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Ep. 47 | How To Avoid Getting Stung By a Non-State-Specific Lease

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On this episode of The Mobile Home Park Lawyer, Ferd speaks about leasing rules and guidelines. Ferd discusses five key areas of state-specific leases and gives his best advice to MHP owners.

 

HIGHLIGHTS:

0:00 – Intro
1:31 – Leasing rules are different from state to state
4:38 – There are five key areas, of state-specific leases
4:52 – Ferd describes the contents of his 27-page quote template lease
5:31 – Ferd explains that there are five provisions you should look at on a state-by-state basis; Dodd-Frank, abandoned housing, eviction/possession, water-sewer and MHP-specific.
10:01 – Ferd speaks about how each state has their own MHP specific provisions and shares some examples of these provisions
12:03 – Some states have almost no landlord-tenant supplements that are MHP specific, while others have a lot
13:19 – Ferd urges you to ensure you get a good strong lease
14:04 – Ferd recommends you talk to your state MHA as a good starting point
15:05 – Ferd advises MHP owners to read the lease, create bullet points question lists and call your attorney or MHA and asks those questions

 

FULL TRANSCRIPTION:

Welcome back mobile home nation. Ferd Niemann here, again with another podcast for you today. Today, we’re going to talk about some more legal issues. Today we’re going to talk about leasing rules and guidelines. As I think most of you know, leasing and landlord-tenant law, lease rules, whatever you want to call it. It’s pretty important and it’s different from state to state. So, I’ve operated in plus or minus 15 States, and there are a lot of similarities. In fact, most of it is similar, but there are some key distinctions. So, it’s important to research the state code, state laws, state regulation. And in some instances, the city regulations before finalizing your lot lease or your home lease. I’ve also talked at length in other podcasts about, you know, your contract for deed or lease to own your rent credits, those sorts of things. There are specific provisions pertaining to “installment sales” or “selling on terms” on a state by state basis. So, it’s important to recognize that as well.

There’s a couple of different philosophies as it pertains to leasing. There’s obviously the letter of the law. There’s the spirit of the law, and I even have some clients that want to be “aggressive” and, you know, ask for forgiveness rather than permission. And by that, I mean, there are some States out there that have provisions in their leases that are things like landlord is prohibited from limiting landlord liability in any form or shape in a lease at any time. Okay. That’s obviously not good for the landlord.

But if you look deeper in some of the statutes, it’ll say things like if landlord abuses this rule and puts a limiting liability provision in said lease, said provision is struck in the event of a judgment by a court. So, I’m sitting here like, well, the worst-case scenario is we don’t get the strong provision. There’s no punitive damages. There is no class action lawsuits. There’s no criminal penalty. So, a lot of my clients choose to take the more “aggressive” stance and just put it in the lease. And some of the reasons they put in the lease is it deters litigious, you know, junior varsity attorneys, as I call them who a tenant comes to them and says, Oh my gosh, I slip. And I think I fell, you know, on my trash, on my banana peel that I left there, I should Sue. I should Sue for million dollars and the junior varsity attorney looks at the lease and says, oh no, it says it’s limitation liability. And they just go, they just give up. And then it goes away. And most of these prospective tenants will have, you know, not a retainer. And the contingent fee attorney is not going to do the hard work and heavy lifting of researching the law, let alone the mobile home park, landlord tenant, bill of rights act, as it pertains to some States to come up with the minutia that would allow them to be successful in a plaintiff’s position or plaintiff’s litigation.

So, point being there’s different approaches to attacking a lease. I’ve got many a template leases. I don’t have every state. I think I’ll have every state probably by the end of 2021, but frankly, I don’t really get to it until somebody hires me to do it. So, I do it at a kind of a subsidized rate to get it in my portfolio if you will. And then I have it, right. And then it benefits the first guy and the second guy, the third guy. But there are about, I’d say five key areas of, you know, “state-specific leases.” You can have a template lease, right. I mean, you go find a lease on the internet right now and maybe it’s garbage, maybe it’s okay. But the best lease is one that’s state specific and MHP specific. My quote template lease is 27 pages. It’s got a 15-page leasing guideline addendum. It’s got a schedule to that is a, the pricing and terms addendum. It’s got a schedule seven petted in them. If we allow pets. It’s got another ancillary document called an acknowledgement of documents received. It says they’ve signed off on all these different documents. And ultimately, I hand out about a 50 page back and I say, send me the four changer pages back. And I’ve got a little footer in there that says, look proof if they were going to court, I gave them these pages. They signed these pages. It is what it is. And I’ve never had any problems with it, you know, knock on wood.

But ultimately there’s about five provisions that you definitely need to look at on a state by state basis. And those are Dodd-Frank, abandoned housing, eviction/possession, you know, water, sewer bill back/utility, and then really MHP specific.

So, I mean the big one Dodd-Frank, that’s this big federal animal under the safe act and Dodd-Frank act. And you know, I’ve talked about it ad nauseum on another podcast, but basically it pertains to the seller financing of homes. If you know, park owned homes, you have no seller financed homes. You can skip this button, right. But ultimately there are in addition to the federal regulations that are some States that have state specific guidelines. So, you need to research those and make sure your lease, or at a minimum, not your lease, but your practice or behavior complies with said law. The second big one is abandoned housing. You can call it a quiet title, call it a bin housing. You can do things like get a salvage title or a junk title or a bonded title. You can gift away the property. You can buy it on the tax steps of the courthouse, all these sorts of things. But ultimately if somebody abandons the house, do you need to at least be cognizant of the abandoned housing act, your lease may or may not be more aggressive than said act, but your implementation strategy should not be.

And one key strategy there is to have certain indemnifications and reps and warranties in your bill of sale or your assignment of leases at closing, whereby you put the onus and the exposure on the seller. Frankly, I don’t have half the guys rebutted or red line, they just say, okay, I got this house on the south, John Smith’s been out since 1970 and he ain’t coming back. Well, I’m worried about is he coming back and he’s going to say there was gold bars under the kitchen floor. So, I watch for abandoned housing acts.

Another thing is eviction possession. I personally don’t do a lot of evictions. In fact, I don’t do any evictions. It’s very municipality or local jurisdiction specific. That’s one of the areas where you can probably cut some corners and hire the cheapest guy, as opposed to the best guy. You can probably find attorneys that are $100, $150 an hour, maybe fixed fee. I find guys, they are like $400 a job to do the full eviction plus court costs, go with those guys, frankly, don’t call me for the evictions. But you want to make sure you follow the rules as it pertains to evictions, judgments and or possessions, which often entails engaging the sheriff to enforce said rid of possession to get the argument off the premises, that can be hostile. That can be dangerous. So, don’t Jack around with that.

Another big state-specific item is the water sewer bill back. Obviously, anybody who’s listening to podcast at least has paid attention for the first 40 or so episodes knows, one of the names of the game is cutting expenses. And you do that by billing back water sewer. And it’s the best system. It’s the best for conservation. Why should the landlord pay some infinite number for water sewer when there’s no accountability? Put in sub meters. There’s a number of companies that do it at universal Metron. I’ve seen a couple of others lately. I’m sure there’s others. I kind of use it. I use Metron just because it worked the first time, they don’t pay me to say that, but I don’t have a reason to not be satisfied with them. So anyway, water sewer bill back is an Avenue towards profitability.

But some States have regulations rules pertaining to said water sewer bill back. And you want you to do not in general, want to be classified as a utility provider. So, you need to make sure you follow the rules. You want to be regulated by the public service commission or resource or whatever the entity is. So, you need to make sure you follow those laws and it’s, as long as it’s specific per utility, sometimes it’s a prevalent all utilities. So just make sure you follow those rules. And that’s a state by state thing. I’m not aware of it being a city by city thing, but it could be, I guess. I just haven’t run into that where a certain city says you have to. But there’s definitely different types of water sewer. Obviously if it’s a city water, city sewer direct builds a non-issue. But if you got, you know, non-sub-metered or you have a well or septic or wastewater lagoon, or you just have, you know, some other creative structure, you need to at least evaluate the laws.

The fifth item is really just MHP specific laws. Every state landlord tenant law, to my knowledge. I mean, frankly, I haven’t read every state, but I’d be shocked if there’s not a landlord tenant law in every state, but there are some States have specific provisions. So, I mean like I just did a lease on South Carolina. South Carolina has unique statutory provisions as it pertains to abandoned housing. Well, you have to follow those rules or at least if you don’t, you’re going to be exposed to them. They have certain provisions for MH to say like, you know, if you do not pay rent on time, you’re supposed to be in all caps in your lease, South Carolina it says things like the minimum lot size is X feet wide by Y feet long. That’s kind of weird, but that’s what they do, right. Illinois, they have things like you must “offer” a lease that is not less than two years. Your regular junior varsity attorney is going to tell you something like, okay, Oh, sorry, man, you got to do two-year lease. I know your business model is month to month or year to year, you can increase rent in the interim, but after two years. Well your “good attorney” or varsity attorney who also happened to be an operator will say things like, yeah, that’s what the statute says. It actually also says in the event that a lessee has a reason for a non-normal when they want less than two years, you can do that if they indicate such, indicate as such, in writing. Okay, well, here’s an idea. Have your schedule to say month to month, sign off, have the buyer at least say, it must be we’re offering to the law a two-year term, either check here for two years or check here or don’t check here for a lesser term. Makes sense for a lot of people to go up the prefilled form that says month to month.

Okay, each States their own. Certain States have things like Illinois, for example, has a 90-day notice of rent increase. Other States have 30, they have 60. It’s really a state by state thing. You just got to look at that. Some States have almost no landlord tenant supplements that are MH specific. I just did leases for North Carolina. So that’s Carolina, Kentucky, Georgia, Ohio, less than you think. Florida, there’s a lot. There’s a prospectus even as additional supplant. Iowa, not that much actually, despite the fact that there’s been lots of talk of rent control. Illinois has a real stiff they call it the mobile home park, landlord tenant, bill of rights act if I remember if my memory serves and it’s pretty onerous, but there’s workarounds or there’s easy ways to comply. There are some provisions. In fact, entire paragraphs, you must include in your lease. These are things like the department of public health pamphlet you must distribute and get sign off that you distributed it. You know, it’s like the lead paint kind of stuff. It’s not a big deal. Just give it up, show it off, share it and be compliant. But you don’t want to get stung. In your lease in general you want to have things like arbitration provisions, severability provisions, unconscionable provisions, limitation provisions. In addition to maybe some more MH specific provisions like write of first refusal or something of the sort.

So ultimately the message for the day is get a good lease, strong lease. It’s going to be fair and reasonable, but it can be 51/49 landlord favorable, maybe not 99/1. That might be unconscionable under the law, but it would not be unreasonable to have a lease that’s strong for the landlord. In fact, you would almost be imprudent not too. But watch out for those five things. Those are the big ones Dodd-Frank, abandoned housing, eviction possession, you know, the water sewer bill back stuff. And then just really MH specific statutory provisions. If you tackled those, you know, you should be in good shape. I wouldn’t recommend rocket lawyer, you know, for this one, but you can read the code yourself. You can talk to your state MHA. That’s probably a good starting point, but to be honest, they’re not all the best. There are some really good ones. And there are some that pretty much all they do is golf tournaments and garbage. I joined, I’m probably a member of 15 state MHAs and frankly, some of them are a waste of $50, a $100. But some of them it’s like, Holy cow, I only paid $200 and I just call them and I’m like, Hey, what’s the legislation. I’m on their email list. I get their meeting invites; all these sorts of things and I get thousands and thousands of dollars of value. Some, I mean, could be temple documents, obviously I’m biased. You can hire me to do template documents too, right. They may have one it might be good. There’s one state in particular I’m not going to call them out here because I am a member, but their template documents sucks. And I read it or reviewed it, I redlined it and it clearly was from an attorney that’s never been to a trailer park. If you’re a mobile home park owner actually read the lease. If you have questions or concerns, make them bullet point question list and call your attorney or call your MHA and ask specific questions. If they can’t answer that, and that’s their job, you need to move on.

But overall leasing is super important. I may or may not get into more podcast on leasing topic. I think everybody gets it. This just I’ve been working on, but it doesn’t stay template leases here in the last 60 days. So, it was kind of in my mind, you know what? There are some, and I don’t even frankly know all the distinctions and differences until I know. I’m ignorant until I read a specific state statute. And I don’t know what I don’t know. If you’re operating in a state and you have not read the state code, you’re a fool. You need to do that; you need to hire someone. It’s not that big of an expense or that big of a headache, but there are distinctions and saying the Southeast there’s a more similarity just because the culture is similar. But if you’re going from like, I’m under contract right now on deals in Nebraska, Missouri, Iowa, Illinois. I got offers in Oklahoma, out Florida, Kentucky. I can make offers without knowing the lease, but I cannot close and sign up tenants without knowing the lease.

So, I’ve built up some, I got some pent-up work if you will, on my plate. If these deals go through, so you need to do the same thing. If you already own, already operate, you’ve got a state-specific lease, till next time, sign off. God bless.

 

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