12/22/2021

Rental Rate Pressures During COVID-19

By Scott I. Zucker, Esq. 
Partner, Weissmann Zucker Euster Morochnik, P.C.

Unfortunately, as we sit here today, the COVID-19 pandemic is far from over. As a result, issues that many self-storage operators had thought were resolved, including concerns over restrictions on their rental rate increases, remain. As self-storage operators have now well learned, the rights that apply to what prices can be charged during a pending “state of emergency” are driven by the specific state law within which the operator’s facility is located. If an owner has facilities in multiple states, different laws may apply based upon the states where the facilities are located.

The laws to be considered generally fall into two categories, either specific “price gouging” laws that apply once a declared state of emergency has been issued or general consumer protection laws that would address the claim of unconscionable (or unreasonable) pricing. Most of the focus during the pandemic, when both the federal government and state governments declared emergencies, was on the applicable price gouging laws.

While similar in their intent, each state law is different. Some provide hard cap pricing limitations. Others restrict “excessive pricing;” while others present “any increase in pricing” that would apply to an emergency. Most notably, however, is the right to measure the price increase against the pricing that was in place before the emergency was declared. Some laws restrict the protections only during the period of the state of emergency, but others extend the protection up to 90 days or more after the declaration is ended.

As we look back over the last year, most operators agreed to basically maintain their pricing during the pandemic and, if needed, elected to increase their pricing to stay within the limits imposed by their state laws. But now, as the emergency orders are lifted, and demand outpaces supply, operators must face the dilemma of imposing further price increases and prepare themselves for the likely claims that those increases are, if not illegal, then “unfair.”

So, what should an operator do who is considering a long overdue rental rate increase for its facility? Can they raise their rents even as the “Delta Variant” brings about a return to mask mandates and higher hospitalizations?

The answer again depends on the actions of the specific state where the facility is located. Before a facility operator considers a rental rate increase, they need to verify that the state has not re-issued any declarations that would trigger the price gouging laws and, if so, whether the law imposes a hard cap increase or restricts its limits to “unreasonably high prices.” Further, the operator needs to survey the local competition and marketplace. Would its price increase be demonstrably higher than the prices in its area to support a claim against it of “grossly excessive” pricing?

Again, it’s important to clarify that these price restrictions do not apply to discounted units that contractually readjust to “standard” pricing after the discount expires, nor would the restrictions apply to seasonal rates that regularly and consistently adjust in particular markets like college towns or vacation areas. The pricing laws are written to prevent businesses (whether that be gas stations, grocery stores, hardware stores, contractors, medical companies, etc.) from taking advantage of emergency situations by increasing their revenues based on limitations of essential goods and services. If the rates being charged are reasonably related to the rates charged before the pandemic and match the “market” in the area being served, it will be difficult to successfully claim that any self-storage operator is violating any consumer laws, even as the pandemic continues. Since self-storage tenancy is based on “month-to-month” contracts, if an operator’s price is too high, a prospective customer may choose to go somewhere else. Similarly, an existing tenant who receives a price increase may choose to terminate and re-locate. In this industry, and based on where we are in this pandemic, hopefully, the current risk with rate increases may be more on how it will impact occupancy and less on whether it will be a violation of state law. Stay safe and happy storing!

This article originally published -September 29, 2021 is provided courtesy of AZSA with the permission of Mini-Storage Messenger magazine. © MiniCo Insurance Agency LLC. All Rights Reserved. It is not intended for further reproduction/distribution without the exclusive permission of MiniCo Insurance Agency LLC.

http://www.ministoragemessenger.com