Ethics of Park Owners Requiring First Right of Refusal?

45 Replies

We buy a lot of manufactured homes and have more demand for them then we can hope to fill this year. That is a good problem to have!!!

Unfortunately I have run into several occasions where the parks are claiming they have a first right of refusal to buy these homes. I have seen this come up in Michigan and Illinois specifically. Would this not be an attempt by the community owner to restrict competition in the sale of ones manufactured home? This would lower the resale value by limiting the market to only those wanting to buy the home and, keep it in the community/park. This has come up, on several occasions, after we have had homes under contract. I appreciate your thoughts in advance. This feels like dirty pool to me.

Marc, As a park owner I use these on a limited basis. Lets say someone wants to sell the home, they are moving and can not pay space rent- or worse- lets say they are behind on space rent and they are needing to sell as a way to get out from under the debt. I will sometimes exchange a first right for not prosecuting back space rent. The back rent is still owed, but the home is tied to it getting paid. So if the home was going to sell to someone that was going to pull it out, they would need to pay the back space rent or, I might choose to give the homeowner the same money, less the back space rent, and keep the home in my park. A first right does not set a price, an option would. So this would really only affect the home purchaser- but not the sellers ability to get top dollar for the home. The home owner would not know if the first right was going to be tripped until the park owner had an offer to meet. I can see how it would feel a bit like a rug being pulled out from under your feet. So I am guessing your purchasing homes and moving them- working off that premise... you can make sure everything is paid and up to date- then move the home, then buy it from the owner. So now the owner is moving the home and the park would have a very hard time stopping someone from moving their home. If challenged the park would loose unless they had a restrictive lien on the home. So you pay for the move, then as soon as the home is in the new park, change the title over to your name. 

Thanks for the quick responses. I would rather talk to my friends here on BP more than any attorney, I have to pay for! As for moving the home first and then buying, this would add significant cost and time to the equation as the first tare down and move would have to be paid for and completed before the home could be bought then sold.

I am not sure how you can say that a community owners First Right of Refusal, in a Land Lease Community (manufactured home community / mobile home park / trailer court) would NOT effect the resale value of the homes in the community. This could only limit the number of potential prospects as no outside buyers would make any offers, IF they know this is the policy and, the local courts uphold this.

A typical purchase for me would be a mobile home that has been for sale for about a year. The community owner clearly knows the home is for sale but, does not just want to go buy it from the resident because they have the resident/occupant obligated to pay lot rent. I come along and put a Purchase Agreement together with the seller and give them a deposit. I offer the home to the park owner, at a fair price, and they tell me they have first right of refusal and are now going to skate around me and buy the home directly from the people that I have under contract!!!! How about those apples?

Hmmmmm... I would be interested in seeing the space lease agreement and / or the first right agreement. Any wild chance you have copies? I want to comment- but from a fully educated position. 

Here is the exact language regarding the First Right of Refusal, that is contained in one of these leases in question:

1. Right of First Refusal. If the Resident/Lessee desires to sell his mobile home within the Park, the Lessee shall serve written notice upon the Lessor of Lessee's attempt the sell their mobile home. The notice must contain the names and addresses of the bona fide prospective purchasers, the proposed purchase price, and a full and exact disclosure of the material terms and conditions of such sale (if available, a copy of the then existing Contract shall be submitted to Lessor with said notice). Upon actual receipt of the Notice by the Lessor, they shall have 48 hours thereafter, not including Saturdays, Sundays or Legal Holidays, in which to notify the Lessee of Lessor's intent to purchase based upon the sales, terms and conditions as set forth in said sale. If Lessor rejects that offer or fails to notify the Lessee within said time, such failure shall be construed as a rejection and Lessee may sell their mobile home to the persons named in the Notice upon the terms and conditions set forth, so long as the prospective Resident meets the other reasonable requirements of the Landlord. In the event Lessor rejects said offer and if thereafter any term or condition of the proposed sale is altered, modified or otherwise changed, then Lessee must submit an additional written notice to the Lessor affording the Lessor an opportunity with an additional 48 hours after actual receipt to accept or reject the purchase based upon the changed, altered, or modified terms. Saturday, Sunday, or Legal Holidays shall not be included in the 48 hour time requirement.

Jim Johnson, if you buy a mobile home, and the seller owes past due lot rent to the park, does the new buyer of the mobile have to pay the past due rent?

@La Nae Duchesneau - I would appreciate if you would start a new topic if you are going to change the subject of this thread. Now the answer to your question depends on what state you are dealing with and sometimes what the parks policies are. This is different from area to area. My understanding is that Illinois is a replevin (sp?) state and that the park operators can only hold a new buyer liable for one months lot rent. Back to my topic please:)-

Here in Texas if you own a mobile home, and it has back space rent it must be paid in full before the title can be transfer.


Joe Gore

So two answers here-

Someone must still pay the past due space rent- the old owners or the new owners. The idea in an agreement like this is I get paid, the seller can get rid of the home, and we are not adding on attorney fees and court costs that serve on one. 

Now back to the topic at hand... so as I read that text- the owner of the home presents a contract to the park owner- who can choose a few things. Match the price, pay off the home owner and then do whatever they choose with the home. Second- reject the new owner based on the qualifying process- in effect saying they can sell the home- but that person can not be a resident or the home must be pulled out. Third- The park can let the home be purchased to the new owner. In every one of these cases the person selling the home is not effected- except in the case- someone wants to buy, is not approved so they do not buy. That is the case in all well run parks though. I am guessing this clause was put in place to prevent homes from being pulled out of parks by known dealers. 

But back to the topic- how is the homeowner harmed? If you will pay $5,000 for the home, and the park will also pay $5,000 for the home- the homeowner is whole either way. 

I am clearly looking at this from the side of the park owner- what am I missing?   

The space rent is up to date so this is a non issue. I am buying with the intention of moving the home out of the park, as I have more demand for these units than I can supply, from professional/Ca$h buyers. Why would I need to be approved by the park as long as all state laws are followed regarding the carriers licensing, permit and insurance requirements are in place? I do not need the parks approval to buy the home, IF my intention is to move it.

I have the home under contract as the home owner was not aware that she ever signed a lease agreement that stated the park has the first right of refusal. She told the park the home was for sale over a year ago and was told they were not in the marker and had too many homes for sale. Only after I showed up and, got the seller under contract, did the park try to enforce a first right of refusal. This seems like abuse of power and a clear attempt to restrict competition to me.

This is the language in the lease and, I wonder why any poor sap would EVER sign such an agreement? Why would anyone, wanting to buy a mobile home in an area where this is legal or enforceable, ever even bother to come and make an offer, let alone a counter offer that would be to the benefit of the home seller?

1. Right of First Refusal. If the Resident/Lessee desires to sell his mobile home within the Park, the Lessee shall serve written notice upon the Lessor of Lessee's attempt the sell their mobile home. The notice must contain the names and addresses of the bona fide prospective purchasers, the proposed purchase price, and a full and exact disclosure of the material terms and conditions of such sale (if available, a copy of the then existing Contract shall be submitted to Lessor with said notice). Upon actual receipt of the Notice by the Lessor, they shall have 48 hours thereafter, not including Saturdays, Sundays or Legal Holidays, in which to notify the Lessee of Lessor's intent to purchase based upon the sales, terms and conditions as set forth in said sale. If Lessor rejects that offer or fails to notify the Lessee within said time, such failure shall be construed as a rejection and Lessee may sell their mobile home to the persons named in the Notice upon the terms and conditions set forth, so long as the prospective Resident meets the other reasonable requirements of the Landlord. In the event Lessor rejects said offer and if thereafter any term or condition of the proposed sale is altered, modified or otherwise changed, then Lessee must submit an additional written notice to the Lessor affording the Lessor an opportunity with an additional 48 hours after actual receipt to accept or reject the purchase based upon the changed, altered, or modified terms. Saturday, Sunday, or Legal Holidays shall not be included in the 48 hour time requirement.

Updated almost 4 years ago

Oops I did not mean to post the rules in the leases first right of refusal twice:) I must be getting old repeating myself like that!!! My point is that with these restrictions in place, I am not inclined to waste my time making offers, only to have the

I own a MHP so my perspective is from the Owner's side. Basically the owner didn't want to buy the home when the seller told them it was for sale 1 year ago because then they would just have to go and sell it (more work and money). 

They were hoping the seller would sell it to another owner occupant that would leave the home in the park and in doing so have no part in the transaction. Given that you want to move the home out of the park they would rather purchase it for whatever price you have it under contract. They will then turn around and sell it to another owner occupant. If they let you move it out of the park then they will incur much greater expense to fill the space again and also lose money due to lost space rent while it is vacant.

If it were my park I would do the same thing. 

Aaron, I appreciate your response as a park owner. I can see you attempting to do the same thing but, do you think it is legal, ethical and in the home owners/home sellers best interest to sign a Right of First Refusal? Do most of them even know what they are signing and what the implications are? No-most of the folks in this park would sign ANYTHING just to get in. Do you think it will hold up in court? The truth of the matter here is that I am not positive if my seller has actually signed any such agreement with the park yet as I have only been provided with blank copies. I mentioned that without signed copies, I have no idea if this agreement is even in place or viable. I am supposedly getting signed copies shortly. The parks stance that even if this is not signed that they have an implied lease because the lot renter has made at least two lot rent payments!

I am seeing it as a clear attempt to restrict competition and, this feels like an abuse of power. The old saying goes, help your clients or someone else will! I fell like that is what I did:)- Sure the park did not want to step to the plate and just buy this home and go through the expense of remarketing and having it vacant, however they lost their shot when the homeowner told them it was for sale, in my humble opinion. The park could have done a better job and helped this person sell the home-IF they wanted to.

Also-how is this not restricting competition and, lowering the potential resale value of manufactured homes, in areas where this sort of thing is allowed to occur? I certainly would NOT waste my time making a counter offer and that would be in the best interest of the seller. Also, my Agreement with the seller is fully executed and states that there are $4,500 in Damages, for time, expense and lost profit, should the seller back out of this transaction for any reason. Shouldn't the park be offering to cover this if in fact they are matching my offer?

I own a park and I have essentially the same clause in my lease/rules for a couple reasons:

1) MY property is valued based in portion on the value of the homes in the park.  Fewer homes = lower value of MY property.  This also works in the other direction.  Here is a specific example.  I have a very old mobile home located right at the entrance to my park.  The owner occupant does a decent job of maintaining it, but it looks old and detracts from the value and feel of my park.  As the owner, I want the right of first refusal because as soon as it goes up for sale, I want to buy it and remove it in order to replace it with a newer unit.  

Another example - if I don't maintain control, somebody like you comes along and cleans my park out to suit YOUR demand and leave me with a vacant income, well, no longer income producing property.  How is that fair to me as the land owner?

2) I want to know when units go up for sale because future occupants need to be approved by ME prior to occupancy.  If I know a unit is for sale, it gets watched much more closely.  In NY, eviction of an unauthorized tenant in a MHP is roughly a 6-month process and guess who isn't paying lot rent during that time?  The same guy that is using my sewer, water and road, that's who.

I know the costs of moving and setting up these homes.  I also know this game well enough to know that you are playing to make money.  In other words, you are upset because there is an obstacle (somebody like me) that is in the way of you low-balling somebody that is in a desperate situation to buy their home cheap, move it somewhere else, and sell it for profit.  Yes, I will be an obstacle because you are trying to take money out of MY pocket.

Right of first refusal is nothing but the right to be the first one to say yes or no.  It does not impair the owner of the home at all.  I can see in some situations where it could HELP the home owner.  I will possibly pay MORE to keep the home in my park than you will pay after you figure in the cost to move it out.  Maybe you aren't happy because the park owners are paying more to KEEP the homes in their park than you are willing to pay to REMOVE them from their park.

In short, my ball field, my rules.  If you don't like my rules, go play somewhere else.

I appreciate your response as a park owner as well @Adam Johnson

I was hoping that some park owners would chime in on this issue and, I can certainly appreciate your perspective since all of my buyers are park owners themselves. The business has become a chess game and the homes the game pieces! As a park owner you can make any rules you want but, does that make them fair, legal and enforceable in court?

I have seen scads of park owners who make up their own rules, regardless if they are legal or not, and have power to enforce them because nobody wants to spend the money to fight them. The park owners know this and so they do what they want regardless if it is actually right or wrong. I have talked to several park owners about this issue, who are close personal friends of mine. While most can see the beauty of a first right of refusal, I have not talked to any that believe it is fair to the homeowner. The way this lease reads, they have the right to counter my counter offer. Why would I waste my time making one?

Also-Out of courtesy, I offered this home to the park at a very fair price. They basically told me to take a hike and they they were going to go direct to the home owner and cut me out of the deal, even though I have a very solid contract in place. The next time, I find a good deal in this park, or any that these guys own, they will not get the home offered to them.

Mark, I feel your pain. I am doing the same thing in the east side of the state. I've already been sued once over this issue. It's complete BS.

To the other posters... Michigan has a ver active wholesale MH market. Park owners came up with this solely as a solution to the problem of wholesaler a purchasing homes in their park, and selling them to owners of other parks (who then remove them).

It's absolutely unfair to the homeowner for the reason mark mentioned. I won't waste my time going to look at (or make an offer) on a home in a park where this rule is in place, and wholesalers like me are very often the only cash buyer. As a result, the park ends up buying the home later (when the homeowners is desperate) for less than I would have paid.

The state is aware of this and have stated they have no plans to address it. Reason being, those who sit on the MH board are all park owners!

The state of California specifically forbids this type of rule in their MH laws.

Most parks do not even have a signature from homeowners agreeing to this. Most parks simply modify the community rules and regulations, incorporating this change. And you know how many homeowners read those, right?

I've had many homeowners call me, shocked that this rule is in place, and wondering what to do now?

Sun Communities started doing this also, in the last year... It's not just Mom and pops.

Long time not talk Jeff! Good to see you out an about. Give me a call soon will ya?

Also-I bought three homes this month all at the same park, close to the park mentioned above, that had all been vacant for over a year. In each case the home owners had moved to other locations (out of need) and had been keeping the lot rent current. That park wanted nothing to do with buying these homes, or helping these homeowners sell, until I came along. They were happy collecting $580 a month in lot rent. I was able to negotiate a fair price and ended up selling two of these back to the park for less than what the homeowners would have accepted from them.

There is a little to much competition in my area to think you are going to make many low ball offers stick. It is more likely that the park will make a stupid, low ball and insulting offer then I will come in and beat by something fair and, drive home with a smile on my face.

I should have probably just gave the seller originally mentioned above, all of the money and left with the title vs a deposit and promise to pay when she was completely moved out. I would have had a lot more control of these overly controlling park owners, had I used my head a little more here! As is I am not positive that these folks actually even signed a lease. The park is saying the lease is implied, even if it is not signed because they made more than two lot rent payments! The sellers feel intimidated by the park and think that what the park says is the gospel, so much so that they are contemplating walking away from our executed agreement that has $4,500 in stated damages should the seller back out for any reason, including other offers. So far this clause has saved many deals for me, when the park owner sneaks and and tries to offer a little more than what I just got the place under contract for. I have an executed purchase agreement not a signed offer.

I believe they are correct about the lease being implied.

The suit brought against me was in reference to a tenant without a signed lease.

In my view, the only way to change this is to have a law written at the state level, forbidding the practice. It's unfair. Period.

It would be similar to having a rental home, and satjng that any cars the tenant owns entitle you to a right of refusal. Insane. I do understand that it's different due to changes in park valuation, but in my opinion that is a risk a park owner takes when they buy a park with tenant owned homes. If you really want that level of control, change your park to all rentals.

@Jeff Bennett

While I have seen this in our great state as well, my current issue is in Illinois and, not with Sun. I would love to talk about your Michigan case and connect again. So the park initiated a suit against you and won? How in the world did that happen and, why did they win? I can not believe that a judge would not see this as a blatant attempt to control prices and competition. I have to hear all about this my friend!

I do understand both sides of this issue, but still think the first refusal right of the park owner is a good thing.  Imagine being an apartment complex owner and somebody came along and somehow got 1/2 of your tenants out of their lease AND gutted their apartments.  As a park owner, this is comparable (even though the apartment scenario is unlikely/impossible).  Not only does this leave me without a tenant, it also leaves me without a home that will draw a tenent that will, in turn, pay me lot rent.

Both sides of this discussion could be considered unethical I suppose.  I guess it boils down to the intent and the execution of how both sides handle the situation.  I am NOT a huge REIT.  I am a family guy with a little bit of business sense that will do all I can to protect my investments and keep putting food on the table at home.

Back in the day- it was just home owners that moved the homes around. Today I am guilty of pulling homes out of other parks to put into my parks- so I understand the game. That said- here is what I do...

If I find a home and put it under contract- the next thing I do is offer it at that price to the park owner. So I will hand them my contract so they can buy the home. I understand the game on the park owners side, and some want the homes, some do not. I will pull the homes not wanted, and I will let the owners keep the homes they do want. It is the same way I would want to be treated if someone came into my park. Now note- I do NOT raise the price, not a cent. Again, I lead with the way I want to be treated. Now in return- when these park have a home they want pulled- guess what- they call me. They ask me if I want it. Doing good business is not always about making money, sometimes it is a much larger effort that involves moral, ethical and a win - win approach. A statement I use all the time is- everyone drives home in a limousine. 

I know one community in Indiana that got so upset at a dealer who was targeting their community, well in short they tied that guy up with legal cases, most probably having no merit, he went broke trying to defend himself and lost everything. He was dealing homes between parks and I think they just got fed up with it. 

Remember- a home might have a cash value of $10,000, but the value to the community is about 7 times the space rent. So a park with space rent of $500 per month- is $6,000 per year- is a value of $42,000- give or take... pull 10 homes like this and you have lowered the value of the community by over $400,000... dealers make a margin or spread on a deal- a few thousand per deal- park owners play the CAP rate game- the stakes are much higher... when there are more home sites than homes, the game starts playing rough.

A side note- as some here might know, and the rest will now learn, prior to getting into owning parks I was a lonnie dealer. I have done 100s of mobile home deals- and I financed them all. I still hold a huge portfolio of notes. Well- after getting into parks I mentored a lonnie dealer. One night he was going to head across town to look at a home- and he needed the cash to purchase it. So I fronted him $10,000 to buy 2 homes. Which he did, like $5,500 for one and $4,500 for the other. He then proceeded to want to flip the same homes to me, to pull into one of my parks for $10,000 each. Ya know- if he wanted an extra $1,000 each I would have done it. I needed the homes, but he used my leads, my money and now wanted me to pay him $10,000 more than I would have paid myself for the same homes. I did not buy them, and I also stopped mentoring him. He claims its just business- and that is true I guess. Well- then maybe I should have charged him for the mentoring... 

For the record though- I am a win - win guy. If crossed I will find a way to stop the bleeding- but not at the cost of my ethics, morals, values or crossing the law. I will do everything in my power to stop the bleeding and make sure it does not happen again. 

From a Manufactured Home Owners Perspective:

So what if I win the lottery and want to sell the home to my best friend that is going to move it to the deer camp Up North. What if I hate the park and would just rather sell it at a loss or give it to a charity rather than see the park owner get it? Shouldn't that be MY choice. Why should the park owner be able to demand this?


From Brokers and Other Professional Buyers Perspective:
What about a level playing field for the other potential buyers, especially the professional buyers such as myself that do this for a living? How is it fair for me? The home has been sitting vacant for a year and some poor smuck is stuck paying the lot rent because he got a job transfer. He let the park know it was for sale way back then and, has been trying to sell it ever since. The lot rent is $474 a month let's say. Sure the park says they will help but, this guy is three hrs away and they use his home as a switch home and say hey we offer financing on the one just down the street. The owner of this one here can't and or doesn't want to offer easy, low down-low monthly financing sir:) NOW-I come along and make this guy a fair offer, only to have the park have the right to match it? This guy hates the park. HE would rather give it to me for free than see them get it. Now what? Is that a fair and level playing field? Did I know what I was actually signing when I signed my lease agreement and this clause was included? No-I never read that crap and I will sign anything just to get in!!!! This restricts my rights, as a manufactured home owner, for the sole benefit of the park. What am I getting in return-the right to pay the park owner lot rent? Gee thanks........

Marc as a MHP owner I have the same clause in my lease agreements. I don't allow trailers to be pulled and normally purchase them before they are even placed on sale. As Jim stated you are attempting to take money out of my pocket and if I offer the owner the same price you are offering the home owner doesn't lose and most importantly I don't lose.

I have heard some parks that have a move out fee and bond fee if the trailer is removed from the park, I haven't implemented it but I never really had a problem with trailer move outs.

The owner does loose because he won't get a counter offer from me or anyone else that is interested in buying the home and moving it to the location of their choice. I understand why, as a park owner, you would want this rule in place. I know what the score is here. The question is, is it fair to the seller or people like me? I do not think so because it limits competition around the sale of the home and skews this in favor of the park owner. What park owner doesn't want that? Further more, I (and anyone looking to by a home to move elsewhere) would be crazy to wast time even looking at a home in areas where this practice is implemented. Most park owners can't and won't just go buy homes that come up for sale in their communities before they go on the market. Most park owners and managers tell their residents that they do not buy homes in the park, at least in the areas that I work......

I can see why you would want to see my offer before making your own but, I am not going to waste my time, energy and money playing on an un level ball field. This will cause homes in these areas to sit on the market longer and the sellers to become more motivated to sell, and for a lower price, over time. Most private sellers are looking for a cash buyer and guys like you and me are the the most likely cash prospects, in a lot of areas. So now that professional buyers will not shop in areas where a first right of refusal is implemented, the seller has to wait and find a cash buyer, that wants to live in the park. That isn't easy, even for most parks, let alone an unsophisticated FSBO. The park has an advantage of the private seller in most cases because the park can offer concessions and possibly financing or the park can loose money on the sale of the home and, make it up in the lot rent over time. My biggest problem with the policy is that as a professional, another professional gets to see my offer prior to making their own. How is that fair to me?

The politically correct term for community owners to call woobly boxes are manufactured homes. The term "trailers" detracts from the value of your property.

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