BILL ANALYSIS Ó AB 1938 Page 1 Date of Hearing: May 1, 2012 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair AB 1938 (Williams) - As Amended: April 26, 2012 SUBJECT : Mobile Homes: long-term Rental Agreements KEY ISSUES : 1)Should the management of a mobilehome park be prohibited from passing along to homeowners the costs of any fines or money damages incurred by management's violation of Law? 2)Should the management of a mobilehome park be required to attach a summary page OF all monetary charges the homeowner will be liable for during the term of the agreement? 3)Should a homeowner's 72-hour right to void a long-term mobilehome rental agreement be measured from the time that the agreement is executed or from the time that the homeowner receives a copy of the executed agreement? FISCAL EFFECT : As currently in print this bill is non-fiscal. SYNOPSIS This bill seeks to ensure that resident homeowners in a mobilehome park fully understand the terms of their long-term rental agreement with park management. California's Mobile Home Residency Law governs many aspects of the relationship between park managers and resident homeowners, including long-term rental agreements. This bill is especially concerned with agreements that are longer than 12 months' duration and thereby often exempted from local rent control ordinances. According to the sponsor, these long-term agreements tend to be lengthier and more complicated than other leases, so that homeowners may not always appreciate all the fees, charges, and built-in rent increases to which they may be committing themselves. This bill, therefore, would make the following changes to existing law: (1) it would require that a summary page identifying all of the fees and charges for which the homeowner is liable be attached to any rental agreement; (2) it would prohibit management from passing along the costs of any fines or damages resulting from management's violation of the Mobilehome Parks AB 1938 Page 2 Act, just as it is currently prohibited from passing along costs that result from violations of the Mobile Home Residency Law; and (3) it would specify that the homeowner's existing 72-hour right of rescission should not start running until the homeowner receives a copy of the executed agreement, as opposed to the time at which the agreement is executed, as is provided by existing law. This bill is sponsored by the Golden State Manufactured-Home Owners League, which represents resident homeowners. It is opposed by the Western Manufactured Housing Communities Association, which represents park owners and managers. The bill passed out of Assembly Housing & Community Development Committee on a 5-2 vote. This analysis recommends minor amendments that the author may wish to take. SUMMARY : Makes changes to the statute governing long-term rental agreements in mobilehome parks. Specifically, this bill : 1)Requires rental agreements in excess of 12 months' duration to include a summary page attached to the front of the rental agreement entitled "Summary Page of Rent, Utilities and Other Charges" that clearly and concisely summarizes each financial or monetary charge the homeowner shall be liable for during the term of the rental agreement, including, but not limited to, any amounts to be paid for annual rent increases, the pass-through of any expense amount as part of rent, utilities, known incidental reasonable charges for services actually rendered, rent increases intended to take effect upon the sale or transfer of the mobilehome, or any other rent increases that can be obtained during the term of the rental agreement. However if an error in the summary page conflicts with the terms of the rental agreement, the rental agreement shall prevail. 2)Prohibits management from charging or imposing upon a homeowner any fee or increase in rent which reflects the cost to management of any fine, forfeiture, penalty, money damages, or fee assessed or awarded by a court of law against the management for a violation of the Mobilehome Park Act. 3)Specifies that a homeowner who executes a long-term rental agreement has 72 hours from the homeowner's receipt of an executed copy of the agreement to void the agreement. EXISTING LAW : AB 1938 Page 3 1)Requires mobilehome rental agreements to be in writing and to include, in addition to any other provisions required by law, the term of the tenancy and the rent thereof; the rules and regulations of the park; the relative responsibilities of management and owners to maintain the physical property; a provision listing any services that will be provided and the fees to be charged for those services; a provision stating that management may charge a reasonable fee for services relating to maintenance in the event that the homeowner fails to maintain the land or premises in accordance with the rules and regulations; and all other provisions governing the tenancy. Provides, additionally, that a copy of the Mobile Home Residency Law be attached to the agreement, and that homeowners must be notified of any changes to this law, as specified. (Civil Code Section 798.15.) 2)Specifies that a rental agreement in a mobilehome park in excess of 12 months' duration Ýhereafter a long-term rental agreement] is exempt from any ordinance, rule, regulation, or initiative measure adopted by any local governmental entity that establishes a maximum amount that a landlord may charge a tenant for rent. (Civil Code Section 798.17 (a).) 3)Gives a homeowner at least 30 days from the date when a long-term rental agreement is first offered to accept or reject the agreement, and permits the homeowner to void the agreement by notifying management in writing within 72 hours of the homeowner's execution of the agreement. Requires management, at the time the agreement is first offered, to provide the homeowner with written notice of the homeowner's right to have 30 days to inspect the rental agreement and the homeowner's right to void the agreement up to 72 hours after execution. Specifies that failure to provide this notice makes the agreement voidable at the homeowner's option. (Civil Code Section 798.17 (b) and (f).) 4)Requires management to return an executed copy of the rental agreement to the homeowner within 15 business days after management has received the rental agreement signed by the homeowner. (Civil Code Section 798.16.) 5)Prohibits management from charging or imposing upon a homeowner any fee or increase in rent that reflects the cost to the management of any fine, forfeiture, penalty, money damages, or fee assessed or awarded by a court of law against AB 1938 Page 4 the management for a violation of the Mobilehome Residency Law. (Civil Code Section 798.39.5.) COMMENTS : According to the sponsor, the Golden State Manufactured-Home Owners League (GSMOL), this bill is a response to the increasing number of mobilehome parks that are offering resident homeowners long-term rental agreements. Such agreements provide the advantages of certainty and stability to both park management and the homeowner, but they have one significant advantage from management's perspective: long-term residential rental agreements - i.e. those in excess of 12 months' duration - are exempt from local rental control ordinances. To qualify for this exemption, the long-term residential agreements must meet two additional criteria: (1) they must give the homeowner at least 30 days from the date that the agreement is first offered to either accept or reject the rental agreement; and (2) the homeowner who executes the agreement must be able to void the agreement by notifying management within 72 hours of the homeowner's execution of the agreement. This bill would make three changes relating to rental agreements in excess of 12 months' duration Ýhereafter long-term rental agreements]. Summary Page : Because the homeowner is bound to long-term agreements that can be anywhere from two to ten years, the author and sponsor contend that the homeowner should have adequate information about the terms of the rental agreement, especially in regards to any built-in rent increases or fees that management may charge beyond rent. Under existing law, park management is generally permitted to charge a fee for services actually rendered and that are listed in the rental agreement, but management is also expressly prohibited from charging certain kinds of fees. According to the sponsor, in a lengthy long-term rental agreement, these charges may be scattered throughout the document. In order to address this concern, this bill would require that all long-term rental agreements contain a cover sheet or "summary page" that "clearly and concisely summarizes" all of the charges that the homeowner will be liable for during the duration of the agreement. It should be stressed that this summary page would not be a recitation of all of the terms and conditions of the rental agreement, but only a summary of all monetary charges that may be imposed pursuant to the agreement. This provision would allow a homeowner to see in one place all charges for which they will be responsible, including so-called "pass through" fees AB 1938 Page 5 that permit management to pass certain capital improvement or other expenses along to homeowners in the form of fee or rent increases. Prohibition on Certain "Pass-Through" Charges : In addition, this bill would prohibit a long-term agreement from containing any provision authorizing park management to pass on to homeowners costs related to fines or legal damages that stem from management violations of the Mobilehome Parks Act. (Health & Safety Code Section 18200 et seq.) Existing law already prohibits park owners from passing through the costs of such fines and damages resulting from violations of the Mobilehome Residency Law, which governs the relationship between landlords and tenants in mobilehome parks. As their names would indicate, both the Mobilehome Residency Law and the Mobilehome Parks Act regulate mobilehome parks: the former, in the Civil Code, regulates the relationship between park management and homeowners as landlord and tenant; the latter, in the Health & Safety Code, regulates and enforces construction, installation, and operational standards in mobilehome parks. In sum, this provision of the bill logically follows from existing law: if park management may not pass through fines and litigation costs when it violates one set of statutory provisions relating to mobilehome parks, it's difficult to see why it should be allowed to pass through costs for violations of another set of statutory provisions that also relate to mobilehome parks. 72-Hour Right to Void : Finally, this bill would provide that the 72-hour window that homeowners have to void (or rescind) a long-term rental agreement does not begin until the homeowner receives the executed lease from the management. Under current law, a homeowner may void the agreement within 72 hours after signing the agreement. However, existing law gives management 15 business days to return a copy of the executed lease to the homeowner. In sum, by the time the homeowner obtains his or her copy of the executed lease, the time in which the homeowner may void the lease has already passed. Having the 72-hour clock begin when the homeowner receives an executed copy, the sponsor contends, will make the right to void the agreement within 72 hours more meaningful. The Committee may wish to recommend that the author accept an amendment to the homeowner's right to void the agreement within 72 hours . The author and sponsor reasonably argue that existing law creates a seeming contradiction: that is, the homeowner has AB 1938 Page 6 a right to void the agreement within 72 hours of execution, but the homeowner is not entitled to a copy of the executed agreement until 15 days after execution. On the other hand, opponents, with equal reason, contend that starting the clock only upon the homeowner's receipt of a copy of the executed agreement will create problems of its own: for example, how will management know when the homeowner has received the executed agreement? The time of execution or signing of agreement is presumably apparent to both management and homeowner. But the time at which the executed document is received - unless it is hand delivered - is known only by one party. The problem is made more complex by the fact that the document is not always signed by both parties at the same time. Typically, according to both sponsor and opponent, the agreement is signed in the local park offices and then sent to the park's parent company which then approves and signs the agreement. The agreement is not fully executed until both sides sign. Perhaps a simple solution would be to require that the homeowner be provided with a copy of the final agreement at the time the homeowner signs the agreement and returns it management. The 72-hour clock would then begin at that time. This would appear to meet the concerns of both the sponsor and the opposition: that is, the homeowner would have a copy of the final agreement during the full 72-hour rescission period, and the park management would know exactly when the clock begins to run and there would be no delay due to uncertainty of when the homeowner received the executed document. To be sure, the homeowner will not have received a fully executed document, since the parent company will not yet have signed; but the homeowner will have the final document, albeit without the other side's signature. Where existing statutes provide an express right to rescind a contract, the period of time provided may vary, but it generally begins with the signing of the contract. (See e.g. Civil Code Sections 1688 et seq., especially 1689.3, 1689.6, 1689.20, 1694.1, 1694.6, 1695.4.) If there is concern that the document could be altered between the time that the homeowner signs the agreement and the time that it is returned to the homeowner with the other party's signature, those subsequent changes would not be binding on the homeowner, and this could be specified in the amendment. Thus, the Committee recommends that the author take the following amendment: AB 1938 Page 7 - On page 5 lines 31-36 strike the contents of paragraph (4) of subdivision (b) of Civil Code Section 798.17 and replace it with the following: (4) The homeowner who signs a rental agreement pursuant to this section may void the rental agreement by notifying management in writing within 72 hours of returning the signed rental agreement to management, provided that management at that time provides the homeowner with a copy of the final agreement that has been signed by the homeowner. If the homeowner is not provided with a copy of the final agreement at the time of returning the signed agreement to management, then the homeowner may void the rental agreement within 72 hours of receipt of an executed copy of the rental agreement that is returned to the homeowner pursuant to Section 798.16. If the executed agreement differs in any detail from the final agreement signed by the homeowner, then the executed agreement shall be voidable upon the option of the homeowner. The above amendment will create an incentive for management to provide the homeowner with a copy of the final rental agreement at the time that the signed agreement is returned to management. If a copy is not provided at that time, then the clock will not begin to run until the homeowner receives the executed agreement and management will have to live with whatever uncertainty that creates. Recommended clarifying amendments : The Committee recommends two clarifying amendments. First, as recently amended the bill specifies that if there is an error in the proposed summary page that is inconsistent with the rental agreement, the rental agreement shall prevail. To prevent potential mischief, this should be clarified to provide that the rental agreement shall only prevail against unintentional or inadvertent errors. Second, the provision in this bill extending the prohibiting the passing through of fines or damages resulting from management's violations of the Mobilehome Park Acts only applies to fines or damages imposed by courts. However, unlike the existing provision that applies to the Mobilehome Residency Law, the Mobilehome Parks Act provides for orders issued by courts and imposed by an enforcement agency. Therefore, the Committee recommends the following amendments: - On page 4 line 17 after "an" insert: unintentional or inadvertent AB 1938 Page 8 - On page 7 line 7after "law" insert: or enforcement agency ARGUMENTS IN SUPPORT : According the author, "this bill will address a number of consumer protection issues that have arisen in mobilehome park leases." Because current law allows park management to offer long-term rental agreements - up to ten years according to the author - "a homeowner is bound to such a lease for a very long time Ýand therefore] it is critical that the homeowner have adequate information about the terms of the lease." The author believes that this bill "will give homeowners more pertinent information about rent and other charges by requiring a summary sheet of the costs to be expected throughout a long-term lease. The problem is that these various clauses are scattered throughout the lease or rental agreement and become confusing and difficult to understand for many mobilehome residents." Furthermore, the author contends that this bill will ensure that homeowners enjoy the protections of existing law by providing that the 72-hour rescission right should not begin to run until the homeowner has received a copy of the executed agreement. Currently, according to the author, "most homeowners do not receive a copy of the rental agreement when they sign it, and . . . park management has no obligation to return an executed copy to the homeowner until 15 business days after its signature. This delay essentially frustrates the rescission right, and renders it moot, since it is not reasonable to expect that a homeowner can recall the content of all that he or she signed from memory." Finally, the author believes that this measure will ensure that homeowners are not subjected to unfair "pass through" charges, particularly those that represent costs incurred by management's own violations of the law. According to the sponsor, Golden State Manufactured Homeowners League (GSMOL), long-term rental agreements often "contain a number of charges and fees that may be confusing or difficult for a homeowner to calculate or fully understand. Long-term leases are particularly problematic since they can sometimes exceed 25-30 pages in length, and typically include a number of paragraphs which authorize charging for various categories of rent . . . together with various 'pass through' clauses which authorize a dollar-for-dollar pass through for costs of such items as capital improvements, insurance, government-related AB 1938 Page 9 services, property taxes or uninsured losses. There is also typically a rent increase authorized at the time of the resale of the home. Some leases also contain a 'market catch up clause' which seeks to adjust the rent just prior to the expiration of the lease term to match the highest average rent in the park, or perhaps in the local jurisdiction." Making matters worse, according to GSMOL, "these various clauses are sprinkled throughout the lease or rental agreement." A one-page summary of all of the charges in one place, the sponsor believes, would be much easier for the homeowner to understand. Finally, GSMOL supports the bill's other provisions for substantially the same reasons as those made by the author; GSMOL adds, however, that agreements that permit the pass through of fines and damages for violations of law allow landlords to "potentially recoup judgments from the very people who were awarded the judgment. For example, if homeowners are forced to take the parkowner to court for failing to make repairs at the park, this provision would allow the parkowner to immediately turn to those same homeowners to recoup the value of the judgment the homeowners had successfully obtained from a court." ARGUMENTS IN OPPOSITION : The Western Manufactured Housing and Communities Association (WMA) oppose this bill unless amended. To begin with, while WMA contends that the proponents of the bill "have not been able to identify any examples that would necessitate the need for the bill," they admit that "there is an issue in the bill that may deserve attention." Specifically, WMA concedes that the 72-hour rescission right as set forth in existing law could be clarified. WMA contends that most managers provide a copy of the signed lease at the time of signature. Therefore, WMA would agree to an amendment that "would require management to provide a copy of the lease signed by the homeowner at the time they return it to management, and then the 72-hour clock would start." (Note: Based on this description, WMA would apparently support the amendment recommended by the Committee above.) At the same time, however, WMA claims that homeowners are already protected by current law in a number of ways, noting (1) that the homeowner has 30 days from the date that the rental agreement is first offered to accept or reject the rental agreement; (2) that the homeowner has 72 hours to void the rental agreement after the homeowner's execution of the document; and (3) that if management fails to provide the homeowner with written notice of these two rights, the agreement is voidable at the homeowner's option. WMA AB 1938 Page 10 contends that making the 72-hour right of rescission run from the homeowner's receipt of the executed agreement "may create unintended consequences of delaying the process," hypothesizing a situation in which "the homeowner cannot take receipt of the agreement because they Ýsic] are on vacation or unavailable for a number of days." WMA also opposes the proposed "summary page" that must be attached to the rental agreement. WMA believes that the provisions in existing law already provide adequate disclosure both in the rental agreement itself (Civil Code Section 798.15 (f) and (g)) and in a disclosure form that must be provided to a prospective homeowner at least three days prior to the execution of the agreement (Civil Code Section 798.75.5). WMA appears to dispute the sponsor's contention that fees and charges are scattered throughout the rental agreements, and instead contends that "most lease agreements cluster these provisions near the beginning of the agreement." Moreover, WMA contends that a summary page may do a disservice to homeowners by encouraging them to rely upon a "Cliff Notes" version of the lease instead of being encouraged to read the entire lease. REGISTERED SUPPORT / OPPOSITION : Support Golden State Manufactured-Home Owners League (sponsor) Opposition Western Manufactured Housing Communities Association (unless amended) California Mobilehome Parkowners Alliance Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334