California MRL Civil Code §798.19.5

Description

This bill would prohibit any mobilehome park rental agreement entered into after January 1, 2006, from including a term granting the park owner a right of first refusal should the mobilehome owner decide to sell his or her mobilehome.

Background

The Senate Select Committee on Mobile and Manufactured Homes estimates that as many as one third of the nearly 5,000 mobilehome parks in California include a clause in their rental agreements granting the park a right of first refusal. These rights of first refusal require a mobilehome owner, upon receipt of a legitimate offer to purchase the mobilehome from a third party, to submit a written copy of the offer, including all terms, to the mobilehome park. The park then has a specified amount of time to meet the offer. In the examples of leases containing rights of first refusal provided by the author, this time frame varied from two to ten days. If the park chooses not to meet the offer, then the mobilehome owner is free to accept the offer of the third party, if the third party is still interested. If the sale to the third party is not accomplished, the mobilehome owner must repeat this process for each offer received. If the park meets the offer, then the mobilehome owner must sell his or her mobilehome to the park owner.

Changes to Existing Law

Existing law does not prevent a mobilehome park rental agreement from granting a right of first refusal to the park if mobilehome owner attempts to sell the mobilehome to a third party.

This bill would prohibit, after January 1, 2006, a mobilehome park rental agreement from including a right of first refusal as a term of a rental agreement between a mobilehome owner and the park management.

Comment

1. Need for the bill

   The author and supporters assert that rights of first refusal may be abused in various ways by unscrupulous mobilehome parks. At the Senate Select Committee on Mobile and Manufactured Homes' Mobilehome Park Management Problems hearing in October 2004, mobilehome owners identified this involuntary surrender of control over their own property as a major problem.

   Prospective buyers may be deterred because of the delay inherent in the park's right of first refusal, which can range up to 10 days. This delay, particularly if the park owner decides not to exercise its right, is inconvenient for both buyer and seller and can also cause a reduction in the value of the mobilehome by creating uncertainty in a prospective buyer. Additionally, while the potential buyer is negotiating sales terms with the mobilehome owner, the buyer is also attempting to secure a lease from the park. Park management can abuse this process by offering unfavorable lease terms, making the mobilehome less attractive and possibly drive down the price when there is a desperate seller. The park owner may then exercise its right of first refusal to purchase the mobilehome at the reduced price.

   Supporters also contend that park owners have a strong interest in incorporating rights of first refusal into their leases as a guaranteed way of purchasing the mobilehomes in the park. Park management, if it owns the mobilehome, is exempt from certain burdens of the Mobilehome Residency Law, such as rent control. The park owner may also replace a mobilehome with a newer home which can be offered at a higher rent. Additionally, if a park owner owns most of the mobilehomes in the park and is renting fewer than two spaces, the owner may close the park and put it to another use, eliminating a key source of affordable housing in this state.

   Although leases are in theory negotiated, in fact, mobilehome owners have little or no bargaining power to have the right of first refusal taken out of the lease. Because mobilehomes are not truly mobile, a mobilehome owner is often forced to accept the lease on whatever terms proposed by the park owner. Because of the mobilehome owner's lack of leverage to keep a right of first refusal out of a rental agreement, supporters contend this bill would even the playing field and ensure that any rights of first refusals are truly negotiated.

2. WMA concerns

   Western Manufactured Housing Communities Association (WMA) has suggested amendments to the bill to alleviate its concerns that this bill takes away property rights of park owners. WMA contends that a right of first refusal is a valuable property right which should not be given away without some form of consideration and suggests adding language to this effect. However, the aim of this bill is actually in harmony with WMA's stated concerns. This bill is attempting to prevent a right of first refusal from being given away without consideration or negotiation. The language of the bill does not prevent a park and mobilehome owner from voluntarily negotiating and entering into a separate agreement providing the park owner with a right of first refusal. This bill simply prohibits a rental agreement from containing a term granting the park owner a right of first refusal. Any suggested language explicitly reserving the right to enter into a separate agreement for a right of first refusal would be superfluous.

3. AB 197 (Umberg) may be distinguishable on policy grounds

   AB 197 (Umberg) proposes to grant a conditional right of first refusal to the mobilehome owners and tenants should a park owner desire to sell the park to a third party. WMA contends that AB 197 is inconsistent with this bill because AB 197 is granting a statutory right of first refusal to tenants and mobilehome owners, while this bill is prohibiting a right of first refusal in mobilehome park owners. However, that assertion is not persuasive upon analysis.

   The conditional right of first refusal in AB 197 arises in situations where there is a strong public interest in maintaining affordable housing by converting the park to resident ownership and preventing the risk of a mobilehome park from being put to another use. Specifically, AB 197 only applies when 30 percent of the spaces in the park are occupied by low-income residents and the residents have formed a non-profit corporation representing two-thirds of the mobilehome owners in the park. No similar interest is served by granting parkowners a right of first refusal to purchase a park tenant's home.

   Secondly, in this bill, the Legislature is being asked to utilize its police powers to deter abusive practices by some unscrupulous mobilehome park owners who refuse to offer prospective buyers a reasonable lease, thus deterring sales outright or depressing the market price at the very least, and who then take over any proposed sale at a depressed price rather than buying it in an arms-length transaction. AB 197, in contrast, seeks to enable a qualified park tenant association to buy a mobilehome park that its owner has voluntarily put up for sale and to purchase it at the price that the owner-seller has freely negotiated with a third party. The two measures are not peas of the same pod. AB 197 is pending a hearing by the Assembly Committee on Housing and Community Development.

4. Suggested clarifying amendment

   The Committee understands that it is the intent of the author that this bill apply not only to new rental agreements entered into after January 1, 2006, but also to renewed rental agreements. To accomplish this, the following language is suggested: Page 1, line 3, after into insert: "or renewed".
   Senate Judiciary Committee – SB 237