TRASH OR TREASURE? HOW A COMMERCIAL LANDLORD MAY PROPERLY DISPOSE OF TENANT'S ABANDONED PERSONAL PROPERTY

I. Background.

When a commercial tenant vacates a leased premises, it is obligated to remove its personal property, but does not always do so. This article examines a commercial landlord’s statutory obligations to store and dispose of such abandoned and lost property. If a commercial landlord fails to comply with its statutory requirements for storage and disposal, it may be liable to the former tenant, the former tenant’s secured creditors, and any third-party owner of the personal property for unlawful conversion and negligence.

II. Statutory Steps for Disposing of Personal Property.

Generally, dealing with a commercial tenant’s personal property is a three-step process: (1) reasonably storing the personal property; (2) providing written notice of the personal property to the tenant and any third-party who might own any of the personal property; and (3) properly disposing of the property after expiration of the requisite notice and storage period.

1. Storage of Property

The first step is to store the abandoned or lost property in a place of safekeeping on the premises or at some other suitable location. If the landlord stores the personal property on the premises, the cost of storage will be the fair rental value of the space reasonably needed to store the property for the duration of the storage. To avoid any potential claim of conversion for “unrecovered” property later or a claim that the property has unique value, it is advisable that the landlord take photographs of the property and have a disinterested third-party conduct a comprehensive inventory of the property.

2. Notice to Tenant and Any Third-Parties

The second step is to provide written notice to the former tenant and to any other person whom the landlord may reasonably believe to be the owner of the personal property. The notice must:

· set forth the name and address of the tenant and the date on which the tenant vacated the premises;

· describe the personal property sufficiently for identification;

· inform the recipient that if more than two days have elapsed since the tenant vacated the premises, reasonable costs of storage may be charged before the property will be returned;

· describe the location where the property must be claimed;

· set forth the date on which the property must be claimed, which must be at least 15 days after the notice is personally delivered or 18 days after the notice is mailed;

· inform the recipient that if the property is not claimed, it will be sold at a public auction or, if the property is reasonably believed to be worth less than $750 or $1 per square foot of the premises formerly occupied, it may be kept or destroyed by the landlord;

· inform the tenant that it may bid at the auction and claim any surplus sales proceeds from the auction within one year of the sale; and

· be delivered personally or sent by first-class mail, postage prepaid, to the last known address of the tenant and, if there is reason to believe that the notice sent to that address will not be received by the tenant, also to any other address known to the landlord where the tenant may reasonably be expected to receive the notice, with an additional copy mailed to the tenant at the premises vacated by the tenant.

Note that if the tenant has been evicted pursuant to an unlawful detainer action, the landlord should ensure that the writ of possession includes a sufficient personal property notice to eliminate the need for delivering a separate notice to the evicted tenant. However, the landlord must still deliver such personal property notices to any third-parties who might own any of the property.

3. Disposing of the Property

· Retrieval By Former Tenant or Third-Party Within Requisite Time Period: If the former tenant or a person reasonably believed by landlord to be the owner of the personal property claims the property within the requisite time period, the landlord must release the personal property upon payment of the reasonable storage costs for the property. If a former tenant claims personal property, the former tenant must pay the reasonable storage costs of all of the personal property being stored by landlord, even unclaimed property, but if a third-party claims personal property from landlord, it must pay only the costs of storing those items of personal property that are being claimed by such third-party. In no event shall the landlord charge more than one person for the same costs.

· Retrieval By Former Tenant After Requisite Time Period But Prior to Sale: If the former tenant claims the personal property after the date specified in the notice for reclaiming possession but before the property is sold, the landlord must release the property upon payment of the reasonable cost of storage, advertising, and sale costs incurred before the property is withdrawn from sale.

· Retrieval By Former Tenant Within Two Days of Vacating: Notwithstanding the foregoing, if the former tenant or a person reasonably believed by landlord to be the owner of the personal property claims the property within two days of vacating the premises and the property has remained on the premises, then the landlord must release the personal property to the former tenant without requiring the former tenant to pay storage costs.

· Public Auction: If some or all of the property is not claimed within the 15-day or 18-day notice period, the landlord must sell the remaining property at a public sale by competitive bidding (i.e., a public auction). Notice of the time and place of the sale must be published in a newspaper of general circulation at least five days before the scheduled sale, but not earlier than the last date specified in the notice for claiming the property, and should adequately describe the nature of the property being sold. After the sale takes place, the landlord may deduct the storage, advertising, and sales costs from the auction proceeds, and then must remit the remainder of the auction proceeds to the County Treasurer within 30 days of the auction date. The former tenant may claim any excess sales proceeds within one year after the proceeds are deposited with the County Treasurer.

· Retention or Disposal if the Personal Property is Less than $750 or $1 Per Square Foot of the Premises Formerly Occupied: Notwithstanding the landlord’s general obligation to conduct a public sale for abandoned property, if the landlord reasonably believes that the total resale value of the unreleased property is less than $750 or $1 per square foot of the premises formerly occupied, the landlord may retain the property for its own use or dispose of it in any manner it wishes, in lieu of conducting a public auction. Note, however, that a landlord is still obligated to provide notice of the personal property storage to the former tenant and any third-party who may own any of the property and wait the requisite 15- or 18-days before proceeding with this alternative remedy.

· Lost Property: If the landlord reasonably believes that any of the property is “lost” rather than “abandoned,” it can forego the storage and notice procedures and must deliver the lost property to the local police or sheriff. The police or sheriff are then obligated to follow the statutory procedures applicable to lost property, and the landlord becomes statutorily immune from liability for the disposal of such property. If the police or sheriff refuse to accept the property, however, the landlord must treat the property as abandoned, and then proceed with the notice, storage, and disposal procedures discussed above.

Last, it is important to note that the rules for residential property are different than the rules for commercial property outlined in this article.