Keeping Former Owner's Park Owned Homes In Park

Friends -

I have a MHP under contract. The seller will be retaining the POHs. I’ll just be buying the land. Does anyone have any experience with a situation like this?

I need to put in place contract terms that will be fair for both of us:

  1. He can’t pull out the houses, and

  2. I can’t raise the rents unreasonably, and

  3. probably other deal points I’m not thinking of

If anyone has general thoughts about what key points to put in a contract for these sorts of homes, or even specific contract wording to send me, that would be much appreciated.

Thank you,

-jl-

I would let a competent lawyer quarterback this agreement, as where these always get in trouble is not with the seller, but with what happens when they die or lose interest and sell the homes. Then there will be arguments that the agreement is not binding, not legal, etc. It will need to be a serious legal document that is fully recorded and binding on all heirs, assigns, etc., and have no possible exceptions that would invalidate it. The concept is simple - the homes must remain in the park forever (sometimes you can’t get “forever” under state law, but maybe at least 10 years +) and you can raise the rent in line with the other lots. You can’t give the seller any control over what a “reasonable” increase is, as they will claim that every increase is wrong. If the seller will not agree to any of this – and the number of homes they own is a large percentage of the occupancy – then walk the deal, as they will pull the homes and your economics are sunk. Don’t fall for the old “you can trust me” or “I’d never pull the homes out, I promise” as they’ll be dead in two years, or divorced, or sell the homes to a third party, and any loyalty they had is erased.

First note: having one owner control many of the POHs can spell trouble for refinancing – if the bank asks for this info. We have had some banks that balked and some that didn’t get curious enough to find out (in our case it was an affiliate that owned the homes and not a third party, but from the bank’s perspective it didn’t matter)

To your question: A good lawyer would probably be helpful but you can probably write your own contract and get similar results. Any agreement is probably legally binding as long as it’s clear enough for a judge to understand what the deal is, and is unambiguous and says what you want it to say. (Think about what you would want to show to the judge if things go wrong and write that into the agreement) It will mostly be beneficial to (1) make sure you and the seller know what your agreement really is (i.e., set the agreement) | (2) resolve later disputes between the two of you about who’s right or what’s allowed (i.e., remember the agreement) and | (3) discourage non-performance. If the seller fails to keep his end of the bargain, the signed agreement should be enforceable in court, but you really don’t want to get to that stage. If it comes down to the seller breaking the deal, having a lawyer draft the contract probably won’t help much. What matters is what you can do about it (see last paragraph).

If the seller breaking the contract would be a total calamity, then yes, get a lawyer up front to fully protect yourself. Or walk away. But if the seller breaking the contract would just be “bad” but not total apocalypse, then I’d hire the lawyer only after things fall apart and rely on your written record of what was agreed ahead of time.

So I’d put an agreement in writing that spells out the terms, and have both parties sign it. It can be helpful to write down the reasoning behind each contract item in case you have to later show that everything was standard and/or reasonable and/or negotiated by people who understood what they were doing. For example: “Seller owns a significant number of homes in the park, which contribute a significant amount of rent to the park. Park is being purchased at a price based on that income continuing for the forseeable future. As a condition of purchasing the park, Buyer requires Seller to leave Seller’s homes in the Park and continue to pay rent on the lots occupied by Seller’s homes according to this agreement.”

I would require the homes to stay in the park but only for a limited period of time, say 10 years (and maybe allow the seller to pull one or two every so often?). Ask for the right of first refusal on sale. You might ask for a “sale fee” to protect you from the cost of moving in a home to cover the one that might leave. If you do, I would leave the reason why you’re asking for it in the contract so that a judge might later see that it was reasonable and not arbitrary. You would also want to disallow the seller selling more than a certain number of homes to the same new owner unless that person agrees to the same terms as the Seller.

I would explicitly require the seller to pay rent on the homes regardless of whether they are occupied (maybe with some leeway for 1st month after move-out to make the rest easier to swallow).

Have the seller explicitly agree to the park rules & regs for each home (could be done with “see attached schedule of homes” – make sure the schedule is signed and dated!), and explicitly agree to require his tenants to obey the park rules & regs.

Require the tenants to be approved by you. Reserve the right to evict (or require him to evict) tenants that are breaking rules. Make sure your rules are comprehensive enough to cover anything you might want to evict for (and apply the same rules to all your tenants!).

The odds of getting into a situation where you want to evict a resident who hasn’t broken any rules is pretty small, and maybe you can work with the seller in this situation – without a binding contract.

If the lots are all rented at the same rate, I would say something like, “Owner will not raise the rent on lots occupied by Seller’s homes except in the case when lot rent is raised for the majority of the remainder of the lots at the park, in which case Seller’s lot rents may be raised by the same amount.” Or you can spell it out whatever you want the deal to be.

The hardest thing to do will be to enforce the contract if the seller doesn’t do his part (or if he or she dies, etc). If you’re worried about this you want to have some kind of leverage. The best leverage I can think of would be to record a lien on every home, but here you’re getting into the kind of thing you want to speak to a real lawyer about, or at least do some research on how to record non-mortgage personal property liens. Or maybe you can have the titles to the homes (or half the homes?) transferred to you for “safe keeping” and the seller keeps the income from the home rentals (sort of like a triple-net lease). You can get creative here, and this is where a lawyer might prove to be worthwhile.

THIS IS NOT LEGAL ADVICE! This is just how I would do it if it were my park.

Brandon@Sandell

@Jefferson, we are in exactly the same position as you were in in 2013. How did things turn out? Could you please give us advice on the deal? Do you perhaps have a contract that you can share with us please?

I think it is fair to say - if the seller keeps his homes in the park then we have a good deal going, but if for some reason the homes are pulled out of the park then we will be in financial ruins.

I did not buy that park, I bought a different park in 2013. I honestly can’t remember which park it was that I passed on that the owner was keeping the POHs.

We’ve purchased 11 parks since then, and they’ve all been either clean land-only deals, or we’ve purchased all POHs with the land.

Hope this helps,

-jl-