Phil Querin Q&A: Selling Park-owned Carports to Residents

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January 21, 2014

Question: At my park we would like to offer the park-owned carports for sale to the residents for $1. I am under the impression that if we require this of all residents that we would have to give a rent reduction equivalent to the value of the carports. Is this true? And if this is a voluntary program (i.e. the residents can buy them if they want and then turn them into enclosed garages), would a rent reduction still be required?

Answer: There is no specific law regarding this issue. However, you clearly understand the ramifications i.e. if a service or amenity is withdrawn, the inference usually is that the landlord has received some financial benefit. In this case, the “benefit” is that the landlord is no longer responsible for maintenance, and the resident is. My position generally is that this type of arrangement should net out to zero in cost/benefit to both sides. That is, here, if the cost of maintenance is shifted from the landlord to the resident, then there must be some offsetting benefit to the resident. If you believe you can allocate the estimated cost that has been shifted to the resident, e.g. $5.00 per month [I am using the figure as an example – I have no idea what the actual figure might be. – PCQ] then there would be a commensurate $5.00/month reduction in rent. The more difficult issue is whether you may “require” this. I doubt it. The residents never signed on to ownership of a park amenity when they commenced their lease or rental. In fact, a cynic would say that you’re only doing this because of the condition or age of the carports. I’m not, but I’m suspecting this as a response from some if you attempted to “require” that all residents assume ownership of them. There is also the issue of the condition of the carports. Are you going to warrant to each resident that they are in good condition? Or, is this going to be an AS-IS sale? If the latter you most certainly cannot require they agree to take over ownership of carports when you decline to stand behind their quality. If the idea is that once bought, a resident could “upgrade” them, you need to think the idea all the way through. For example, any such construction must first be approved by Management. Are you going to require that all work must be performed by bonded contractors who have liability insurance and are licensed with the Construction Contractors Board? You will need to post a Notice of Nonresponsibility for construction liens. [I have seen liens imposed on park owned property for a resident’s construction project that was (foolishly) approved by Management.] Are you going to permit residents to do the construction work themselves? If so, you must make clear that the work must be performed in accordance with all applicable laws and ordinances, especially the applicable building codes. Who is going to then monitor construction to make sure what was approved is what was built? Is the manager qualified to do this, and does he/she have time? Are you going to require the residents undertaking construction [either themselves or through a contractor] first sign an agreement to assume all liability and release the park and Management from damages? If a third party does the work, besides licensing, you have to make sure they have workers comp insurance (i.e. SAIF). You cannot assume all contractors have this insurance. The smaller the contractor, e.g. solos, the greater the chance they may have neglected to obtain workers comp. If there were an accident resulting in personal injuries, e.g. falling off the roof of the new garage, without SAIF, the injured worker could look to you. Lastly, what are you going to do upon sale of the home? I assume the resident will be selling title to the garage. Since the garage is affixed to the land, would assume a regular “deed” be given, as opposed to a bill of sale [as is common for personal property, such as a manufactured home]. So how is this going to work? Certainly, you don’t want residents delivering deeds to the garage, since they actually don’t own the underlying land. Yet once affixed to the land, the garage becomes a part of the land. You will certainly have to cover this issue if/when you undertake this program. It’s possible that you would just give a revocable “license” or “permit” to the resident, allowing the use and construction, but not pure ownership. And be careful of a resident claiming that you owe them for the value of the improvement, since upon resale of the home, you might increase the space rent because of the “enclosed garage.” In light of all the issues, it seems that if you decide to plow ahead with this idea, it seems to me that it should be voluntary, with adequate disclosures and releases per above, so that the resident can never say they had no choice in the matter. There is little question in my mind, that if you made this program mandatory, a court of law would not enforce it, no matter how ironclad.