towns and cities in New York are unable independently to pass local laws on the issue.  In the absence of Executive Order 202.5, towns and cities in New York would still be unable to implement self-storage sale moratoriums because the N.Y. Lien Law is a state law.  In a state of emergency, local governments only have the authority to suspend local laws, ordinances or regulations.

What are some ways to implement a moratorium on self-storage sales?

There are a couple ways that a self-storage sale moratorium could be implemented.

1. A moratorium could be achieved through an amendment to the applicable executive orders, that would provide for the suspension of the enforcement of a self-storage facility owner’s lien pursuant to the N.Y. Lien Law (or at the very least, expand the definition of “tenant” to include self-storage occupants) and extend its duration beyond its current expiration date. Alternatively, Governor Cuomo could issue a new Executive Order that also explicitly references the lien law.
2. Another option for implementing a moratorium would be to lobby members in both houses of the legislature to pass a new bill directly on the issue. The legislature has already passed a number of COVID-19 relief bills.  The proposed bill would have to explicitly refer to the New York Lien Law in order for the moratorium to cover the entire state.