Effective July 1st, 2024, storage operators in California will have a new regulation to follow.
California statute SB 478 changes the rules as to what price must be advertised to consumers. Administrative fees, mandatory lock fees, and other similar charges must be included in the advertised price for every storage unit.
In this article, we’ll discuss this rule change, others coming down the pipe, and the federal efforts towards clear pricing. We’ll also give a few ideas for how you should navigate the changes to keep your business healthy.
As always when discussing legal matters, StoragePug is not a legal firm - we do not provide legal advice, and you should definitely discuss these issues with your lawyer. At the very least, consult your legal counsel before making any decisions.
Find the SB 478 FAQs here – warning, PDF link!
We touched base with some informed friends, and the biggest change is that California operators will need to disclose any mandatory fees earlier than they already do.
If you require customers to pay for something, it must be disclosed to the customer in your marketing! That means lock fees, admin fees, and any other costs you may be used to adding in after the fact.
Some are interpreting this to mean you must include the admin fee in any advertised price - but right now no one knows for sure!
We've also heard that you can simply add a banner or prominent notice on your website that a one-time mandatory admin fee will be charged.
Again, we're not lawyers, and even the lawyers we've spoken to are not sure.
Correction: An earlier version of this article said you must include admin fees in any advertised prices. This is not necessarily true. Currently, we do not know whether you can advertise the two prices separately or if they must be lumped together.
Self storage operators make most of their money with long-term rentals. Even if the customer only stays 3 or 4 months, the total revenue from the rental is going to far outpace whatever you might get from an admin or lock fee.
For that reason, you should consider removing any mandatory extra costs and, if necessary, increase your base rate to compensate for them.
Taxes and shipping do not need to be added to the final listed price, either.
This law is not intended to combat the predatory rate increases that some markets have been dealing with. It does not mention price increases or month-to-month leases. Check out our blog on potential rent control laws for more information on that topic.
Discounts are directly addressed, though. You are allowed to advertise prices that are lower than the normal price - but this must still be the price that the consumer will pay.
You can also advertise discounts without mentioning an exact price - for example, “50% off the first three months!” is completely fine.
The law has not gone into effect as of writing, but starting July 1st, any operators in California will need to revise their marketing to ensure the listed price is what the customer will be paying.
This presents a strategic problem for self storage marketing. Most renters don’t know a lot about self storage - they want additional space and they don’t want to spend a lot. That means the advertised price point is a huge factor in their decision.
For independent operators, you may not be able to stay competitive if your advertised rate goes up significantly. It’s already hard to compete if you can’t offer the same unbearably low rates that the REITs are throwing out there, and any increase will only make it harder.
Operators can itemize the price on their marketing and specify that the going monthly rate is, say, $65 and that the mandatory lock purchase is a one-time $20 addition - but you would still have to advertise the total as $85.
Itemizing would likely help, but I would bet it doesn’t help a lot. Most customers don’t do a ton of research on their facility. They pick a nearby option at a good price and go with it. The value you gain from admin fees, lock fees, and mandatory insurance is small compared to the loss of even 5% of your renters.
Your facility needs to be offering a competitive rate, or your other marketing efforts will struggle.
Check out this article to learn more about how to market your self storage business.
For most of our readers, no action is required at this time - the law only affects California.
However, California could be a precursor of national trends. Other states are considering similar measures, and the federal government has proposed a nationwide ban on hidden fees.
Hidden fees are generally unpopular with customers (as one might expect). Operators could benefit from offering transparent pricing even if their state doesn’t pass legislation mandating it.
It’s easy to assume that if a customer pays the admin fee, you’ve made extra money with no downside. But, if you irritate your customers, even if they don’t move out, that can still bite you - you could end up with fewer referrals and a worse reputation.
Word-of-mouth is the best marketing you can get, and that requires happy customers. Customers who feel you tricked them out of $20 aren’t going to go out of their way to leave you a good Google review.
Whatever you decide to mandate for your renters, be as clear with them as you can be - especially if you’re legally required to do so.
It’s a hard balance to strike! You need to offer lower prices to compete, but you’ve also got to make money to stay in business. Try to find ways to show your value that aren’t tied to the initial price.
And hopefully, your happy customers will do some marketing for you - consider setting up a referral program if you don’t already have one! This is a great way to avoid the price wars and make use of your position as a small, local business.
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