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Sandhill Acres Home Owners Association v. Sandhill Acres MHC, LLC

Superior Court of Delaware

September 18, 2018

Sandhill Acres Home Owners Association
v.
Sandhill Acres MHC, LLC

          Brian S. Eng, Esquire Community Legal Aid Society, Inc.

          Nicole M. Faries, Esquire Baird Mandalas Brockstedt LLC

         Dear Counsel:

         Enclosed is my amended decision in the above-referenced matter. I amended it to reflect the fact that Ms. Faries and Baird Mandalas Brockstedt LLC now represent Appellee Sandhill Acres, MHC, LLC.

         IT IS SO ORDERED.

         This is my decision on Appellant Sandhill Acres Home Owners Association's ("SAHOA") appeal of Arbitrator James P. Sharp's decision that Appellee Sandhill Acres MHC, LLC ("Sandhill Acres") is entitled to increase its monthly lot rent to the market rate of $455 per lot because Sandhill Acres spent $12, 185 to improve the water filtration system for the Sandhill Acres Manufactured Home Community. Sandhill Acres is the owner of the 128 lot Sandhill Acres Manufactured Home Community located in Sussex County, Delaware. The community is subject to the Rent Justification Act (the "Act").[1] In communities like Sandhill Acres, the residents purchase their homes but rent the land on which their homes sit. SAHOA is the homeowners association representing the 16 residents opposed to the proposed rent increase.

         Sandhill Acres sought to increase its monthly lot rent to the market rate of $455 per lot per month as established in a market rent survey. This increase would represent an increase above the rate of inflation. Sandhill Acres sent out notices of the rent increase and held meetings with the residents. At the meetings, Sandhill Acres presented the market rent survey. Sandhill Acres also disclosed that it spent $12, 185 to upgrade the water filtration system in the community. SAHOA did not agree to the rent increase and filed for arbitration. An arbitration hearing was held on May 23, 2017. The Arbitrator ruled that Sandhill Acres was entitled to increase its monthly lot rent to the current market rate of $455 per month because Sandhill Acres had spent $ 12, 185 to upgrade the water filtration system. SAHOA now appeals that decision to this Court.

         STANDARD OF REVIEW

         "The Delaware Supreme Court strongly signaled that the scope of review by the Superior Court in appeals pursuant to the Act requires a substantial evidence and error of law review as opposed to a de novo consideration of the record."[2] The Delaware Supreme Court noted that the "appeal provision provides that any review by the Superior Court will be "on the record and the Court shall address written and/or oral arguments of the parties as to whether the record created in the arbitration is sufficient justification under the Code for the community owner's proposed rental increase in excess of the CPI-U. That usage, although loose, is associated with the kind of review that is given to determinations by administrative agencies. Under that form of review, if a factual finding of the initial tribunal is supported by substantial evidence, that finding must be given deference.""[3]

         The Applicable Statutory Law

         Sandhill Acres seeks to increase the lot rent in its community by more than the consumer price index. The Rent Justification Act allows a manufactured home community landowner to increase the lot rent by the rate of inflation without showing more.[4] However, to raise the lot rent by more than inflation, the Act sets forth three conditions a landowner must satisfy.[5] The first condition a landowner must satisfy is a clean bill of health during the preceding 12-month period.[6] There is no allegation that Sandhill Acres did not meet this obligation. The landowner must then show that the "proposed rent increase is directly related to operating, maintaining or improving the manufactured home community, and justified by 1 or more factors listed under subsection (c) of [§7042]."[7] Sandhill Acres argues that the proposed rent increase is based upon installing an improved water filtration system and is directly related to improving the community. Subsection (c) lists eight factors.[8] The one at issue here is market rent.[9] Market rent is defined as "that rent which would result from market forces absent an unequal bargaining position between the community owner and the home owners..."[10] The first six factors relate to capital improvements and changes in taxes, utility charges, insurance and financing costs, reasonable operating and maintenance expenses, and repairs other than for ordinary wear and tear. As such, the first six relate to the cost side of operating, maintaining or improving a mobile home park. The seventh factor is market rent and it too must relate to operating, maintaining or improving a manufactured home park. The eighth factor involves rental assistance provided by the community owner to the residents.

         The Arbitration Hearing

         The Delaware Manufactured Home Rehabilitation Authority appointed James P. Sharp, Esquire, to serve as the Arbitrator. The Arbitration hearing was held on May 23, 2017. The following five witnesses testified at the arbitration hearing:

1. Gary Creppon
Creppon has worked at Sandhill Acres for 28 years. Creppon is now the property manager for Sandhill Acres. Creppon described the water system at Sandhill Acres.
2. Bob Ruais
Ruais is the Director of Operations for Arcap, LLC, the management company for Sandhill Acres. Ruais testified (1) about the water filtration system cost and the increase in others costs; (2) that the market rent is $455 per lot; (3) that costs were going up and the return on the property had declined; (4) that the sewer costs and other operating expenses had gone up; (5) that the improved water filtration system cost $12, 185; and (6) that the water and sewer costs were up $83 per lot and net operating earnings were down $57 per lot.
3. Royce Ashton Rowles
Rowles works for Colliers International as a commercial real estate appraiser. Rowles testified that market rent is $455 per lot.
4. Robert Ray
Ray has been a tenant in Sandhill Acres for 26 years. Ray testified about the ...

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