Top Mistakes of First-Time Manufactured Home Community Owner-Operators

Owning and operating a manufactured housing community (MHC) requires a broad understanding of property management, legal compliance and community relations. First-time and newer owner-operators often encounter avoidable pitfalls that can lead to costly disputes, legal problems and operational headaches. The following are some of the most common mistakes first-time and newer MHC owner-operators make before and after an acquisition and how to avoid them.

Conducting Inadequate Due Diligence

Before purchasing an MHC, conduct thorough due diligence, particularly regarding land use and zoning. Many manufactured housing communities were established before modern zoning ordinances and are therefore categorized as non-conforming uses. While the law generally permits an owner-operator to continue lawful non-conforming use, expansion, redevelopment or modification of that use may be restricted. Before buying an MHC, a purchaser should confirm whether the community is a non-conforming use and understand the city's or county’s position on key issues regarding MHCs, such as whether the city or county permits home replacements or lot expansions. Obtaining an American Land Title Association (ALTA) survey and consulting with local authorities early in the process can save significant time and money while providing greater clarity before closing. If a city or county does not honor the non-conforming use rights, the owner-operator may need to hire an attorney to enforce them, potentially through litigation, which is costly.

Failing to Understand State and Local Laws During the Due Diligence Period and Beyond

New owner-operators must understand the applicable state and local laws governing MHCs, including general landlord-tenant law.

Purchasers should retain experienced MHC counsel to review all existing leases during the due diligence period. An owner-operator must understand the basic economic terms and legal structure of the existing leases. In many states, a landlord can be held liable simply for having unlawful provisions in a lease, even without enforcing such provisions. Reviewing the leases and making any necessary amendments to conform with state law before or immediately following closing sets an owner-operator up for success from day one.

Additionally, every state, and sometimes every city or county, has different requirements regarding rent increase/rent control, maximum late fees and the required duties of landlords and tenants. Some jurisdictions even impose specific obligations on MHC owner-operators and landlords at the time of acquisition. For example, Iowa Code Section 562A.12(5) requires that tenants receive notice of a transfer of their rental deposit and the name and address of the transferee of such rental deposits. Failing to comply with requirements like these can expose an owner-operator to liability from the very start. An experienced MHC attorney can help an owner-operator understand their duties and obligations both during the acquisition process and upon ownership.

Neglecting to Build Strong Relationships

Successful MHC ownership depends on strong relationships both inside and outside of the MHC community. New owner-operators should get involved in the MHC community to learn best practices and create connections with MHC-specific vendors and suppliers. A new owner-operator can create a strong community in the following ways:

• First, have a capable local property manager trained in the applicable state and local laws and skilled in customer service in place from day one. A good manager is the face of the community and essential to smooth day-to-day operations.
• Second, build connections with local government officials. Developing relationships with city and county inspectors, city council members and state representatives can prove invaluable when navigating regulatory issues or seeking support for community improvements.
• Third, become a member of your statewide MHC association. These organizations offer access to local resources, networking opportunities with colleagues and connections to vendors who specialize in the manufactured housing industry. The relationships and knowledge gained through association membership can provide a significant competitive advantage, and ultimately a better experience for your tenants.

By avoiding these common mistakes, first-time and newer MHC owner-operators can position themselves for long-term success in the MHC industry.

Key Takeaway

For first-time manufactured housing community owners, long-term success begins well before closing. Conducting thorough due diligence, understanding applicable state and local laws and building strong relationships with tenants, local officials and industry partners can help avoid costly mistakes, reduce legal risk and establish a solid foundation for successful community ownership and operations.

If you have questions regarding this article, please contact Jodie McDougal.

This article does not provide legal advice. The materials in this article have been prepared by Fredrikson & Byron, P.A. and its consulting subsidiaries for informational purposes only. For more information, visit Fredrikson’s disclaimer.