Contract

mobile home university
1

I closed on a park Monday, easy transaction the title company had very few issues to iron out. the park is 60 lots 25 park owned 8 vacant lots,. lot rent is $175 should be $225 - $250. the paper on the park owned homes are all 7 and 10 year @11.25% - 9.75% and have between 3 and 7 years left. The problem is the language on all the contracts (10 and 7 year) [i][i]"Additional terms of agreement: The option to purchase the property shall be for a term of 2 years and shall not extend beyond that period. If for any reason the option has not been exercised at that time, an extension may be negotiated at the sole discretion of the landlord. $100.00 per month of the rent collected will go towards the purchase for the unit at the end of the 2-year period (Maximum of $2400.00). In any month that the rent is not received on time, the $100.00 credit will be forfeited in that month, and will reduce the total credit toward the purchase price.

13.At the end of the 2-year lease period, the purchase price of the unit shall be $24,500.00 (less the rental credit described in Paragraph 12.) The seller (Maple Crest LLC) will carry financing for the net purchase price ($24,500.00 less the applied rent credit down payment) at an interest rate of 11.5% per year, for a term of 7 years.

14.Based on the above paragraph, the payment will be approximately $382.50. per month (PLUS THE THEN CURRENT LOT RENT)beginning at the end of the rental period. At this time the agreement to purchase the unit (copy attached) must be properly signed and executed.[/i][/i]

When the contracts were signed post option the lot rent was $150, the tenants and sellers assume it meant when the lot rent increases so will their payment, but my problem is say they signed the lease option in 2010 one could assume (or rule) that lot rent can increase annually during the term of the lease, so in 2012 they agree to go through with the purchase, and the lot rent is $150, that is the “then current” lot rent, and in 2014 the lot rent goes to $200,the contract language is sloppy and does not specify what happens if the lot rent increases during the finance term. I use a lawyer and mine uses “Future” and “subsequent”.

I just went through a 2 year mineral rights lawsuit so i may be gun shy, am i overthinking? i cant stomach paying a lawyer to go over this… As of now I am leaning towards taking the hit and lowering the lot rent on the park owned homes to where they were when the lease term ended… Advice?

2

I’m not practicing law (standard disclaimer), but it looks to me like the contract means what I think it means, which is landlord- or purchaser-favorable. The paragraph is (clearly?) intended to remind the homeowner that there is something in addition to the $382.50, not to specify some limitation on rent increases.

So I think you’re probably in the clear to apply the new lot rent to these homes. If the homeowners complain, you can tell them to send you a letter documenting their reasoning, and then you can make a decision in a reasonable amount of time. What’s the worst that could happen?

3

I think you are probably over-thinking it. I do not see anything that would limit your ability to charge fair market rent for the land.

I’m not an attorney, but I do play one on TV. (:P)

Good luck,

-jl-

4

Thank you for the replies, since I didn’t value the contract income or value of the homes into my calculations I aired with the side of caution and offered them all new contracts at 30% discounts (40% if they paid the balance in full) based on the outstanding balance, at 7 years @ 9% interest, they all accepted and 2 paid the balance, and 3 others said they will after they get their tax returns. All is good. I hate dealing with lease options, I am too lazy. it takes enough effort and work to find a deal where the listed cap rate is based in reality, and half the income is not from rentals.