Shedding light on self-storage: trials and tribulations

According to the Self Storage Association (SSA)’s 2024 industry report, the self-storage industry in the UK has tripled since 2005 and now has a turnover of £1.08 billion. With this boom, we have also been taken a look at the contractual struggles of the self-storage industry and have compiled a short list of common contractual issues facing self-storage projects.

Ground Conditions

As self-storage is usually built on brownfield sites rather than greenfield, and it’s not always prime real estate, ground conditions can be less than ideal. Considerations need to be made for possibly flattening any slopes, and towards the groundwater conditions of the area – customers wouldn’t be too happy with damp infiltrating their units and affecting their belongings!

We recommend a full design and build contract with the risk for ground conditions being placed on the contractor. Of course, the contractor will price for this in their tender, so this will need to be raised at an early stage with a robust draft contract supplied in the tender packs and sufficient time allowed for the contractor(s) to carry out their own surveys to get comfortable with the risk.

We have also had a project in which Japanese Knotweed was a relevant issue. In the event there is knotweed on or near your site, it would be prudent to obtain a guarantee from any knotweed specialist treating the site, and having such guarantees reviewed by a solicitor to ensure that you are covered properly. This can be a tricky situation as contractors are reluctant to take on the risk for Japanese Knotweed as they are often not well-versed or specialised in this area. Our previous article on the risks of Japanese Knotweed is available here.

Planning Conditions

This is more of a commercial aspect than a construction law issue, but the SSA’s report states that 70% of customers were made aware of local self-storage units through their being visible from the road. This is a practical consideration to be made when considering the land to purchase.

The legal considerations start to come into play when you consider the potential need for a section 278 highways agreement to make the units accessible from a local authority owned roadway. Within your building contract you would need to ensure that there are clauses around compliance with such agreements or planning conditions, as well as an indemnity to protect yourself in the event the contractor breaches such conditions or agreements.

Neighbours

Even if your site is predominantly surrounded by commercial units, nuisance and trespass can be of concern to your neighbours, especially if it may affect their trading or business. It’s important to have clauses addressing nuisance within your contract and to ensure that the contractor is indemnifying you for any claims from or damages to a neighbouring site. Even if the neighbouring land is generally unoccupied, it may change in the future or be used for a secondary purposes such as a car park – blocking access or causing damage in these circumstances can have significant implications for costs, so careful consideration should be made towards site boundaries and which party will be taking responsibility for establishing the extent of those boundaries. As this can also take time and may require the contractor to come on site early to be able to price the risk, contractors should be made aware if they are to shoulder this burden as soon as possible to avoid delay.

Areas

It’s likely you will be expecting to have specific internal areas or lettable areas for your units. If that is the case, you will want to ensure that the contractors are held to those areas within the contract, and that liquidated damages are established for any areas that do not meet those expectations.

Interestingly, the SSA’s report shows that both domestic and business customers generally opt for units between 10 and 50 sq ft (43% and 33% respectively), so there appears to be a preference for these smaller sized options, with 51 – 100 sq ft units coming in second for both areas. Getting the right size does seem to be important for customers so it should be important for developers.

Funding

A big contractual and legal consideration is always funding. Most commercial endeavours we come across are externally funded and the facility/funding agreements and funder expectations can cause the longest delays to getting into contract or to receiving drawdown. Funders have fairly rigid expectations that can take contractors and consultants by surprise, so it is important to flag to your professional teams that an external funder is coming or likely to come onboard and will require security (for example in the form of collateral warranties or third party rights). Funders may also have tight timelines for turning documents around, so it is also important to have your solicitors lined up with as much information as possible so that they can turn these around quickly for you.

Negotiations with funders can also be time consuming and an open line of communication directly with the funder, its solicitors and its monitor is always beneficial as it can help to manage the commercial reality of the project. Solicitors are always grateful when clients can manage the funder’s commercial expectations as, while something may be legally possible, in reality it can be very different (see the section below on bonds, for example). It may have been some time since the funder has dealt with a particular industry, or it may be dipping its toes into self-storage funding for the first time, so expectations may not always be aligned. Management of these expectations, both through yourselves and your solicitors, can be very important to ensure a smooth flow through the funding process, and enable you to get drawdown on time.

Limitations/Insurance/Bonds

The insurance and bond markets are hardening, particularly with the insolvencies of large contractors in recent years. The fallout from Carillion, for example, is still being felt across the supply chain many years after its demise, and this background can make it difficult for certain contractors or consultants to obtain specific levels of insurance or bonds.

We are more frequently seeing limitations of liability on consultant appointments, so it is important to be aware that the commercial risk for clients is increasing, and to prepare your stakeholders for the reality that most consultants these days will require limitations of liability. Insurers are also more frequently getting involved in the review process of appointment documentation, and it can be difficult to get insurers to move on certain positions (for example, insurers are often wary of all indemnity clauses, not just those they should be wary of!). This can cause delay or difficulties with stakeholders, so it can be beneficial to prep your stakeholders in advance and outline the history of the current insurance market. ‘Each and every’ insurance is also becoming rarer, so it may be that you will need to flag to your stakeholders that aggregate insurances, or insurance with unlimited reinstatements are now more common, in order to manage their expectations.

Bonds are also becoming increasingly difficult for contractors to obtain, with a lot of providers being overseas entities. It’s important to have a solicitor to review a bond to ensure you are protected in the event your contractor becomes unable to carry out the works; particularly if an overseas entity is providing the security, as there can be implications on enforcement and the validity of such bonds. Sureties are also requesting more amendments to standard forms of bonds, as are employer entities for protection, so it may be worth flagging to stakeholders that forms of bond they have previously been able to obtain may not be obtainable anymore.

Conclusion

The future of self-storage seems buoyant with growth being incredibly fast since 2005. The SSA has also flagged that there may be revolutionary self-storage options in the future, such as ‘drive-up’ self-storage. Such options would likely have further impact on the contracts entered into as part of any such project, as space, nuisance, planning and ground conditions will become riskier with larger sites, and with additional requirements for such drive-up facilities.

We’ve seen a growth in self-storage schemes, and an increasing maturity among those involved in the sector – which is a double-edged sword for developers, as although it increases knowledge of the sector it can make deals more complicated. If you are involved in self-storage (whether as developer, funder or contractor), or are looking to get involved, do get in touch to have a chat about how you can best protect your legal interests.