Here's the scenario: your tenant has surrendered the space and left a potpourri of stuff—some items of apparent value, others seemingly complete junk. What next? For those of you with little experience dealing with abandoned property, this article provides the basics for disposing of personal property pursuant to California's recently amended abandoned property statutes.
Abandoned Property Basics
Step 1 – Identify and value the property left behind. You do not need a detailed inventory of the abandoned property or an appraisal. However, you must be able to describe the property such that its owner is able to identify it, and you should have some basis for your valuation. Internet sites can be helpful in estimating the value of items.
Step 2 – Send possible owners notice of their right to reclaim abandoned property. Before you can dispose of abandoned property, you are required to send notice to potential owners. California Civil Code sections 1984 and 1985 provide the language that should be used in residential tenancies and, as of January 1, 2009, Civil Code sections 1993.04 and 1993.05 provide the language for commercial tenancies. You can ask your attorney to provide you with a form notice or you can find one online. Generally, the notice identifies the property, informs tenants and other possible owners and secured creditors that they have 18 days (if notice is sent by mail) to claim the property and describes how the property will be disposed of after the notice period. You can either keep the property onsite or move it to a storage facility, but you are responsible for keeping it reasonably safe until you dispose of it by auction or otherwise.
Step 3 – Release any claimed property. A tenant or other person can claim the property at any point prior to expiration of the notice period. Before releasing any property, you are entitled to recover the actual cost of storage. If kept onsite, this equals the value of the portion of the premises reasonably required to store the property. You can require the tenant to pay for storage of all the abandoned property, but other owners may claim their individual items and pay only related storage costs. At any point after the notice period has expired but before the property is sold at auction, the tenant may still claim the property but is required to pay not only storage expenses but also any costs related to the auction.
Step 4 – Dispose of property if it is worth less than the threshold amount. Provided the estimated value of all the property is less than the threshold amount, if neither the tenant nor other possible owners claim the abandoned property during the notice period you may either keep it or dispose of it. For residential tenancies, the threshold amount is $300. Important note for commercial tenancies:As of January 1, 2009, the Legislature changed the "threshold amount" for property abandoned in commercial space from $300 to the lesser of $750 or $1 per square foot. You will probably want to use the "rentable" figure if the space has been measured pursuant to BOMA™ standards.
Step 5 – Auction property if it is worth more than the threshold amount. If nobody claims the property during the notice period and it is worth more than the threshold amount, you must contact a local auctioneer and arrange for the property to be sold at public auction. The auctioneer will advertise notice of the sale for several weeks. The proceeds of any eventual sale are first applied to the costs of the auction and then your storage fees. The statute directs the Landlord to pay any remaining balance over to the County Treasurer.
The statutory scheme described above imposes a fairly significant burden on landlords. You must store the property for at least a couple of weeks during the notice period, and if the property is marginally valuable you will be required to store it even longer pending an auction. Further, if the property is not worth materially more than the threshold amount, there is a good chance that any money paid for the auctioned items will not completely cover your storage costs and the auction expenses. However, there are several things that you can do as a landlord to make the process go more smoothly and to lessen your burden.
Some Tips for Proceeding
Consider discounting storage fees. Although you may be entitled to claim storage fees from a tenant or other owner, consider taking less. Often you can avoid dealing with abandoned property by informing the tenant you will discount the storage fees or waive them entirely if the tenant retrieves all the property within a certain period of time. This is particularly useful if the property is not worth much more than the threshold amount.
That used beanbag chair is not worth as much as you think. Try not to overvalue property left behind by your tenant. The value of personal property decreases fairly dramatically after it has been used, and chances are the abandoned property is not worth a significant amount or your tenant would have taken it when they vacated the space. If you overvalue the property, you increase the chances that you will need to auction the property and that you will take a financial loss.
Find a good auctioneer. If you do an online search, you will likely locate several in your area. Take some time to talk to them. Some auction houses have higher minimum payments, and some charge higher commissions. Find an auctioneer that will give you the best result for your circumstances, taking into account the estimated auction value of the property and your budgetary concerns.
What to do if you simply have to have that fabulous lava lamp? As much as you may like some of the property left behind by your tenant or think it goes well with the space, the property is not yours to keep – but it could be down the road. If the property is worth less than the threshold amount and nobody claims it within the notice period, it's yours. If it is worth more than the threshold amount, while you have to put it up for auction the abandoned property statutes expressly allow both the landlord and the tenant to bid on the property. If you wish to keep property being auctioned, talk to the auctioneer about submitting a credit bid on the property based on the amount of storage costs you have incurred related to the property. In many cases, the storage costs will come close to or exceed the auction value of the property and you may be able to purchase it at little or no out-of-pocket expense.
This Real Estate Update was written by David Chasin of the firm's San Diego office. He can be reached at (619) 696-6700 or email@example.com. If you have any questions regarding any real estate legal matter, in San Diego please contact Brian Frasch (litigation) at firstname.lastname@example.org or Eric Young (transactions) at email@example.com or call us at (619) 696-6700.