Leases! We don’t need no stinking leases!

Leases! We don’t need no stinking leases!

(Ya, you’re right. I ‘borrowed’ that line, modified slightly, from an old movie¹.)

That said:

More and more mobilehome park residents are being ‘offered’ leases by park owners.

And residents are confused.

Sometimes the lease is offered as a condition for moving into a park (legal? Maybe not).

Sometimes the lease is offered as ‘security’ against an uncertain future.

Sometimes the lease is offered so the homeowner won’t notice that he is now OFF of the local Rent Stabilization Ordinance – RSO. (i.e., ‘rent control’).

Sometimes the lease is offered so the park owner doesn’t get push back each year when site rents are increased.

Sometimes the lease is offered so the park owner can ‘lock in’ relatively high site rents for the future.

If you want to cut to the chase and know what to do about Leases, check out the bottom of this message.

[Note that I am not an attorney. My comments are based upon my experience with leases involved in projects I have worked on over the years. Note also that Leases are complex and this message is necessarily long.]

First, forget about the idea that the park owners are looking out for YOUR best interests. That’s nonsense. The owner is offering the lease because it does something for THEM, not YOU.

Let’s talk Lease Rates:

Typical lease rates are 4%-6% annually for the term of the lease. In today’s world, those are TERRIBLE rates. Inflation is low, and interest rates are projected (by the ‘experts’) to remain low for some time. In areas with rent control, a common annual rent increase is 80% of the annual local area Consumer Price Index (CPI), which typically turns out to be below 2%. CPI’s lately are relatively low.

So why ‘lock in’ a high rate? Future security? Maybe, maybe not.

Let’s talk Lease Term:

Most leases seem to offer a term of 5 or so years. I have seen a couple with 20-25 year terms. Sounds good, right? Wrong. You need to look at the details of the lease and understand about what happens when the term ENDS. In some leases, at end of term, the homeowner goes to ‘month-to-month’, with no real limitation on future rent increases. In some leases, the homeowner STAYS OFF of rent control after the lease term. In some leases, the homeowner goes back to rent control but with the starting point their current (presumably higher) rent.

EXAMPLE 1:

I worked with an Oregon resident group that was pretty happy – they had 25 year leases and figured they would be gone from the park before the lease term ended.

Wrong again.

What they REALLY had was a series of 5 year leases (with, incidentally, a high lease rate), that REQUIRED the homeowner to contact the owner shortly before the end of each 5 year term to reaffirm the lease. If they did not do that (or forgot to do it – we’re all old), the lease terminated, the homeowner went back to “market” rents, and, if one read the details of the agreement, only the owner determined what exactly WAS the ‘market’.

EXAMPLE 2:

I analyzed in detail a situation in a park in the Bay Area. Average rental rates were about $1,250/mo, and most everyone was on a fixed term lease. There is NO local rent stabilization, so maybe that deal sounded good.

The residents wanted to buy the park and offered a lot (a really lot) of money, which was rejected out of hand.

The park ‘went on the market’ and was purchased for a huge price (much higher than the resident group’s offer) by a couple of ethically and morally challenged investors (EMCI). (My assistant won’t let me use my more descriptive terms.) The price did NOT make sense, based upon the current operations of the park.

So why did the EMCI buy it at that price?

Answer: Current (uncontrolled) rent for new move-ins was about $2,400/mo, and ALL the leases expired in 2020 and 2021.

My theory – based upon nothing but prior experience – is that the EMCI will offer all the tenants NEW leases at the current ‘move-in’ rate of about $2,400. If the existing tenants can’t make the new lease rents, they go on the ‘market’ – same result.

Rents at $2,400 for all residents make the huge price paid look pretty good, without regard to the massive pain and suffering of the existing residents.

All legal, and there is NO city support to push back on the EMCI.

EXAMPLE 3:

A park in a rural area East of Sacramento, full of low-income seniors, was recently offered a 25-year lease by the new owner/manager. A well-written article in the Sacramento Bee (by Mara Hoplamazian) details their situation.

Some ‘high’ (or rather ‘low’) points:

The ANNUAL Lease Rate is 120% of the Bay Area CPI (NOT the lower CPI rate in the Sacramento area) with a MINIMUM of 4% and a MAXIMUM of 10% (ya, you read it right).

Since most of these Seniors are on ‘Covid Lockdown’ and many have underlying health conditions, the only way they can discuss the Lease among themselves is by shouting across the park or figuring out how to do Zoom meetings.

In California, death does NOT end the Lease obligations. So the kids get stuck with the same lease. The Lease specifies that anyone moving into a home after the sale or death of the original owner may be subject to rent that equals the highest rent in the park PLUS 30%.

(Pause while that sinks in.)

To be fair, the park owner/management have made assurances to the residents. (Ya, and as a real estate professional, I suggest that their assurances are a massive load of something unmentionable.)

The article goes on – none of what it discusses bodes well for the park residents.

So what do you do?

First, don’t sign the lease. Management can’t force you to sign it and you will be no worse off by staying in your current situation until you find some guidance

Get professional guidance/advice – Leases are binding legal contracts and the devil lives in the details. Ask an attorney who has experience in business law and California mobilehome law to review the lease and give you a written opinion. The attorney will probably not do this for free. But since your neighbors are likely to be offered the same lease, and benefit from the attorney’s opinion, “passing the hat” to pay the attorney is a reasonable option. I can recommend attorney Bruce Stanton (brucestantonlaw@yahoo.com), who is also GSMOL General Counsel.

If you have a rent stabilization ordinance RSO), stay on it. If you don’t have one, try to get one. You are a voter, taxpayer and local resident, so go (as a group if possible, and think about getting other parks involved) and beat on your local city and/or county leaders. Make their lives miserable – what do you have to lose?.

Contact GSMOL (Golden State Manufactured-Home Owners League) for additional advice/guidance. 800-888-1727 gsmol.org

Push back on your park owner. Many Seniors/residents are afraid to do this, but retaliation & harassment of residents by owners is against the law. If you have a written attorney’s opinion that explains the “devils” in the offered lease, sharing it with your neighbors can help with “push back.”

[The recently passed California law (AB2782) may provide a little help, but it is complex, so don’t count on it to solve all your problems.]

Finally, try to buy the park.

If you want to talk about buying your park, contact Dave Loop, GSMOL Vice President for Resident Owned MH Communities, (deloop1@sbcglobal.net; 831-688-1293), or me (Deane Sargent, deane.f.sargent@gmail.com; 415-271-3919.)

If you feel this article would be helpful to someone in a mobilehome park, feel free to pass it on or publish it.

As Bette Davis said, “Fasten your seat belts, it’s going to be a bumpy ride².”

Deane

^{1. The Treasure of the Sierra Madra; Blazing Saddles}

^{2. All about Eve}