First Commercial Property Article: The Importance of Rules and Regulations in YOUR Community

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July 15, 2015
Scott Mullens
Senior Portfolio Manager
First Commercial Property Corp

 

Stating the obvious:  Rules and Regulations (aka Guidelines For Living) set forth living and maintenance behavior which a MHC Resident must follow while living in your community.  These R&Rs can include items like maintaining yards, limiting on-street parking, allowing or prohibiting fences, cleaning up after pets, deck sizes, night time quite hours and a whole host of other items governing how your community is maintained and used. 

WHY SHOULD YOU CARE SO MUCH ABOUT R&Rs:  ASSET VALUE - Firstly, a SIGNIFICANT part of your community’s real estate value is based on how well Residents adhere to the R&Rs which YOU as an Owner/Manager must enforce!   CASH FLOW -  Second, because rule violations, with the exception of non-payment of rent issues, are the number one reason Residents get evicted, we cannot emphasize enough, how important it is to keep your rules up to date, so that you prevail when spending money in the legal process….got your attention????  Read on: 

ORS 90.510 requires that the Rules and Regulations and a copy of your rental agreement be handed out as attachments to the Statement of Policy (SOP) to prospective and existing Tenants.  When giving these documents to prospective Tenants, you should have them sign a receipt for Statement of Policy.  All too often we have heard Tenants state in court that they never signed or received a copy of the Rules and are therefore not bound by them.   By producing a copy of the signed receipt for Statement of Policy, the presumption is that they did receive the rules even if they never read them.

As mentioned above, it’s extremely important to keep your rules updated.  In MHCs that we’ve managed, we have discovered rules that are 2 pages and we’ve seen some that are 30 pages….some Community Owners have not revised this IMPORTANT governing document since the 1970s!  Many of these older and/or shorter sets of rules do not even mention many of the issues relevant today.  So if you want to change or update your rules, know that there are two methods to accomplish this.

First is a general rule change that affects all of the Residents:  ORS 90.610 sets out the requirements for the notice of proposed change in Rule or Regulations.  The statutory time-line for the Residents to OBJECT to the change(s) is 30 days after receiving the written change(s.)  If 51% of the eligible spaces object in writing to the proposed change, the new rule(s) do not go into effect.  If less than 51% object in writing within the 30 day window, the new rule(s) go into effect for all Residents 60 days after the notice was mailed. 

The second method to changing rules is through attrition.  There is nothing in the statute that prevents an Owner/Manager from creating a second and more comprehensive set of rules and handing them out with the SOP to new prospective Residents.  The new rules will only be enforceable on the new Residents; since all homes change ownership eventually, once you have enough new Residents on the new rules, you can always go for a general rule change effecting everyone.  Many or most Residents would already be subject to the new rules, the mathematical probability of having 51% object to the rule is greatly diminished.   Remember to keep a copy of whatever generation of R&Rs the Resident agreed to in their resident file.  You do not want to try to enforce a new rule on an old Resident who is subject to a previous version of the rules.

Our next article will deal with R&R enforcement, so stay tuned!