I have seen a number of parks sell over the years where the buyer did not know the ins and outs of what he was getting into. Although he thought he had, in reality he had not done his due diligence. A mobile home park is a unique kind of rental property since the tenant, not the landlord owns the dwelling unit. The law recognizes this unusual arrangement by providing a number of special protections for tenants and restrictions on landlords. All too often buyers don't know about these things until after they have closed the deal.
This page will point out a FEW things for a prospective buyer to be on the watch for. It focuses especially on rent increases since so many buyers get into the deal on the assumption they can immediately jack the rents up. In addition to needing to stay competitive in rent structure with the marketplace, there are many legal restrictions applicable to landlords that will be touched on.
THIS IS NOT AN EXHAUSTIVE LISTING OF ALL AREAS TO BE INVESTIGATED. THESE ARE JUST A FEW OF THE PROBLEMS I SEE FREQUENTLY OVERLOOKED BY PARK BUYERS. Any buyer of a park should perform the same due diligence as with any other income producing rental property.
There is no substitute for learning the business before buying the park and for getting knowledgible advice before closing. As with any other major purchase, due diligence in investigating every aspect of the property is imperative.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Copyright (c) 2008, 2009, 2014 by Michael A. Parham. All rights reserved.
April 19, 2014 Blog Posting.
Sale of Parks. In the last ten days I have become involved in the sale of three MHC's. Obviously this activity is picking up. When a purchase is being considered, the buyer needs to perform certain due diligence. This is especially true when the sale is on an “As-Is”. A buyer acquiring a park on this basis takes the risk of all defects. Because of this the buyer needs to scrutinize the park so there are no unpleasant surprises when the sale closes. It is impossible to give an all-inclusive list of what to look for but here are a few things.
Documentation. Every rental agreement should be reviewed to be sure the terms are not unusually long and do not restrict the landlord’s rights to increase rents. Be careful of rental agreements that automatically renew for more than one month. Do not assume every tenant is on the same form of rental agreement. Look at all of them.
Review the Statements of Policy. In reviewing these ensure that there is no right of first refusal for tenants to purchase the park. Also be sure there are no limitations on the landlord’s ability to increase rents other than giving the 90 day notice the law requires.
Review the landlord’s three year rent increase history. All parks are supposed to have these available. Remember that rent increases of more than 10% plus CPI in a 12 month period in the aggregate give the tenants the right to relocate at the expense of the Relocation Fund.
Review the park rules and take a close look at the park to see if those rules are actually being enforced.
Ask to see all termination notices given to tenants in the last twelve month period whether or not they resulted in an eviction being filed. This may give some idea of the quality of tenant relations and management effectiveness.
Fair Housing Matters. If this is an Age 55+ Park ask to see the most recent survey. This should show the park has over 80% of its spaces occupied by an age 55 or older resident. Look at the park’s signs, advertising, website, and other public materials to ensure the age status is correctly presented.
Ask to see all fair housing complaints files if any complaints have been filed against the park in the last three years. Ask how many reasonable accommodation requests have been made by disabled residents in the past three years and what actions were taken with respect to each.
Identify all spaces where reasonable accommodation requests were granted for residential caregivers and assistive animals. Understand the details and ensure no extra charges for the accommodation are being imposed.
Rent, etc. Review rent rolls and collection records. The rent income records of the park for each space should be examined to see if the tenant is current. Where rent is one or more months past due, check to see what is being done about it. If there is some sort of work-out agreement, examine it to see if the tenant is current with payments under it and whether it is reasonable.
Where the park is financing homes it sold, and the sale includes the lender's interests under the sale contract, conduct a similar inspection of the loan payment records. Be sure the loan and title documents on the home are in the file.
If rent to own contracts are involved, be sure to understand the legal problems with them and be sure there is a valid title in the file that can be transferred to the tenant at the appropriate time.
Where rent delinquencies exist, visit the space to see if it is occupied. See if the home is abandoned and the park is avoiding doing anything about it.
Check the status of all abandoned homes.
Utilities. For any utilities separately charged by the park, be sure the charges do not exceed the single-family residential rate of the local utility provider. If water, sewer or gas is being separately charged, be sure each space is separately metered and monthly meter readings are being taken to calculate charges.
Learn whether the local utility provider allows for temporary service suspensions (furloughs) when single-family residential customers are gone. Check whether park residents have been requesting furloughs and what is done on those requests. Determine how many seasonal visitors there are and calculate the financial impact if all residents eligible for furloughs request them.
Determine if what the park pays for utilities is being recovered by the charges paid by residents. Determine if the rate being paid by the park could be lowered by shifting to another available tariff.
If the park is on septic or has a package treatment plant, check the county health department for violations and for information on the background of the park’s system. See if there is local sewer service available or being extended and whether an effort will be made to force the park to connect. If so, what will it cost. Have the septic or package plant thoroughly inspected by qualified professionals to ensure it is in good working order. Be sure that a package plant has qualified and licensed operators.
All parks have underground utility systems. The law imposes on the owner the obligation to know where these components are located and when called on to do so, to be able to “blue stake” them. Ensure you get the best available drawings, plats, etc. showing the location of all underground utilities in the park.
In older parks, underground water, gas and sewer lines may be wearing out and either in need of or approaching the need for major repairs or replacement. Have these examined and determine what the recent failure and repair history is.
Parks with a well could be having water supply or quality problems. The capability and recent history of the well should be investigated.
Tenant Relations. Ask for copies of all ALJ Complaints filed by park residents in the preceding three years and get copies of the final Orders in each case. Also get copies of all lawsuits filed by residents or former residents against the park in the preceding three years and determine the outcome of each case.
Determine if there is an AAMHO chapter or other tenant association in the park. Try to learn what sort of relationship the park has with that association. If possible, talk to the association officers about how landlord tenant relations are.
Zoning Compliance. Occasionally a park will become non-compliant with local zoning laws over time. Or the laws themselves may be changed and the now non-conforming use may be “grandfathered” in. Check such things as whether the number of spaces there are actually permitted by the local zoning restrictions, whether the MH-RV space allocations are permissible, whether set-backs of homes are in compliance or, if not, the terms under which the violations are “grandfathered”, etc.
Park Owned Homes. If you are also acquiring park owned homes, be sure to understand any restrictions imposed by your lender on rental or sale of park owned homes. Verify that the seller has valid, free and clear titles on all of them and that personal property taxes are current.
If homes are rented, understand the different laws that apply to them and the maintenance responsibilities of the landlords. Have the seller arrange an inspection of all occupied park owned homes so their condition and any deferred maintenance needing attention can be determines.
If you will be selling these homes be sure to understand licensing requirements to engage in the sale business as well as federal requirements for financing them imposed by the SAFE Act, Dodd Frank and other laws.
March 14, 2009 Update.
With Current economic problems, a number of parks have been putting off dealing with serious problems to avoid the expense of the solution. Foremost among these is dealing with serious rent delinquencies and abandoned homes.
Buyers in doing their due diligence should be attentive to rent rolls and rent collection records. The rent income records of the park for each space should be examined to see if the tenant is current. Where rent is one or more months past due, check to see what is being done about it. If there is some sort of work-out agreement, examine it to see if the tenant is current with payments under it and whether it is reasonable.
Where the park has sold homes, is financing them and the sale includes the lender's interests under the sale contract, conduct a similar inspection of the loan payment records. Also, and this is very important, be sure that the title documents on the home are correct and in the file. Normally the original title to the home showing a lien in favor of the lender (here, the park) should be in the file.
If rent to own contracts are involved, be sure to understand the legal problems associated with them and be sure there is a valid title in the file that can be transferred to the tenant at the appropriate time.
Where rent delinquencies exist, visit the home to see if it is being lived in. Often the home is abandoned and the park is avoiding doing anything about it either because it doesn't know what to do, is avoiding the expense of doing it, or is simply too lazy. Sometimes parks get the paperwork completed to transfer title under MVD bonded title procedures or landlord lien sales. But lazy managers will just put the paperwork aside to avoid a trip to the MVD. Once in awhile the paperwork gets lost and much of it may be irreplaceable.
If you are buying the park as a going concern (as opposed to closure and redevelopment), be sure you understand the rent income status of every space and what is being done to deal with the problem spaces.
Applicable Landlord Tenant Law.
The rental of spaces for tenant owned mobile homes is covered by the Arizona Mobile Home Parks Residential Landlord Tenant Act, ARS § 33-1401 et seq
The rental of park owned homes is covered by the Arizona Residential Landlord Tenant Act, ARS § 33-1301 et seq.
The rental of RV spaces under rental agreements longer than 180 days is covered by the Arizona Recreational Vehicle Long Term Rental Space Act, ARS § 33-2101 et seq.
Short-term RV space rentals are covered by the General Landlord Tenant Laws, ARS § 33-301 et seq.
Each of these laws is unique and they all differ from one another in many respects. The most detailed and restrictive, and the one with the most tenant protections is the mobile home parks act. It generally is the one most mobile home park landlords must operate under and the balance of these comments will focus on it.
A prudent buyer of a park will familiarize himself with these laws. The MHCA publishes a series of form books and explanatory manuals on each of them
Statements of Policy.
All mobile home parks must have statements of policy in force. They must have fixed expiration dates. Among other things they need to identify whether the landlord has granted tenants a right of first refusal to purchase the park. Another thing they need to address is any method used to calculate rent increases. If the statements of policy either grant a right of first refusal or limit the ability of the park to impose rent increases, the effects must be carefully analyzed to see if they affect the marketability or value of the park.
The law requires every tenant to have a written rental agreement at the beginning of his tenancy. When it expires it becomes a month-to-month tenancy unless either the landlord or tenant asks for a new written agreement.
The law allows the term of a rental agreement to be whatever duration the parties agree. But either landlord or tenant can insist on a one-year term and the other must agree. In addition, the tenant may demand a four-year lease. The landlord must then offer one and if the tenant accepts the terms and rent offered, the landlord must sign it.
The law does not allow landlords to impose rent increases not prescribed in the rental agreement itself on tenants until the rental agreement expires. Thus if a tenant has a long-term rental agreement, the landlord is limited to the rental amounts prescribed in it until it expires.
Prospective park buyers need to carefully review all rental agreements in force before purchasing to see what the rental provisions and expiration dates are. This is especially important if rents are currently low and the buyer expects to increase them.
The law allows landlords to unilaterally increase rental amounts and change payment arrangements (including “unbundling” utilities provided without additional charge) by giving at least 90 days advance notice. But the change can only be effective when the rental agreement expires and is renewed. Thus if a rental agreement has a year to run, a rent increase notice cannot be effective until that year has elapsed.
In addition, the law provides that if the amount of the rent increase combined with other rent increases the preceding 12 months exceeds 10% plus the applicable CPIpercentage, an additional notice must be given advising the tenants that they are eligible for relocation assistance from the Mobile Home Relocation Fund should they choose to move out of the park as a result of the rent increase.
The law has a procedure whereby a tenant can file a complaint with a state agency challenging actions of a landlord in violation of rental agreements or of the mobile home parks landlord tenant act, with a hearing held by an Administrative Law Judge. The law specifically prohibits these cases from getting into the amount or method of calculation of a rent increase but does allow the Judge to determine if it was properly noticed out. Case law supports the authority of the Judge to order the landlord to refund increased charges collected following a defective or untimely notice. The law is unclear whether refunds can be ordered if the relocation fund notice was not given although required. A prudent landlord will assume that refunds can be ordered.
A prospective buyer should not assume he is free to raise rents whenever he chooses or in whatever amounts he chooses until he has reviewed all rental agreements and the statements of policy. He must also be sure to serve all required notices and comply with all applicable time periods. Failure to do so may very well result in being forced to refund improperly imposed increases.
In an Age 55+ community, the statements of policy must declare it as an age 55+ community and establish a minimum age for all other residents. At least 80% of the occupied spaces must have an age 55 or older person actually living there. The age restrictions must be actually enforced and effective age verification procedures must be employed. Finally the community's rules and practices must be consistent with being a seniors community.
If exceptions have been made over the years to the age criteria in order to fill vacant spaces, there could be a problem in continuing to enforce the age restrictions. On the other hand, if the age requirements have so narrowed the field of interested applicants that it is impossible to keep the vacancy rate down at acceptable levels, it might be necessary to abandon the age 55+ status and convert to an all age community.
If the community is all age, the rules and practices of the landlord cannot impose restrictions on children not provably needed to protect their health and safety.
Any violations of these requirements can trigger fair housing complaints, investigations and possible litigation.
A prudent buyer will examine the park's rental documents to verify its age status and will investigate to ensure it is in compliance with relevant requirements. He will also ask about any history of past fair housing complaints.
All parks have underground utility systems including water and sewer lines. The law imposes on the owner the obligation to know where these components are located and when called on to do so, to be able to “blue stake” them. A buyer should ensure he gets the best available drawings, plats, etc. showing the location of all underground utilities in the park.
In older parks, underground water, gas and sewer lines may be wearing out and either in need of or approaching the need for major repairs or replacement. A prudent buyer will have these examined and determine what the recent failure and repair history is.
In parks with septic systems or in-park sewage treatment plants, there may be a desire by local code enforcement agencies to compel them to hook up to government provided sewer systems at great expense. This should be investigated.
Parks with a well could be having water supply or quality problems. The capability and recent history of the well should be investigated.
Occasionally a park will become non-compliant with local zoning laws over time. Or the laws themselves may be changed and the now non-conforming use may be “grand fathered” in. A prudent buyer will check such things as whether the number of spaces there are actually permitted by the local zoning restrictions, whether the MH-RV space allocations are permissible, whether set-backs of homes are in compliance or, if not, the terms under which the violations are “grand fathered”, etc.
Organization Qualification to Do Business in Arizona.
Any entity such as a LLC, a corporation, limited partnership, limited liability partnership, etc. must be qualified to do business in Arizonaand appoint an Arizonastatutory agent. This is achieved by either registration with the Arizona Corporation Commission or the Arizona Secretary of State, depending on the kind of entity involved.
Administrative Law Judge (ALJ) Complaints.
Tenants believing their landlords are violating rental agreements or the mobile home parks act can file complaints with a state agency that get referred to an ALJ for hearing. The judge can order com0pliance if the landlord is found in violation, can impose fines against the landlord, and can order refunds of charges in excess of what the law allowed. Complaints must be answered within 20 days and a default judgment will be entered if a response is not timely filed. These are serious matters and must be dealt with promptly and professionally.
A prudent buyer will ask about any prior ALJ complaints.
This stands for Arizona Association of Manufactured Home Owners. It is the statewide tenants’ association in mobile home parks. It numbers around 20,000 members divided into chapters in a number of individual parks. Most of its members and chapters are in age 55+ communities.
In recent years its state level leadership has become increasingly hostile to landlords. It is aggressively involved in organizing new chapters and growing its membership. One of its main recruiting tools is to try and convince tenants that their landlords are evil and they must organize together to fight for their rights.
Even good landlords have problems with their AAMHO chapters. Bad landlords or landlords who take incorrect actions out of ignorance of the law or of what they legitimately can and cannot do, especially in an age 55+ community, may very well be confronted with a growing, aggressive and hostile AAMHO chapter. Before you know it there will be a petition circulating asking tenants to sigh up to support the filing of an ALJ complaint and to join the chapter.
A prudent buyer will determine if there is an AAMHO chapter in the park and what the past dealings with it have been like. He will learn the law and avoid making the mistakes that can trigger hostility and ALJ complaints. After closing and before sending any notices out, especially rent increase notices, he will have a town hall meeting with tenants to introduce himself and explain his plans for the park. And he will try to establish a cordial relationship with the leadership of the AAMHO chapter or any other tenant organization in the park.
If it is your intention to close the park and redevelop the land either as a new mobile home park or for some other type of use, be aware that the law prescribes a number of steps that must be taken in order to require tenants to move out. If all goes perfectly it will take AT LEAST six months to clear the park. If things go wrong it could take a year. In some old parks with very long term leases in force, it may not be possible to force tenants to move out against their will at all. Before investing in a park with an eye to closing and redeveloping it, be sure to learn the closure and relocation requirements of the law so you can determine if there are any impediments to your plans, what you should be planning on doing to smooth the process, and to get an idea of how long it may take.
The information contained on this site is not legal advice and does not create an attorney-client relationship with the user. Landlord-tenant and fair housing laws are always changing and are subject to interpretation. You should always consult an attorney before taking any action.
This is an attempt to collect a debt. Any information obtained will be used for that purpose.
Williams, Zinman & Parham P.C.
7701 E. Indian School Rd., Suite J
Scottsdale, AZ 85251
Phone: (480) 994-4732
Fax: (480) 946-1211