What is a Lot Rental Agreement?
Lot rental agreements serve as the legal framework for mobile home parks. A park is a piece of land that has multiple house sites, each in which a trailer, mobile home, or manufactured home can be placed. The owner of the park charges the tenant, or mobile home owner, a space rent for a specific lot where their home is located. The space rent includes services and the use of the common areas of the park.
Lot rental agreements are defined in your residential tenancies act and in the case of British Columbia it is defined in the Residential Tenancy Act. The purpose of the lot rental agreement is to clearly set out the rights and responsibilities of you (the owner) and the tenants living in your park. A lot rental agreement is a contract between you, as the owner of the park and the tenant (who lives in a mobile home in your park) . Like all contracts, a lot rental agreement is enforceable at law and both parties have rights and responsibilities set out in the contract. The lot rental agreement could be written and signed by both parties, spoken or verbal. However, it is always recommended, that you enter into a written agreement with your tenants, setting out the terms of occupancy so that there is no evidence of uncertainty between you and the tenant. Most lot rental agreements are entered into for a term of one month (on a month-to-month basis). Whether the original rental agreement was entered into for a term of one month or longer, the agreement does not end until it is properly terminated according to the Residential Tenancy Act.
Main Elements of Lot Rental Agreements
A comprehensive lot rental agreement addresses the following terms and conditions: The legal name of the resident, which may be different from the name on the park lease; the physical address of the home (the relevant real property), and the community or park where it’s located; the date that rent is due each month; the total amount of rent; a listing of all deposits, application fees, and other charges; lot rental increases, if applicable; barriers (if any) to passing ownership or control to someone else, including the disclosure of lender liens and approvals required from the management company; rules and regulations; rights and obligations of both parties (the park and the resident); and what are the remedies for breach of the agreement.
The key considerations in drafting a lot rental agreement are the park’s expectations on payment; a "default" definition that meets your requirements (i.e., the resident pays late five times in one year, etc.); knowing your POV on financing and default provisions; and understanding the appropriate procedures for tenant termination.
Different Types of Lot Rental Agreements
As a landlord, it is critical that you have a lot rental agreement in place since lot rent is usually a long-term renting arrangement. A lot rental agreement should be maintained between the landlord and tenant specifying whether the tenancy is a residential tenancy, a mobile home lot tenancy or a non-residential rental tenancy.
Landlords and tenants can enter into three types of lot rental agreements:
(1) Residential tenancies are governed by the Residential Tenancies Act, 2015 (the "Act"). Mobile home lot tenancy and non-residential tenancies are generally governed by the common law. A residential tenancy is when a person rents, leases or sub-leases accommodation for living purposes. A residential tenancy agreement can also include parking. A residential tenancy agreement has no effect on situations where:
For a lawful residential tenancy, a landlord and tenant must enter into a written residential tenancy agreement. The Residential Tenancies Act, 2015 standard form residential tenancy agreement is mandatory and must be completed for all residential tenancy agreements.
(2) A mobile home lot tenancy ("MHLT") is governed by the Act as amended by the Mobile Home Law Reform Act, S.O. 200Y, C.M. 14 ("MHRA"). A MHLT is not to be confused with a residential tenancy as a MHLT is one where the landlord rents land and the tenant rents a mobile home. Every MHLT must be in writing and may, but is not required to, be on a standardized form. A MHLT is subject to the Act with the exception of sections 10 and 113 to 117 and 119 and must comply with the MHRA.
(3) Non-residential rental tenancies are governed by the common law with the exception of section 9 of the Act (Relationship between Fees and Common Law). Rather than being considered as customary (i.e. a MHLT or residential tenancy), a non-residential tenancy involves a situation where a person leases, subleases or rents a specific space where they may also lease or sublease to their own tenants. A non-residential tenancy agreement generally does not contain any reference to a residence.
As a landlord, it is critical to identify the type of tenancy agreement.
Legal Issues in Lot Rentals
When entering into a lot rental agreement, there are numerous state and local laws that govern the relationship between the park owner and the lot tenant. The following are just some of the laws (in New Jersey) that come into play: MCVSA, N.J.S.A. 46:7-12 et seq.; the State Rent Control Law, N.J.S.A. 2A:42-84 et seq.; Landlord-Tenant Ordinances (including, but not necessarily limited to security deposit restrictions) and State Landlord-Tenant laws, N.J.S.A. 2A:18-61.1.
While park owners must comply with and/or consider all of the above, there are advantages and disadvantages to zoning land as a residential/mobile home park. The advantages include: the park owner may legally limit the types of homes or trailers that may be placed in his or her community; the resident’s property is not subject to property tax and the park owner may have some control over the square footage allowed for individual homes or trailers and some ability to limit the space a particular resident may occupy within the park. On the other hand, the park owner may not evict the resident without good cause, notice and an opportunity for a hearing. Additionally, the square footage of the home is limited by the local zoning ordinance (possibly causing financial hardship to the resident who has a larger home already). Further, the allowable rent increases must comply with the State Rent Control Act (for those parks that are rent controlled). Likewise, it is questionable whether the Park Owner can raise the rent with an income increase to the space renter(s) if said increases do not coincide with a decrease in the Park Owner’s expenses.
The latter two issues would need to be resolved in the Courts. First, if the landlord raises the rents with only a modest improvement in the profitability of the park, Courts have refused to interfere with the landlord’s right to increase rent, holding that "as a matter of public policy the tenant must pay rent even if the tenant makes no profits from the rental unit" or that "the landlord is only entitled to a fair return on the value of the property, not its full monetary value." Second, if the park owner raises the rent in order to pay for improvements to resident’s trailers because the landlord believes that such improvements will result in a commensurate rise in revenue, Courts have refused to engage in a factual inquiry into the reasonableness of the park owner’s decision. See Low income housing Institute, Inc. v. Kauffman, 138 N.J. 8 (1994).
It is worth noting that with the enactment of the Fair Housing Act, more and more Courts throughout the country have interpreted the Act to prohibit discrimination against trailer owners. For example, in America’s Affordable Housing Corporation v. Township of North Hudson, the Court ruled that single-family, low-income housing units and mobile home parks are considered "multi-family housing" under the Fair Housing Act, prohibiting discriminating against those persons that can only afford a mobile home. Further, some Courts have interpreted Part B, Section 818 to mean a prohibition on exclusionary zoning laws. In Thornburgh v. Eastern Luzerne Zoning Board of Appeals, the Court held that the Fair Housing Act prohibits zoning regulations that disfavor affordable housing.
One potential solution to these potential problems might be the adoption of a hybrid of a lot rental and ownership tenancy. This could be beneficial, perhaps, to the park owner who desires the flexibility of an ownership like contract with the rights of a lot rental. However, if ownership becomes more common in mobile home parks, it is likely that Courts will find that the Fair Housing Act makes no distinction between homeowners and lot renters. Therefore, in order to avoid Fair Housing Act violations, landlords should ensure that they do not discriminate between individual homeowners and those who merely rent space in their communities.
Advantages and Disadvantages of Lot Rental Agreement
Like any other type of contract, a lot rental agreement is a matter of risk and reward. For both parties, entering into a lot rental agreement has its advantages and its disadvantages.
For landlords, the main advantage is income. A lot rental agreement provides a stream of income in the form of rental payments, usually paid monthly. Depending upon the lot rental agreement, landlords may also get to charge additional fees for services or amenities. For example: communities that provide a swimming pool, tennis courts, a gym, or laundry facilities may charge platform!, under cwia [lot] fees in addition to a monthly rent. In larger manufactured home communities (e.g. those comprised of 50 or more lots), Arkansas law requires landlords to register with the Department of Finance and Administration and pay a registration fee per lot. As a result, the registration fee must either be divided among all residents or directly paid by each resident who rents their lot.
From the perspective of a tenant, the main advantage of a lot rental agreement is price stability. When a tenant rents a lot in a manufactured home community, the lot rental agreement typically sets the rental price (and any associated fees – if applicable) until one of the parties terminates the lot rental agreement. Depending upon rental prices in the area, this may give a tenant the ability to afford a more luxurious manufactured home (with more rooms and higher square footage) than they could otherwise afford if they rented a traditional apartment or rented a lot in a less expensive manufactured home community. By renting an available lot, a tenant may also be able to avoid higher housing costs associated with rent increases in single-family homes or rest home communities in the vicinity.
For a tenant, the main disadvantage of a lot rental agreement is the initial investment. Before renting a lot, a tenant must first invest a considerable amount of time and money in order to plant their home on the rental lot . Depending upon the distance from community, remanufactured homes are often significantly less expensive (see "local delivery fees"), which is why we recommend that prospective tenants shop for homes first (regardless of whether they intend to purchase as is or have a new home built on-site). As soon as the manufactured home arrives on the lot: Beyond this initial investment, there is also the issue of vacancies. Unlike other leases, lot rental agreements directly affect a tenant’s credit score. When a tenant misses a lot rental payment, does not sign a renewal (or pay an increase), or fails to comply with their lot rental agreement (e.g. parking issues, cleanup, you name it), the landlord may file a lot rental action (i.e. non-payment, forcible entry and detainer, eviction). Once this happens, the tenant will see their credit score drop as the rent delinquency shows up on their credit report. This may result in a higher interest rate if a tenant seeks to finance a car or truck, pay higher insurance premiums, and even lose out on a job if an employer of a tenant performs a credit check prior to hiring.
From a landlords perspective, the main disadvantage of a lot rental agreement is the risk of default. Not only does a landlord have to worry about tenants who fail to pay their rent, but a landlord also has to worry about those who prize privacy over price. In other words, a landlord cannot discriminate based on race, age, religion, etc. so we sometimes see tenants paying less than $150/month for a lot that another tenant pays $550 for because the lower rate was offered to a tenant who may be discriminated against by another landlord. In addition, a landlord cannot directly deny a tenant’s application based upon their source of income (think veteran’s benefits, disability, or families with young children) nor can the landlord impose additional or different terms for the rental of any mobile home or manufactured home based upon the age of the home or mobile home.
Common Mistakes and Avoiding Them
One of the most common mistakes in a lot rental agreement is failing to have the lease prepared or reviewed by a qualified attorney. Because the relationship between the homeowner and the park owner is a contractual relationship, a landlord/tenant attorney should be consulted to ensure that all of the statute’s requirements are met. Leaving out any provisions can leave the landlord defenseless if a homeowner later challenges the rental agreement. Alternatively, including provisions not permitted by the statute actually puts the landlord at risk.
Another common problem is with a lot rental agreement that has been used "off the shelf" without any modifications. While a park owner may believe that speaking to other owners who were satisfied with that rental agreement is enough, it’s always important to be sure that you are using the most appropriate agreement for your community. And if your park has multiple types of lots, you may need more than one lot rental agreement to cover all of your members.
A failure to provide a complete set of disclosures or a disclosure statement is another way that errors can occur in your lot rental agreement. Under the statute, certain provisions have to be included in the written lot rental agreement. The failure to include all of those required provisions may make the agreement defective or invalid.
How to Draft a Lot Rental Agreement
General best practices for drafting a clear, comprehensive lot rental agreement that balances the needs of both parties include the following:
- The owner should have the right to increase the rent once every 12 months to the higher of 1) the CPI or 2) the rent charged by comparable communities, if any. Some older space lease forms require the owner to reduce the rental rate if the CPI decreases, and to give owners the option of terminating leases with serious CPI declines. These older provisions don’t make sense from an economic point of view and should be avoided.
- The space lease should grant the owner a "during the term" right to terminate, after notice to the resident, for any other resident breach having not been cured in 14 days. Some old space leases give the association a right to terminate if the resident fails to timely pay water utilities for three consecutive months, even if the termination would be unlawful under state law. This is another provision that should be avoided.
- The space lease should grant the owner a right of entry to inspect the home for compliance with the lease within 24 hours after the owner gives the resident notice of entry, with no further notice required of subsequent entries.
- A space lease should require residents to clear, approve, and keep current as-built plans for all site improvements on their space, and to provide copies of such plans to any prospective purchaser of the home, thus giving the purchaser adequate notice of the status quo of it.
- A space lease should include a clear binding arbitration provision.
These are but a few examples of best practices when drafting a mobile home lease. Many more would include: a comprehensive built-in ground maintenance service; a requirement for the resident to provide an IRS Certificate of Residency (to cut down on income tax evasion challenges); a fee that is charged only when a resident requests an architectural modification , rather than when a resident makes an architectural modification; an efficient process for allowing residents to transfer their space lease for new home sales and otherwise in conjunction with FHA requirements; a proper statute-of-limitations clause to defeat stale claims; a clear allocation of responsibilities for snow removal and trash pickup, and the ability to charge residents for such services if the owner must perform them; and a right to control registrations uses and rentals (including for unit rentals, or in RV and tent communities), as well as fees for residents who wish to rent their homes. It is the absence of such provisions that creates problems for many association owners and managers.
As the foregoing examples show, not only are the specific provisions in a lease extremely important, but so is the manner in which they are expressed. Some of the relevant statutory provisions are actually vague, unrealistic and inequitable, often leading to excessive attorney’s fees and protracted disputes because of their ambiguous interpretation. An intelligent, well-defined terms, such as "land-lease," "site," "person," "premises," "tenant," "owner," "assent to sublease," "landlord," "lease," "demand for rent," "written alteration," "disposition," "destroy," "furnish," "structure," "trash," "pet," "park model," "modular," "manufactured home," "recreational vehicle," "unit," "pre-1960," "new," and "tenant," for instance, can avoid misunderstandings, save money and prevent headaches.