Rent-to-Own

RTO Store Design for the Senses by Ray A.P. Anderson and Rex Anderson

APROfile: Gary Romine — There’s No Business Like Show-Me Business by Stephen Schenck

Get Back: RTO Dealers Welcomed Back from Retirement by Markus Beeby

Lien Beefs by Ed Winn III

 

 

 

 

RTO Design for the Senses
By Ray A.P. Anderson and Rex Anderson

Have you visited Epcot Center with its exhibits of historical monuments to all cultures? How about Las Vegas with its hotel themes ranging from Egyptian, Parisian, Venetian, New York City, MGM, Mandalay, pirate ships, the Romans, etc.? Or maybe you’ve had the opportunity to visit the Mall of America in Minnesota where visitors have access to all the fun and games found in an amusement park. These are just a few examples of the shifting emphasis away from traditional consumer experiences such as shopping or gambling to entertainment experiences.

If we narrow our focus to the retail/rental world, things are changing as well. When customers go to Home Depot Expo, they see many complete bathroom and kitchen settings. Or at Jordan’s Furniture or other retail furniture stores in America today, customers experience 3-D movie theaters, animated figures, celebrity visits and the like. What has all of this got to do with shopping? Nothing, but it does bring people into the store and makes them think they are in a good mood. They see and/or experience things they would have never expected, have a good time and their mind-set has been altered. What was a routine shopping experience has turned into something more enjoyable and consumers are more likely to spend money.

People who order groceries over the Internet or by phone order only what they need. However, if they actually go to the store and walk up and down the aisles, they end up buying more than what they really came for. The point here is: have a store that people want to just go to, not just a store with furniture lined up and a computer with salesmen standing around waiting to pounce.

Appearances are Everything

When consumers look at the rental or rent-to-own stores across America, they discover that the industry, generally, is far behind in visual effects. Nothing has changed in the past 20 years. Merchandise is jammed in and lined up in stores with no drama, no beauty and no message. Oh, there ma y be a pretty stripe on the walls around the store and lots of signs about credit plans, etc. Everyone agrees that silent salesmen (signs) are necessary. However, there are newer and better ways to get these messages across. The salespeople in the stores also lack knowledge in decorating to help customers. If they knew how to suggest a furniture layout, complete with styles, colors and accessories, they could help their customers have a nicer looking home while writing bigger orders.

How can a store improve its appearance? First, let’s look at the initial impression (visual image) customers have when they drive up to a rental store. There are often banners taped all over the windows so customers can’t even see the merchandise. If they can see the merchandise, it is lined up – often with the back of the furniture facing the front windows of the store, which should never be done. This kind of presentation is uninviting and looks cheap.

Stores should have groupings/settings that can be seen through the windows. Complete room settings with accessories – pictures, lamps, sculptures, flowers and a background – in the windows visually creates a home environment and establishes a theme that can be frequently changed so as to appear that your store has a variety of product styles and selections. With the changing of accessories each week, this room setting can appear to be modern, country, classic, transitional, eclectic or traditional and can make it seem that a store has a large selection of inventory. It is also important that the housekeeping is spotless and inviting, right down to the glass windows always being clean. A food critic, when asked how he went about rating a restaurant, once said that when he approached a restaurant with dirty windows, he assumed the kitchen was dirty as well and didn’t want to eat there.

Today’s rental store also needs to look uncluttered and organized when the customer comes through the front door. A store should be set up by departments, such as living rooms, entertainment centers, bedrooms, dining rooms, dinettes, children’s rooms and kitchens or set up as complete packages with a living room, dining room and bedroom, perhaps even with a packaged price (like Rooms To Go).

Many current rental stores have aisles of hard surface flooring – vinyl or wood – because this is practical and saves on carpet wear and tear. Many also make space for handicapped individuals in wheelchairs. However, hard surface flooring creates a "race track" for customers, which causes them to rush through the store and keeps them from getting involved with the merchandise. This also keeps a store design from being flexible. Also, when a store is too open (having no dividers or walls), customers walk in, stand in one spot, look around and say, "I don’t see anything I like!" and walk out.

Meeting Expectations

There are more than 8,000 rent-to-own stores in America. These stores are attempting to attract students, temporary business executives, military and transient customers. Thirty percent of RTO customers in the United States are 25-34 years old; 35 percent are in the $24,000 to $36,000 income bracket; 52 percent are high school graduates; 70 percent Caucasian; 25 percent African American. Furniture is the most popular rented item (38 percent), then appliances (23 percent) and televisions (12 percent).

These figures illustrate that our customers are intelligent and have been exposed to good taste through magazines, television and high-end fashion in clothing and retail furniture stores. So it stands to reason that rental stores should address the sophistication level of their customers, instead of keeping with the past mindset that rental customers are not concerned with such things as style, color or taste. The customers of today want to be treated with respect.

Salespeople must have at least the same knowledge – preferably more – as the customers they serve in order to help them make the right choices for their lifestyles. Store management must make sure the salespeople are properly trained to be helpful in products, design and public relations.

Make a Good Impression

Stores should have an area for clients to sit down, have a soft drink or coffee and a place for children to play or watch television to keep them happy so their parents can make decisions without interruption. Stores should have display areas for a home office or computer area (desk, homework areas). Stores should have display areas for home entertainment (entertainment center, TV, sofa, chair and tables). Stores should have display areas for children’s rooms. Stores should have the same areas for accessories such as lamps, pictures, sculptures and floral arrangements. This all helps to create a more personal shopping experience where customers can more accurately visualize how these products will look in their homes.

Don’t ignore lighting! Proper lighting is a critical element to help focus attention on merchandise. Fluorescent lighting is O.K. for general lighting, but is bad for color, unless you have color-adjusted tubes. Track lighting is best for drama. Spotlights are even better than floods for economical reasons. However, the two should be combined for added focus. All stores would like to have more space. But, if a store does not have enough space for a lot of merchandise, use light boxes – photographs of individual items or groups – to show clients what is available in inventory or in concepts. This technique will show your customers what else you have available and how these products can be arranged to fit in their living space.

Time for Change

People want to come to a store that has an exciting, special and unique look. More and more, shopping must be transformed into a more memorable experience. The theater, movies and the fun worlds of Disney, Six Flags, etc., have spoiled the people of today. We must do more to capture their attention.

Ask people if they like to shop for furniture. The majority will say "No!" Nevertheless, they can buy a car for $30,000+ in 24 hours or less. But it takes weeks and months to buy a sofa. They find shopping boring and confusing. It’s time to bring show business to the furniture business.

Brick and Mortar Are Here to Stay

The Internet is not going to replace rental furniture stores. Yes, the Internet is wonderful for many people and many products. It is and will be successful in many areas, but for furniture, it is still a question mark. Saying the Internet is going to replace rental furniture stores is like when people were saying shopping centers were losing their charm a few years ago. However, shopping centers have made a comeback because they have incorporated new concepts in design as well as added entertainment.

One of the largest shopping centers in North America is practically a Disney World with rides, shows, displays, etc. It is a place to go have fun. Most people would rather go there to shop and have fun than shop on the Internet.

The same thing is true of furniture stores like Jordan’s and others that have 3-D movies, places for children to play and watch television, places for people to relax and make their decisions, displays that are stylish and beautiful to see. People want to sit down on a sofa, to feel the comfort, feel the fabric, look at the colors and get involved with the furniture they plan to buy. They want their furniture delivered immediately and unbroken. If a store updates its displays to a new and exciting look, it can be here to stay.

Picture the Future

The industry has just touched its potential. The door is wide open to expand the client base. So many customers need your services and are not aware of all the advantages the industry offers. The growth is unlimited. Redesigning can be the key to a continued, successful future.

Rex Anderson is vice president of Anderson Unlimited. He has worked on designing stores from 1,500 square feet to 100,000 square feet. He gives seminars to students, designers, store owners and retail customers on numerous topics in interior design and has appeared on television numerous times as an expert in the field.

 

THERE’S NO BUSINESS LIKE SHOW ME BUSINESS

It was during one of his first deliveries 15 years ago, as an employee of a Missouri Rent-A-Center, that Gary Romine’s life changed. He was dropping off a living room set at the home of a lowincome sawmill worker and his family.

Treat others as you would want to be treated,”Romine says. “You always need to be aware of your actions and the way you affect the people around you.” From his customers and employees to his family and community, Romine has tried to apply this “goodwill” philosophy to every aspect of his life.

Today, as the owner of 15 Show-Me Rent-To-Own stores in Missouri, Romine is a self-starter who has worked hard to achieve the success he now enjoys, but he is quick to give credit to the people who helped guide him along the way. His father, an operating engineer of heavy equipment, is at the top of that list. “My dad was really committed to doing a job completely and, if anything, to doing more than what was asked,” Romine says. “He taught me to take pride in my job and to give my employees everything they deserve.”

Armed with the work ethic instilled by his father, Romine says he dreamed of owning his own business and after he joined his high school’s chapter of Distributive Education Clubs of America, he discovered how his dream could become reality. DECA, an organization teaching marketing and good business practices through partnerships with local businesses, was such a strong influence in Romine’s life, that after graduating from Central Missouri State University in 1978, he taught marketing to high school students in the same program in which he had once been involved.

While a junior and senior at CMSU, Romine received his first taste of the RTO industry when he took a job subcontracting 500 refrigerators to help support his wife and two young children. He rented the units to college students and was responsible for managing, maintaining and housing the units. It was an experience that proved to be valuable for Romine, not only as an entrepreneur, but also during his teaching days.

“So many teachers I had were taught how to teach, but I was able to teach by example,” Romine says. “Because I had experience in what I was teaching, I was able to have some influence in my students’ lives and that was pretty exciting. That’s what teaching is all about.”

Eventually, Romine gave up teaching to go into business on his own. However, the value he placed on education remains with him and plays an important role in his business practices and public relations philosophy.

“SHOW-ME” SUCCESS

After quitting his teaching job in 1980, Romine left his Missouri roots to help his brother-in-law start up his own business in Massachusetts, something Romine had always wanted to do. After returning to Missouri in 1984, he learned of an opening at a Rent-A-Center store.

“The rental business was new and I thought that this could be something I could get into and learn and eventually open up something for myself,” Romine says.

Romine quickly achieved success at RAC, he says, from his effort and commitment to do a good, thorough job. After only six months he was promoted to store manager and after another six months was promoted again, to manage a St. Louis store with 1,800 accounts—the third largest store in the company. Soon the store was honored as having the No. 1 return on investment. A few months later, Romine earned a zone manager position, responsible for the warehouse and service departments.

In less than two years, Romine had worked his way from a store employee to upper level management.

Shortly after his promotion to zone manager, however, RAC was bought in 1987 by Thorn-EMI. Romine left the company, opting instead to cash in his stocks and go it alone. Although big city business had treated him well, the small town life of his past was still in his heart.He decided to take a risk and open his own RTO store in Leddington, MO. At the time, Romine says, 98 percent of RTO stores were in markets of 50,000 people or larger, but he was hopeful that he would succeed.

“I thought we could take RTO to small town markets and Show-Me Rent-To-Own could be the Wal-Mart of the industry,” says Romine.

Fortunately, he says the bank gave him another “chunk-o-change” to open his second store after his first store began turning a profit within six months. Then, with his business only 15 months old, Romine opened his third store and began taking Show-Me Rent-To Own to small towns all over Missouri.

Twelve stores and 15 years later, Romine is living his childhood dream and has become an important figure in the growth of the RTO industry and APRO over the past several years.

APROMINENCE

Since his beginnings in the RTO industry with Rent-ACenter in 1984, Romine emphasized state association and APRO involvement as a necessary means for personal and industry-wide success. He has been an APRO member for 10 years and is currently second vice president and chairman of the APRO public relations and communications committees. In the past, Romine served on the APRO education committee and was the president of the Missouri Rental Dealers Association.

“[APRO] is the umbrella that services the industry,” says Romine. “You have to have some entity that will tie everybody together. Everyone still needs local grassroots and charitable projects to do their part for public relations, but it takes one entity to pull that together and there is no better facility than APRO.”

Although Romine admits APRO has been a significant factor in the RTO industry’s growing acceptance and success, he is also outspoken about the responsibility he believes individual companies must shoulder in order to take RTO to the next level.

PUBLIC RELATIONS FROM THE INSIDE OUT

Changing the industry from the inside is essential, Romine says, if RTO is to overcome the negative press that has plagued it over the last decade. He is convinced that the industry needs to take the initiative by educating its employees about the opportunities RTO extends to its customers.

In his eyes, the toughest challenge the industry faces is the effect negative press has had on the employee base. With a limited labor pool, recruiting and teaching employees to appreciate and understand the industry is crucial.

“This business is a personal business because customers and employees must develop close relationships,” says Romine.“You need to have store personnel who have good communication skills in order to have meaningful conversations with customers. Without that, we will get fired every week when the customer doesn’t like how we treat him.”

Often in the rental business, says Romine, customers think that they have ruined their credit with their local store after one of its representatives shows up to collect the merchandise and they no longer shop at the store. Romine views this common reaction as a failure, both of his and his employees to educate the customer on the transaction.

“We still have guys out there who consider themselves bill collectors,” he says. “Instead we need to educate our employees so that they can let the customer base understand that if they return a product or we come pick it up, they’re not a bad credit. They don’t understand that if they are in a tight money situation, we aren’t going to hold it against them. That’s the nature of the business.”

At all of his Show-Me Rent-To-Own stores, programs have been implemented that require employees to call customers back and let them know that their business is still appreciated. Romine believes that making customers and employees more comfortable with the transaction is necessary to strengthen public perception.

Romine says that reaching out to customers and employees will allow the RTO industry to continue to be successful well into the future and that if the same philosophy is applied to everyday life, more success will follow.

NATURAL HABITAT

Romine’s commitment to helping others is exemplified by his extensive involvement with Habitat for Humanity. Seven years ago, Romine and other members of the Church of Nazarene congregation from Poplar Bluff traveled to Ecuador and Venezuela with HFH to provide better housing for people who, he says, would otherwise be living in makeshift tents and huts.

The trip made such an impression on him that he has returned to South America every other year, most recently this past January, and the trips have improved his perspective on life, he says.

“Although, in some ways, what we were doing seemed insignificant [compared to the vastness of the problem in these countries], in the eyes of the people we were helping our volunteer work was a tremendous amount of support,” Romine says.

“Their sense of appreciation for what we consider to be the smaller things in life influenced us and the things we take for granted.”

Romine recognizes that community involvement is just as important back home in Missouri as it is in South America and sees the APRO partnership with HFH as a perfect way to give back. He volunteers his time working on HFH build sites around his home state, as well as donating appliances and building supplies to HFH homes.

“When we started talking about HFH becoming a part of our Association, it was just a natural fit because we are trying to provide a better way of life through our goods and services and HFH is providing homes for, more than likely, our same customer base,” says Romine. “It gives them an opportunity to have a lifestyle or home that they might not otherwise have.”

LOOKING AHEAD

Romine, 43, has no plan of slowing down now; however, he hopes in the future his success will allow him to pursue other dreams, including spending more time with his wife, Kathy, and his five children.

“My goal is to have my business running as efficiently as possible so I have the ability to participate in more support activities, maybe even more visits to South America,” says Romine “And I still have a heart for teaching, so I wouldn’t mind doing some pro-bono teaching.”

As for the RTO industry, Romine sees it expanding to offer products and services not even considered right now.He hopes that as the industry grows, it will continue to show kindness to its customers and find ways to get the more expensive products into their hands.

“I would like the industry to remember my compassion and concern for the people I came into contact with,” Romine says, “and that my life was spent helping others in any way I could.”

Stephen Schenck is a student intern attending the University of Texas at Austin.

 

Get Back
By Markus Beeby

With the wave of mergers in the rental-purchase industry now past its peak, many longtime rental-purchase owners and operators who were bought out or who sold out have waited out their "non-compete" agreements and re-entered the business as reborn entrepreneurs. Even with the opportunity to enjoy their big payday and endless hours at the golf course, many seem to have found the rent-to-own industry’s Catch-22: "You can check out any time you like, but you can never leave."

One dealer whose story exemplifies this is Larry Sutton. Last June, Sutton found himself driving home from a new business deal through the small towns in central Florida. After years of serving towns like these in the rental-purchase business, he had spent the afternoon discussing possible investments in the "smoothie" industry. Smoothies – the fruit and dairy nutritional drink concoctions popular among all age groups.

Just two years earlier, Sutton had been running his 28 Champion stores with great success. Caught up in the midst of the industry’s "merger mania," he found the right partner offering the right price in the newly merged Home Choice chain. Faced with the big payday and expansion opportunities that the merger arrangements offered, he couldn’t help but say yes. Then things got interesting.

The lead investor in Sutton’s deal was George Johnson of Blockbuster Video fame. Johnson’s team was instrumental in bringing the video rental industry from its shady underground to a favorite American family pastime business it is today. What he was offering Sutton was the deal he had been looking for – a merger, rather than a straight purchase, which would keep the existing company together and allow him to join the company in a new position. "I liked what they told me, as far as building a good company and opening new stores and running a clean operation on a regional basis," says Sutton. "I would be working as a regional manager and basically doing what I had been doing before, only doing a lot more of it and a lot faster. With the George Johnson reputation of expansion and the money involved, it looked like an opportunity to do something really fun."

And for the first six months, it was. Sutton was surrounded by employees he had hired for his Champion stores, while opening up Home Choice stores at a quick pace. All was well, until the report card came in. Somewhere between the break-neck expansion, the new accounting system and the incorporation into bureaucratic corporate practices, some of Sutton’s stores started losing money.

"All of a sudden, stores that had looked like they were making good money started showing losses," he says. "I had some attitudes to deal with because my operators were frustrated. The company had gotten bigger than it was capable of managing in the manner that we had been."

The company’s investors felt that the financial losses were too great to overcome. Their hopes of going public were all but dashed. The reaction was to turn the wheel toward a company that was already publicly traded and head full steam into another merger. A few months later, George Johnson’s Home Choice merged with the then NASDAQ-listed Alrenco. Sutton was left wondering where things would go from there.

"It all went downhill fast," says Sutton. "The whole thing just kind of turned into a nightmare. Alrenco had bought up all these companies to grow its company and we had bought up all these companies to be who we were. Now we had 400 stores with 50 different cultures. We just never got a handle on a culture that made sense to everybody."

With 750 stores that weren’t making money or showing a profit, Alrenco cut a deal with RentWay in January 1999.

"Then I left. I had had enough. I was merged out," says Sutton.

Later that summer, the 48-year-old Sutton was heading back to Tampa with smoothies on the brain. Opening two stores with a start-up franchise, like the few check advance stores that he had opened, was the latest in a gaggle of post-rent-to-own investments he had successfully undertaken. For the following six mo nths, he spent his time dabbling with these investments and playing too much golf. He did not enjoy it.

"I missed the friendship, the customers, the camaraderie, the sharing, the excitement of it all," he says.

His quest for familiarity ended when, driving through prospective central Florida towns, he picked up the phone and called his brother Steve, a 20-year RTO veteran and six years’ Larry’s junior. Steve told him that he had been waiting for the call. The first Sutton Adventures #2 Inc. project, the first RentQuest store, opened October 1, 1999.

Merger Mania

Sutton’s story is not unique. Like many smaller chain operators, he seized the opportunity to merge his stores during the big-chain feeding frenzy that dominated the past few years. With 1,623 stores being snatched up by five RTO store chains within the span of five years, every small dealer was aware that the sale of his store(s) could prove to be an instant retirement package.

The bottom line for most of these owners was exactly that – the bottom line. A chance to merge has been compared to winning the lottery. At the very least, it made for a great "out" strategy.

Bob Moomey, another reborn rent-to-own dealer, sold his 14 Michigan-based Liberty Rentto- Own stores to Rent-A-Center, currently 2,076 stores strong, in 1997 and 1998 for what he chuckles are "obvious reasons."

"Just the 12-multiple," he says. "The money was there at the time and I figured, with all the merging going on, let’s get out while the getting is good. Like they say in northern Michigan, ‘You make hay when the sun shines.’"

Having served on the APRO board of directors for a few years, Moomey had heard merger horror stories – stories of owners being dragged through deals so long that they’d take anything, companies lying about cutting employees – so he went into negotiation with a simple plan: no negotiation.

"I just worked out a multiple and told them what it was and said, ‘Accept the business as it is or don’t talk to me.’ And it went excellently, no nightmares, no surprises," he says.

Moomey found himself pleasantly surprised by how high the bidding got and prepared himself for a pleasant snooze in his proverbial hay. He spent an enjoyable retired year in the outdoors, spending time with his two high school-aged children and moving to Wyoming. But a key ingredient in the 49-year-old’s life was missing: stress.

"I was too young to retire, too much energy left," he says. "An ‘A’ personality really misses being out on the firing line, the day-to-day kind of stuff that keeps you sharp. I was only out for a year, but I could feel it. You just have to have something keeping your mind stressed. A lot of people don’t like stress. But ‘A’ personalities, we thrive off of it. And I’m probably an ‘A+’," says Moomey.

Last May, Moomey opened Liberty Rental Plus, a one-store operation in northern Wyoming. And he already has the cities picked out for a possible two- to three-store expansion. "There was only one other rental store out here," says Moomey. "It’s a really good climate to bring a business, especially since there is no state tax."

For 14-store owner Danny Wilbanks, it was pure investment strategy that led to the sale of his ColorTyme stores in Texas to Renter’s Choice. Estimating that it was a peak time to sell, his group of investors gave Wilbanks the go-ahead in February 1997.

"Turned out they were right," he says. "The sale went perfectly."

Wilbanks didn’t have too much time to enjoy his post-RTO career at that point, however. The deal closed on a Thursday and Renter’s Choic e CEO Ernie Talley called him that Saturday with an offer to fill the vacant chief financial officer spot. Apparently Wilbanks had made an impression on Talley when he interviewed with the company when they first went public in 1995.

"It worked well for all parties involved," says Wilbanks. "The investors made a nice return on their money, the acquirer bought some stores that have grown since, the employees were offered immediate advancement opportunities and pay increase opportunities that a small business owner can’t offer. And I got a chance to learn about the Renter’s Choice business model and how to run a great business."

Fish out of Water

Wilbanks soon found out what many of these previous store owners were beginning to find in their new big company jobs: It’s tough not being the boss.

"There’s a lot of difference between being an employee in a public company and being an entrepreneur," says Wilbanks. "In a big company, your efforts are part of a very large team. While your input may be critical and important, it is not as obvious. In a small business, your actions have much more impact. Once you’ve experienced running your own business and doing your own thing, it’s hard to become an employee again."

Wilbanks has since left Renters Choice and opened five Rent America stores near Austin, Texas, and is planning to expand the chain throughout the state.

Adapting to a big company-style mentality presented another major roadblock for many of the newly acquired small-chain owners.

"There are many layers of management at large companies that slow down the business process," says Charles Cloud, who sold his 28 Arkansas-based Fastway stores to Alrenco in January 1997. "I feel that there is a lot of good opportunity for small, well-run regional rental companies that can take care of the customer better."

Cloud has since returned to the RTO fray with First Choice Rental, which he started in February 1999, also in Arkansas. He just signed the lease on his fifth store and has plans to have 15 stores by 2002 in four to five states.

"You’re used to people coming to you and making decisions," says Sutton. "All of the sudden, you have to run ideas by upper management and get their commitment and then go to senseless meetings that last three days and don’t accomplis h anything. It’s almost like a waste of time."

Danny Wilbanks chalks up his experience at conglomerate Renter’s Choice as a learning experience. "If you’re the kind of person who likes working for a large company, then it’s really the place to be," he says. "It was really an opportunity to learn."

RTO Yearnings

The major common element that these recently retired operators missed from their jobs was their customers. Rental-purchase being the relationship business that it is, many found other ventures as unfulfilling as Larry Sutton did his smoothie undertakings.

"I seriously thought about expanding the smoothie business, but it’s totally different being an investor. You buy it and sell it, buy it and sell it – I really prefer the rent-to-own business where you have real relationships with your customer base."

"RTO is more fun than retail," says Moomey. "I think you’re more appreciated by the customer. Whereas on the retail side, customers will go next door to save a dollar. The rentto- own customer, if they like you, will be loyal. The loyalty and the honesty of the clientele is the real difference." "You know them," says Sutton.

"You know what trials and tribulations their families are going through. You really develop an appreciation for what they’re doing."

"They’re good, honest, hard-working folks, for the most part," says Cloud. "If you stand in a rental store on a Friday or Saturday, you realize that they are the working people of America. They’ve got smiles on their faces and stories to tell."

Back in Business

For much of the class of this "merged" group of rental dealers, it is now time to head back to the business a little richer, a little wiser and still too inspired to quit. Says Bob Moomey, "Once you’ve had a good experience, you’ll always be in rent-to-own. Even when you get out of it, you’re not really out of it. Given some mature stores, I’d do it again."

Larry Sutton, however, doesn’t see any more mergers in his future. "The grass always looks greener on the other side. If I had known what I now know, I probably wouldn’t have done it in the first place. But at the time it looked like the opportunity of the century. I got all caught up in public companies and multiples of income stuff. I thought, incorrectly, for a while that it was all about how much money you could make. I should have known better."

But knowing better is what Sutton has on his side for this go around.

"I had an important learning experience. I learned what I don’t want to do, which is probably just as important as learning what you do want to do. After 20 years, Steve’s and my practices started getting a little stale. We stopped learning and expanding our horizons. With this second chance, we’ve taken a look at what some other people are doing and how to incorporate those ideas into what we’re doing. And I’ll be dad-gum if you don’t have a couple of old dogs learning new stuff. There’s nothing better than learning."

Markus Beeby is a freelance writer living in Austin, TX.

 

Lien Beefs
By Ed Winn III

Rental dealers run into a variety of personal-property liens and the laws that create them and allow their enforcement in everyday business. Liens involve the right to take and hold the property of a debtor as security or payment for a debt. Most rental dealers have a general understanding of how liens attach to property and how lien laws work, but some recent state law developments make a review of this topic timely to ensure that rental dealers protect their interests.

At its simplest, a lien is "a charge or security or encumbrance upon property." A lien only exists to secure a debt and without a debt there can be no lien. For example, the bank has a lien on a rental dealer’s televisions and other rental merchandise. That lien ordinarily remains attached when the units are delivered into customers’ homes. Such liens are statutory, created by state legislatures via the Uniform Commercial Code, which has been enacted in all 50 states.

If the dealer is leasing store space, the landlord probably has a contractual lien on the dealer’s fixtures, store furnishings, signs, inventory and all other items of personal property located on the premises. The units a dealer delivers to a repair shop may have a mechanic’s or material man’s lien attached to them while they are in the shop. These liens are usually possessory liens. They exist only as long as the property is in the possession of the lien holder, in this case, the repair shop. If the dealer should suddenly go under, there might be a fight among the different lien holders as to whose lien is superior. (The general rule is "first in time, first in right.") The superior lien holder will be able to foreclose on the lien, seize the property covered by the lien, cut off the junior, subordinate lien holders, sell the property at auction or otherwise in accordance with applicable law, and use the proceeds to pay down the debt.

Interestingly, rental dealers do not have a lien on their own rental merchandise, whether that merchandise is in a customer’s home or in the back room. They do not have a lien because they own the property. They do not have a lien because there is no debt.Many people do not understand this notion, fundamental to the rental-purchase concept, but most rental dealers do.

This distinction between owning something and merely having a lien on something affects how rental dealers can proceed against customers in court to recover merchandise when the need arises, and also affects how dealers proceed when a customer files bankruptcy.

Most of the time, liens placed by a rental dealer’s creditors exist on the rental company’s assets, but the liens do not affect operations as long as the dealer remains current on his obligations. There are, however, a couple of statutory liens which arise by operation of law and which can affect day-to-day operations in a rental store.

The first is a residential landlord’s lien, which exists in most states and is intended to secure the tenant’s obligation to pay rent to the landlord. This lien can come into play when the tenant is also a customer of the rental company and leaves town abandoning the rental property in the apartment and owing money to the landlord and the rental dealer both. The landlord may claim to have a lien on the contents of the apartment. The rental property left behind may be the only property of value in the apartment.

In most states, a landlord’s lien attaches automatically to all property in the residence, unless the property is exempt. In Texas, for example, there are 15 categories of property to which a landlord’s lien will not attach, including "wearing apparel, schoolbooks, children’s toys" and, most important for rental dealers, "goods that the landlord or the landlord’s agent knows are owned by a person other than the tenant or an occupant of the residence." That language will exempt all rental merchandise in the dwelling from lien coverage, assuming that it has been marked as rental property.

As a practical matter, landlords do not always carefully inspect merchandise before seizing it. It is not unusual for a landlord to cart off an apartment full of furniture to a storage facility in order to be able to re-lease the space. Ultimately, the landlord is empowered to sell the merchandise seized and use the sales proceeds towards the back rent.

Rental dealers may learn of the landlord’s seizure after the dealer’s property has been bound up with the rest of the customer’s property and stored. Landlords have been known to demand that the rental dealer pay for the cost of ret rieving the rental property from storage. In a lawsuit against the landlord, the rental dealer will win, assuming that the property wrongfully seized by the landlord was marked as rental property. However, rental dealers cannot make a living suing landlords. It is far more practical to notify the landlord when the property is initially delivered that the tenant/rental customer in apartment 3-B has the following rental property being delivered and it belongs to Joe’s Easy Rentals. The dealer can deliver a short written notice to the landlord and ask that it be put in the tenant’s file. Then, the if the tenant bolts, the dealer stands a better chance that the landlord will call and invite the dealer to come recover the rental property before hauling off the rest of the tenant’s belongings.

A more problematic, albeit rarer, issue can arise when rental customers store rental merchandise in self-service storage units, which have proliferated in recent years. Selfservice storage unit owners do not have the degree of control over their rental units that landlords do.

Self-service storage unit owners nonetheless have asked for, and in many states have gotten, special self-service storage unit lien laws enacted. Several of these statutes are supposed to give the storage unit owner a lien on the entire contents of a storage unit regardless of who actually owns the contents. These statutes also often purport to give the owner of the storage facility a first lien, superior to all other liens that may be on the property in the unit. Rental dealers in West Virginia narrowly missed having a storage unit lien law enacted there that would have protected other lien holders, but which did not distinguish between property owned by the lessee/debtor and property owned by others.

Laws such as the Texas and North Carolina storage facility lien statutes, among others, raise obvious constitutional issues. The government, by enacting such statutes, purports to allow the taking of a rental dealer’s property without due process of law. These statutes arguably violate the 5th and 14th Amendments of the U.S. Constitution, which prohibit wrongful takings of property by the government. Unfortunately, however, it may remain for some rental dealer somewhere to be called upon to test one of these statutes. It will be neither cheap nor easy to prove the statute unconstitutional. It may mean a trip to the state’s Supreme Court. A lot of units may get written off to recalcitrant storage unit owners before some rental dealer finally says, "enough," and commits the time and resources to fight back.

One solution is to be vigilant in the state legislative arena. The rental industry’s West Virginia lobbyist spotted the storage facility bill as it was going through the process and had the presence of mind to ask rental dealers if the bill would affect them. Storage unit owners do not want to bother with having to determine ownership when they seize the contents of a unit for back rent. At the same time, the constitutional argument is compelling and should prevail if there is a bill pending. A number of states already have storage facility lien laws on the books, but not all do. Some diligence in those states today may prevent the needless loss to rental units tomorrow.

APRO members may obtain copies of landlord lien statutes and self-service storage unit lien statutes through the law offices of Ed Winn III, APRO’s general counsel.