Delaware Rent Control Experience?

mobile home university
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I was doing a little research into MHP regs in my target states (mid-Atlantic) and came across this Delaware rent control provision:

79 Del. Laws, c. 63, § 1.;
§ 7042 Rent justification [For application of this section, see 79 Del. Laws, c. 304, § 7]

(a) A community owner may raise a homeowner’s rent for any and all 12-month periods governed by the rental agreement in an amount greater than the average annual increase of the Consumer Price Index For All Urban Consumers in the Philadelphia-Wilmington-Atlantic City area ("CPI-U’’) for the most recently available preceding 36- month period provided the community owner can demonstrate the increase is justified for the following conditions:

(1) The community owner, during the preceding 12-month period, has not been found in violation of any provision of this chapter that threatens the health or safety of the residents, visitors or guests that persists for more than 15 days, beginning from the day the community owner received notice of such violation; and

(2) The proposed rent increase is directly related to operating, maintaining or improving the manufactured home community, and justified by 1 or more factors listed under subsection © of this section.

Would this scare you off (being limited to rent increases of CPI-U 36-month average, which is 0.7% as of March) from owning a park in Delaware? Seems like if you buy a park with below market rents you may never be able to get them up to market. Thoughts?

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What are the factors listed in subsection © of the section? I would argue that having financial ratios that make sense to a bank for financing (30-40% expense ratio) is a legitimate operational concern. But, I am not a Delaware lawyer which is the only person who can really answer this for you. I would not group-source the answer to something like this!

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The situation is similar to the conditions we operate under. Rent controls are extremely detrimental to rental properties such as MHC as residents tend to stay a long time. Normal rental properties have a turn over every 1-3 years which allows landlords to adjust rents to market with new tenants. Long term tenants are a death knell in similar situations.
We are only allowed a max rent increase of the annual cost of living index and as a result 2/3 of our residents are below market many as much as $100 per month below. There is nothing we can do as we are required to justify additional increases through either experiencing direct increased costs such as hydro taxes etc. or capital expenditures such as roads septic, water etc. The financial viability of the business is not a justification for rent increases.
We are also limited to a maximum rent increase of $50/month for new residents. This is extremely hard on the business but we are operating in a nanny state and have no options if we do not look beyond our jurisdiction.
Personally I would not recommend any investor choose to invest in rental property in a rent controlled environment as the government is then dictating your income.

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Brandon,
Thanks for the reply. Oh, I’d definitely dig deeper than the forum if considering a park in DE, just wanted to hear any thoughts on this law or similar laws in other places. Here’s section C:

© One or more of the following factors may justify the increase of rent in an amount greater than the CPI-U:

(1) The completion and cost of any capital improvements or rehabilitation work in the manufactured home community, as distinguished from ordinary repair, replacement and maintenance;

(2) Changes in property taxes or other taxes within the manufactured home community;

(3) Changes in utility charges within the manufactured home community;

(4) Changes in insurance costs and financing associated with the manufactured home community;

(5) Changes in reasonable operating and maintenance expenses relating to the manufactured home community including, but not limited to: costs for water service; sewer service; septic service; water disposal; trash collection; and employees;

(6) The need for repairs caused by circumstances other than ordinary wear and tear in the manufactured home community.

(7) Market rent. — For purposes of this section, "market rent’’ means that rent which would result from market forces absent an unequal bargaining position between the community owner and the home owners. In determining market rent relevant considerations include rents charged to recent new home owners entering the subject manufactured home community and/or by comparable manufactured home communities. To be comparable, a manufactured home community must be within the competitive area and must offer similar facilities, services, amenities and management.

(8) The amount of rental assistance provided by the community owner to the home owners under § 7021A of this title.

So, it does sound like new entrants can be charged a higher rent (good), but you’re at the mercy of the govt for increases above CPI-U, which seems laughably low.

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Greg,

Sounds like a very similar law, where are you/your parks located? Thanks!

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There’s a huge amount of BJR-type leeway in that number (7). Like, you could drive a truck through there. BJR = Business Judgment Rule. Delaware in particular has extremely business-friendly interpretation of the BJR – this is part of the reason why most public companies are incorporated there.

THIS IS NOT LEGAL ADVICE, blah blah.

I’d be interested to know whether this law has ever been applied to the detriment of a MHP owner and what the facts were in those cases. (As in, did any MHP owner in Delaware get sued and lose, and if so, was it because they were way out of line?) When? (Within the last 10 years?) These are the kinds of questions a Delaware lawyer should be able to give a definitive answer to.

Would it be a tenant suing under this statute, or a regulator enforcing? Who has the burden of proof? These are some other legal questions. This law lacks “teeth” if “market rent” is in the eye of the beholder (owner) subject to their “business judgment.”

That’s my initial take, anyway,
Brandon@Sandell

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Brandon, thanks for the legal advice! :wink:

I think this was just enacted in the past year or so, which is why I posted here since I didn’t find much online. Here’s the link to the regs on the process to increase rent more than CPI-U. After rereading this, I think you’re right that this isn’t as strict as my initial reading however, you will have to jump through hoops and be raked over the coals if anybody objects to the rent increase.

I really don’t get the NON-BINDING arbitration… what’s the point, if I can still enact the increase originally proposed. Seems like this is just adding hoops to jump through, but might not have any real effect on rents.

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If a park in Delaware currently does not bill back for public water and sewer, does rent control have any impact on an owner’s ability to begin charging back the tenants?

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Wondering if anyone has any updates on this?