Summary: The management of a mobilehome park is more complex than ever before. Dealing with risks of operation, compliance with the arbitrary enforcement of codes and regulations, and adherence to the fiduciary duties of “growing” the asset can be daunting. But, good management is essential. In California, property owners are fortunate to have a broad selection of excellent property management firms from which to choose. I know. I have worked with most of them during my past 40 years.
Fiduciary duties: What are the fiduciary duties you should expect? A fiduciary duty is the highest duty owed at law. It requires the property manager to always act in the best interests of the client with the duty of make affirmative vigilance typical of, well, a fiduciary. This means avoiding conflicts of interest and opportunities for self-gain that would work to the detriment of the client. In real estate property management, the property manager or management company has several areas of responsibility: marketing, financial (increasing income, rent control administration and political interface), tenant and occupancy, facility and infrastructure, administration including risk management. Not all of these issues can be managed by merely buying more insurance.
“Combat Pay”: some owners don’t consider themselves political. But if you own or manage mobilehome parks, you are in politics.
Everything from rent controls to zoning, land use, roads and highways, utilities and refuse disposal. Property managers will respond for the park owner to public and governmental interests and issues during the course of operations. In many areas where owners must address local rent control regulations, the periodic application for rental adjustments is part of the job. “Growing” the asset is a function of property management. It is a very time consuming, necessary and laborious. Late nights (past midnight sometimes) fighting for your rights shows that managing mobilehome parks is a 24-7 affair. Supplemental compensation for dealing with regulations antithetical to housing development is only fair.
In the year 2022, the industry may expect new law in the form of court decisions dealing with issues of particular sensitivity for mobilehome park management. Two of the prominent issues which may generate attention are late charges and the importance of nurturing resident rapport.
Specific Late Charges (is a $50 or 5% Late Charge Excessive?)
A class-action case awaits trial in a Northern California court, dealing with a tenant claim that a “5% or $50″ late charge is invalid. The allegation, asserted on behalf of a large class of renters against management and owners, is that the late charge has no rational relationship to the “liquidated damages” requirements of California law and hence invalid. Trial is likely to take place this year. The case has already given rise to so many intermediate decisions that the court has admonished the lawyers to refrain from further motions.
In Munguia-Brown v. Equity Residential, management allegedly charged late fees that tenants allege violate Civil Code §1671(d) (and unfair business practices provided in Business and Professions Code §§ 17200 et seq.). Under Section 1671(d), such late fees are “void” unless the landlord proves both:
(1) it is “impracticable or extremely difficult” to determine the actual damages caused by a late payment of rent; and
(2) the landlord arrived at the late fee amount by making a “reasonable endeavor . . . to estimate a fair average compensation for any loss that may be sustained” by the late payment of rent.
If management fails either of these showings, the late fees paid are invalid and must be returned. However, these amounts may be reduced, or offset, by the amount of any actual costs the landlord can prove were suffered as a result of the tenant’s late payment of rent (this does not include other forms of damages secured by a security deposit, such as damage to property, furnishings, cleaning).
The Class Action:
The “class action” procedure is a legal drone swarm. Class actions are spearheaded by one class “representative.” The damages awarded to the representative are then automatically awarded for each class member. It’s simple: 100 class member tenants means “100x” the damages awarded to the plaintiff representative. If the alleged wrongdoing applied to 10 properties, damages for the entire portfolio would be awarded, which is “1000x.” This changes the perspective of loss management from “small claims nuisance” to the “end of the world.”
Owners with multiple holdings are the most attractive targets because multiple parks enlarge the potential tenant class. Superficially, the class action seeks to remedy wrongs practiced on consumers, or for deceptive, or simply “unfair” practices. But it is all about the money. Attorneys are incentivized to bring class claims by the lure of attorney’s fees multiplied for the relative success of the results (“lodestar” approach).
Incidentally, this is one reason why establishing good resident rapport with management is not just good business, but best practices for a high quality housing opportunity. If management does not pro-actively resolve and avoid resentment, residents will seek help. Lawyers are more than happy to help. Our office is contacted frequently by residents calling for help (which we politely decline because we never oppose owners or management). E.g., the California Supreme Court validated a district attorney’s suit for management’s invalid guest fees (People v. McKale). McKale holds that management and owners are businesses for purposes of enforcing invalid or unfair contract. As with any business, any unlawful, deceptive, unenforceable or unfair conduct violates California law, allowing claims for restitution, disgorgement of monies and profits, injunctive relief, attorney’s fees and costs.
Back to Munguia-Brown v. Equity Residential: a class-action claim procedure was approved by the court. The court found that all of the tenants in the rental residences throughout California were charged one or more late fee(s) under Equity Residential’s standard late fee provision: 5% of the outstanding balance owed or $50, whichever is greater. In one of the properties affected (Woodland Park located in East Palo Alto), defendants implemented a policy of charging the standard $50 late fee, regardless of the preexisting lease.
A late fee that violates legal requirements also constitutes an unlawful business act or practice in violation of the California Unfair Competition Law. In Equity Residential, property management is alleged to have failed to show that their late was “the result of a reasonable endeavor to approximate actual losses caused by late payment of rent.”
A late fee is valid under law if the “liquidated damages [is] the result of a reasonable endeavor to approximate actual losses caused by the breach being compensated.” utilizing a percentage of contract price is inherently suspicious. Said the court: “Setting the liquidated damages to a percentage of the contract price demonstrates a purpose other than compensating losses.” The court suggests that a dialogue take place in order to discuss and analyze what the actual loss from late payment is:
“Some analysis of actual losses is required prior to setting the amount.”
Trying to piece together the actual damage analysis after-the-fact will be rejected no matter how convincing the argument (“Post-hoc rationalization will be rejected.” If park management fails to properly, in advance, determine actual damages caused by the late payment of the rent in a dialogue with the residents, the late fee will be void. In that case, the late fees paid by tenants must be returned to them. The business decisions instituted by property management will be imputed to the property owner.
Can property management protect itself with legal advice? One of the pretrial skirmishes in the Equity Residential case involved whether or not advice of the attorney called for revelation of all of the communications between attorney and client on the issue of late charges. Earlier, a motion for summary judgment by the tenants was successfully resisted on the grounds that the attorneys had told the property management that the $50 late charge was valid. The attorney advice had come from in-house and outside counsel on several occasions.
Management Should Follow Attorney Advice.
While attorney advice may be used as a defense against punitive damages to vitiate claims of intent or recklessness, but management must follow the advice. The advice is admissible. In fact, it appears from intermediate court opinions, that certain of the attorney-client communications examined by the judge, in chambers, revealed that the $50 late charge was not valid. This information has been revealed to the plaintiff tenants. The technical legal jargon for this revelation? “The cat is out of the bag.” Property management was forewarned of the probable invalidity of the $50 late charge by their own counsel, and the advice was not followed. Equity Residential remains pending and subject to trial and potential settlement..
What Are the Predictors of Resident Claims:
Understand that some residents sue and some do not when given the opportunity. Why do residents sue? Research reveals that the underlying decision is psychological, and not because of belief in the bona fides of their injury or damage.
● Failure of rapport: The one common fact shared in all “Failure to Maintain” (“FTM”) cases is a failure of resident rapport. This can be a consequence of indifferent property management, insufficient supervision of a park manager, or the antics of a park manager. The failure of rapport may be triggered or exacerbated by a few residents who have experience in the organization of people. It seems clear that infrastructure issues run a distant second to the psychological attitudes that may prevail between residents and on-site park management. And, combining problems with rapport together with infrastructure failure greatly enhances the risk of new claims.
● State of Mind. The decision is a mental process. That psychological predisposition may have little (or nothing) to do with maintenance, repair or function. We can avoid FTM’s by shaping resident attitude and building “good will.” That’s the key, not remediation of exaggerated or fabricated conditions.
Sewer backup claims may be forgiven where the park owner apologizes and offers tangible remediation. Prompt attention may be the determinative response. A hundred dollar discount from rent. While most owners make sure conditions are adequate, the truth is that psychology is “king” in evaluating FTM risk.
On the other hand, a pattern of brusque or belligerent dismissive slight may be insulting and generate the bile of resentment. Then all it takes is a spark: some event that “galvanizes” residents together (to quote a prominent property management president) to then set the FTM into motion.
● Predisposition to sue is attitudinal: Based on the common, typical, allegations from one FTM suit to another, it seems clear that individual park conditions and defects are not the pivotal basis on which suit is brought. It is not enough to say the tenants sued because the park was in “poor condition.” Lawsuits occur because of the combined-synthesis of factors including the erosion of trust and rapport, plus collective perception of management failure, together with some actual event or condition.
● Do Residents respect/have positive regard for management? So, do the residents like the owner/manager? Are there other factors, such as tangible and intangible rewards, which build “good faith” to compensate and balance the burdens of management? Have residents been well-treated? Do they see management working and sympathize? Is the rent low so they accept imperfection? Are there regular social functions, cook-outs, hot dogs on Sunday afternoons? Tamales at Christmas? Cash awards for cleanest space?
Whatever the reason, how do we maintain the resident attitude to reject legal action, when some residents are pounding on the door to sign them up for the FTM case? . . . In every case, it is the psychological attitude of the residents that is decisive. Conversely, therefore, maybe the condition of the park be entirely irrelevant?
Measuring FTM Risk: So, what are the indicators which predict the onset of the FTM? Avoiding suits should be a very high management priority. Prevention with proactive, antecedent buildup of genuine “Good will” by the management is essential to positive relations and avoidance of liabilities.
1. “Good Will” Is an Asset. Here is a quote from the Los Angeles Times about a FTM case–this example is typical of the cases. [Judge] O’Brien wrote, tenants paid rents “for which the tenants received in return endless insults to their sensibilities: Years of noise, mud, dangerous conditions, a studied neglect of simple services, a clubhouse with no furniture, a badly maintained pool and spa, and inexcusably rude, petty and bullying behavior.”
The single most important factor in forecasting FTM risk? The residents’ psychological perception of treatment from interpersonal contacts. Property management will provide knowledgeable on-site help which will enhance image.
“Good will” can be increased by management; or, it can morph into a seething dislike. The more you ask of the residents, the more you tax the “good will” of your relationship. If “good will” is reduced with new burdens– i.e., if you are asking more of the residents than you are giving back, “good will” morphs to a brooding resentment and the breeding ground for mischief. Residents become more open and receptive to organized attacks on the park owner, to strike back at the accumulation of demands which together detract and diminish the good will within the park.
The notion of “good will” in the landlord-tenant relationship is directly comparable to a bank account – a deficit in “good will” is like an overdrawn bank account. An overdrawn good will account creates exposure to the immediate risk of friction and conflict for anything else you demand (e.g., a rent increase), or anything else that may go wrong (a utility failure, a sewer spill).
2. The Mobilehome Park Is a “People Business.” It starts with the management on site. This concept is from the psychological study of business management. It is an asset. It has value. The plain fact is that mobilehome parks are a “people business.”
3. Keep the Residents Informed. Owners take great pains to maintain infrastructure and repair common area services and facilities. And the chances are good you have not informed the residents and taken credit for the hard work. Bulletins are an inexpensive way to build “good will,” by building the respect of residents who become aware of the effort, the work, the time, the cost. Keeping residents informed, from the scientific research, is a way to improve good feelings for management, or at least the respect for meeting the owner’s responsibilities and reduce propensity to sue. Communicate. If management does not fill the silence, someone else will.
4. Injustice Should Trigger Action Restoring Justice. Researchers say that: “[I]n any given claim-prone situation, the relational model of justice suggests, the likelihood of claiming will be enhanced if the person feels that he or she has been denied dignified treatment (i.e., if the employee feels denied his or her due as a member of the group), if his or her views and needs seem to have been ignored (which would lead an employee, for example, to feel little trust in the benevolence of superiors), or if the person feels that decisions and decision makers have not been neutral.
The scientists who have analyzed the probabilities, costs, and benefits associated with initiating a lawsuit and with continuing with the suit or terminating it at various points in the litigation process, have come to find that despite real cost associated with litigation from the tenant’s perspective, potential targets, such as large corporations that can pay large awards, are more likely to be sued than are defendants with lesser resources. A group of researchers (Harris, Maclean et al., 1984) explained that those who are most likely to pay are also most likely to be seen as responsible. For example, consider automobile accidents. More claims are aimed at other drivers with insurance than on the governmental entity that built the road, a harder target. There Must be a Perception of Injury: The “PIE” Model. Some scientists theorize there are at least three stages of a blossomed lawsuit.
(1) “naming” the event as an injury or harm,
(2) “blaming” someone or some organization or institution for causing the harm, and
(3) “claiming” compensation or restitution through a legal or administrative forum.
The key target of these analyses is the “perceived injurious event” or “PIE,” which must be identified, attributed, and acted upon before it becomes a cause of action in a lawsuit.
● Lawsuit Ideas Stem from Someone Else: More than half of the people who file claims for personal injuries say that the idea of claiming came from someone else, usually a relative or a doctor. Presumably because the social and normative factors surrounding a PIE are generally less than perfectly clear, people may well want and seek some social reality before they take action. The same processes seem likely to occur in a group context: Residents may talk to others about the fairness or reasonableness of their experiences in the park and only after discussion decide that they have been treated badly and that they should sue. It does not help that lawyer advertising rhythmically trumpets the benefits of lawsuits and the possibility money could be owed. Knowledge that others have successfully pursued claims could also provoke a transition from “blaming” to “claiming.”
● Will the attorney accept the case? The FTM involves pitching tenants on the benefits of the FTM suit. The attorneys may say, “look, I do not see problems, I see money.” An additional factor is the willingness of an attorney to take the case.
● “… a person who feels unfairly treated will want to complain and to pursue his or her complaint until a feeling of fairness has been restored.” In other words, once a tenant feels that he or she has suffered a substantial injustice, he or she will engage in a search for some forum or action that will restore justice.
Most FTM complaints are virtually identical. If you read ten of them side by side, you could not define the real spark that actually served as the precipitant for any of them. Example: The well kept 55+ community, with high rents and well kept facilities but without external manifestations of management care and concern, can easily be the subject of a FTM action if there is strong resident leadership with organizing skills.
5. Rent increases: Justice May Forgive Defects Where Property Rights Not Fully Exploited. Rent increases which are not accompanied by park improvements, even superficial cosmetic updating, are an example of exercising a right which may be judged as unjust. Residents are paying more, but see no improvement or enhancement to justify the increases. Not because it really is, but because your residents view it in this manner. The residents have the sole discretion whether to sue management— taking good account of their psychological disposition is crucial. Seeking concessions from the residents such as rent increases, should be accompanied/balanced by proactive and positive change in the park. Paint something. Plant something. Fix something. Replace something.
6. Reduction in Expectations Means Less Injustice. A single-wide park with moderate rents, where residents leave early and come home late, is generally a happy park if the utilities work and the manager greets the residents with a smile. If residents see park employees working in the park, cleaning, painting, planting, sweeping, rental payments are fairer. The manual work of the resident manager may be an effort with which the residents identify. Does this identification further project to the owner? If the rents are low and management is active and perceived to be caring, even raw sewage will be tolerated and excused if it is the manager in boots and brooms dealing with it – that is the image the residents remember and may appreciate (comparatively, someone has it worse than they do).
Property management can make a demonstrative improvement in resident rapport and relationships, even if there is hostility toward the owner. Property management is a buffer: serving the interests of more responsiveness and communication between resident and management, especially in cases of absentee ownership.
7. Is the Onsite Management in the Owner’s Corner? The residents expect the manager to be loyal to the owner, as this is a sign of management competence, honesty, loyalty. Tenants will disrespect the dishonest manager. Some residents are very hard working, some very decent people. The read from the good tenants is that such a manager is not worthy of respect and could turn on them too (One judge wrote that: . . . resentment of the owner resulted in the lawsuit—attitude was more important than maintenance . . . ). The manager must appear loyal to the owner to keep the respect of the tenants.
8 . The Value of Simple Conversation: Does the manager engender hostility or respect? Are desired “people skills” lacking? Often, residents just need someone to talk to. Taking time for a simple conversation dignifies the resident with validation of self, and sense of worth. Simple conversations can be a real trust and respect builder among resident community members.
Here’s a first hand example: In a park in Los Angeles County, under rent controls I fought, the ongoing settling of a landfill called for frequent re-leveling of coaches by the property manager. For many years, I represented the property manager who diligently attended to the task of leveling resident coaches when there was a complaint. He kept the residents satisfied–they weren’t happy, but they appreciated the sincere effort. Years later, the park sold to a new owner who suddenly no longer required legal services from anyone. The voluntary leveling of coaches stopped. Shortly after, a FTM was filed resulting in a significant multimillion dollar settlement. Within a year. The erosion of “good will” resulted in a failure to maintain almost immediately.
9. Is the Rent Increased No More than Once per Year? In some cases, rent policies trigger tenant lawsuits. The lawsuit is not about a rent increase, but because of the collateral disputes rents engender. Or because rent adjustments are threatened to occur up to every 90 days: this threat is patently fabricated, coming from prevaricating zealots seeking to frustrate housing opportunity and development in the park and city.
Rent adjustments should be viewed with an attitude that a quid pro quo is called into question. Yes, we have the right to increase rents on 90 days’ advance notice under Civ. Code §798.30. No one does that. No one ever has. Management may seek, apply for, or petition for a rental adjustment in any amount in order to sustain the continuing operation of a mobilehome park, so as to provide a fair and reasonable return. But again, it is the perception we must address.
The first FTM case I defended occurred in 1981, sparked by three rent increases in one year as was recommended for a park owner without consulting with us. While the rents were behind market and all the adjustments were proper, the tenants were not advised of the long-term program to achieve market conditions, long term stability preferred by the owner, and the tranquility of a long term accord. Residents felt that the stream of increases would continue unabated until they were economically evicted. Silence of the management was filled with the illusions of catastrophic expectations. And the park still looked the same to them. The sense of disenfranchisement narrowed down to one option.
10. Is the Park Operated by a Property Management Company? Parks operated by professional management companies are generally susceptible to fewer claims. This is a reflection of experience in people management and showing respect for the customer. Further, legal compliance and consistency of treatment is often at a higher and more consistent level than owner-management. This does not mean a management company is necessarily unavoidable. However, bear in mind that distance between the owner and residents can be a positive factor. Sometimes, management has more personnel and opportunity for communication with residents. More availability to communicate with residents results in greater opportunity for satisfaction of needs and wants of the resident community..
11. Maintenance and Repair? Maintenance and repair are not unimportant. But the point is that other intangible factors, based on what residents see and do, are the key factors to focus on. Conditions, per se, do not result in the filing of lawsuits, standing alone. Lawsuits start because of the interpretation of those conditions, intertwined with other perceptions. Lawsuits result because of a resident’s decision about management, rental value, and conditions. Sometimes, it is simply a desire to stop the resident community organizer from pounding on their doors after hours.
12. Conclusion re Causation: FTM’s Are Psychologically Driven. What You “Believe” Is Irrelevant. The sense of injury or injustice sparks the idea for a lawsuit. It is not the job you do, it is the perception of the job you do. Property management fashions a perception that the housing services provided are adequate, sufficient and without breach, default, or frustration. They get what they pay for. These perceptions can be accurate or plain wrong, but whether true or not, it is the tenant’s perception which predicts action. It is the world through their eyes that matters.
The study of the psychology of lawsuits suggests that the first and greatest rule of how to avoid litigation should be to treat people fairly, to be considerate and to seek to humanize and dignify the tenancy experience for the residents. From the psychological viewpoint, when management decisions are made honestly, with human – as well as economic – values in mind, litigation rates will drop substantially.
It All Boils Down To Trust: Judging just how well fiduciary responsibilities are being met will take shape over time. Confidence may take time to be proven out. Be wary of any company that wants to lock you into a long term contract, take over the park office disallowing access, deal with all resale and new sale installations and activities, include utility income in its percentage, fail to account for income and expense, including vacant or rented homes, or won’t offer any service guarantees. Property owners should be reimbursed for damage caused by the negligent or reckless acts or omissions of property management–a reciprocal, fair covenant.
But in the end, the property management agreements, like most contracts, are hardly worth the paper they are written on. Trust and confidence is the real currency of a solid property management relationship.
