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Bon Ayre Land LLC v. Bon Ayre Community Association

Superior Court of Delaware, Kent

February 26, 2015

BON AYRE LAND LLC, a Delaware Limited Liability Co., Appellant,
v.
BON AYRE COMMUNITY ASSOCIATION, Appellee.

Submitted: November 17, 2014.

Upon the Appeal from the Decision of the Delaware Manufactured Home Relocation Authority; Superior Court's Decision on Appellant's Request for a Rent Increase. Denied.

L. Vincent Ramunno, Esquire of Ramunno & Ramunno, P.A., Wilmington, Delaware; attorney for Appellant.

James G. McGiffin, Jr., Esquire of Community Legal Aid Society, Inc., Dover, Delaware; attorney for Appellee.

ORDER

William L. Witham, Jr. Resident Judge.

The Delaware General Assembly recently enacted legislation under the Delaware Manufactured Home Owners and Community Owners Act ("Act"), which among other things, governs rent increase in manufactured housing communities. The new legislation mandates that a community owner, prior to increasing rent above the average annual increase of the Consumer Price Index For All Urban Consumers in the Philadelphia-Wilmington-Atlantic City area ("CPI-U") comply with a number of statutory proscribed procedures.[1]

This case involves a rent justification action between community owner Bon Ayre Land LLC ("Appellant"), and Bon Ayre Community Association[2] ("Appellee"). Pursuant to 25 Del. C. § 7044, the Appellant appeals from the non-binding decision of the arbitrator who found that the Appellant's proposed rent increase was not justified under the Act. The Appellant raises four issues on appeal: (1) The rent justification act is unconstitutional, inconsistent and unworkable; (2) the arbitrator erred in excluding relevant and admissible evidence; (3) the arbitrator erred in not complying with the legal doctrine of collateral estoppel; and (4) the arbitrator's decision was contrary to the law and the evidence. I begin by reviewing the Act.

Delaware Manufactured Home Owners and Community Owners Act[3]

The General Assembly provided us with the following purpose:

Manufactured housing has become a vital source of affordable housing in Delaware, particularly as a home ownership opportunity for low-income households who otherwise would likely not be able to move into home ownership. In recent years, Delaware has experienced a difficult economic climate which has resulted in a crisis in affordable housing availability. Additionally, manufactured home owners make substantial and sizeable investments in their manufactured homes. Once a manufactured home is situated on a manufactured housing community site, the difficulty and cost of moving the home gives the community owner disproportionate power in establishing rental rates. The continuing possibility of unreasonable space rental increases in manufactured home communities threatens to diminish the value of manufactured home owners' investments. Through this subchapter, the General Assembly seeks to protect the substantial investment made by manufactured home owners, and enable the State to benefit from the availability of affordable housing for lower-income citizens, without the need for additional state funding. The General Assembly also recognizes the property and other rights of manufactured home community owners, and seeks to provide manufactured home community owners with a fair return on their investment. Therefore, the purpose of this subchapter is to accommodate the conflicting interests of protecting manufactured home owners, residents and tenants from unreasonable and burdensome space rental increases while simultaneously providing for the need of manufactured home community owners to receive a just, reasonable and fair return on their property.[4]

Accordingly, to ensure rental increase is attributed to normal market forces and not the disproportionate bargaining power enjoyed by the community owners; for any increase above the CPI-U, the community owner must demonstrate the increase is justified.[5] To do so, the community owner must demonstrate: (1) it has not had any health or safety violations that persist more than 15 days after it received notice of the violation during the previous twelve month period; (2) the proposed increase is directly related to operating, maintaining, or improving the manufactured home community; and (3) the increase is justified by at least one of several factors.[6]

One such factor, and the only one relied on by the Appellant in arbitration and on appeal, is market rent. The Act defines market rent as, "rent which would result from market forces absent an unequal bargaining position between the community owner and the home owners."[7] In calculating market rent, "relevant considerations include rents charged by comparable manufactured home communities."[8] To be considered a comparable manufactured home community within the meaning of the statute, the comparables "must offer similar facilities, services, amenities and management."[9] Finally, at the meeting, the community owner must "disclose financial and other pertinent documents and information supporting the reasons for the rent increase."[10]

In addition to being able to actually show the rental increase is justified within the meaning of 25 Del. C. § 7042, the Act requires the community owner to undertake a number of procedural requirements. In a recent case, this Court explained what is procedurally required:

First, the community owner must give written notice to each affected home owner, the community's home owners' association ("HOA"), and the Authority at least 90 days prior to any increase in rent. Second, if the proposed increase is over the CPI–U, there must also be a meeting between the community owner and the other parties. At the meeting, the community owner must provide [...] disclosures, in good faith, of all material factors resulting in its decision to increase rent. These material factors include "financial and other pertinent documents and information." Finally, if the parties cannot reach a resolution at the meeting, any affected homeowner, or the HOA on behalf of one or more of the affected homeowners, may petition the Authority for non-binding arbitration in which the Authority will render a decision as to whether the community owner may increase rent in the manufactured community.[11]

The Court went on to explain:

If arbitration is sought by one of the parties, the Authority is charged with considering evidence regarding the increases in the costs of operating, maintaining, and improving the affected community. The Authority is to employ the standard codified in 25 Del. C. § 7042. If the Authority finds that the community owner has not established the requirements laid out in § 7042, it will deny the community owner's request for the rent increase. The community owner, the affected community's HOA, or any affected homeowner is entitled to appeal to the Superior Court on the record with regard to the Authority's decision to grant or deny the ...

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