California AB 519 - Mobile Home Parks: Sale
- Enacting right of first refusal for mobile home park residents
- AB 519 will provide immense leverage to existing tenant’s organization
- Impact on you investments
Definition of Proposed Law – AB 519
The proposed California law will provide resident organization of a mobile home park a right of first refusal to purchase the property if the owner intends to sell or receives an offer for the property (full text of AB 519).
Who sponsored AB 519?
The bill was introduced by Randy Voepel [R] from the 71st district in California Assembly.
Who supports AB 519?
The bill supporters are likely tenants’ rights advocates. Supporters will argue that mobile home residents are especially vulnerable to displacement since their homes depreciate in value, and in fact very hard to move if the park is offered for sale for the purpose of development.
When does AB 519 goes into effect?
The law is still pending – subject to edits and vote in both the assembly and senate.
What is a right of first refusal and how does it help Mobile Home Park Residents?
A right of first refusal is a contract right similar to an option to purchase – but instead of a set purchase price, the option holder has the right to match any offer from a 3rd party. For example – if a mobile home park owner lists the property for sale for $2,000,000 and gets an offer to buy it from a local investor for the listed price, the residents’ organization will have the right to match the investor’s price and term and enter into a purchase and sale contract – and ‘jumping the line.’
This is an incredibly strong contract right – owners who will not adhere to the right of first refusal by statute and sell the property to a 3rd party may risk contract liability, and buyers could lose the property to the residents’ organization post sale. AB 519 helps mobile home tenants in a sense that it gives them the opportunity to ‘control their own future’ – buying the land and prevent development of the site by 3rd parties. ‘Park conversions‘ have been around for quite a while, in several states like Oregon and California.
AB 519 - In Detail
The proposed law will give ‘resident organization’ of mobile home park control over the future of the property. Mobile home parks are attractive investments for real estate professionals – with good returns and permanent residents. Tenant rights advocates argue that residents are exploited through rent increases and displaced through development of the property with nowhere to go.
Mobile homes depreciate in value over time, unlike regular homes. In most mobile home parks – tenants rent the land under the mobile home from the property owner. Since ‘mobile’ homes are not actually very mobile, if a tenant wishes to leave – they have to sell the home or leave it in place.
AB 519 will provide tenant’s organization of the MHP the right to match an offer to purchase the property from a 3rd party. For example: if an owner of a MHP received an offer to purchase the park for $3,000,000 from a 3rd party – the residents’ organizations will have an opportunity to match the price and terms and purchase the property from the owner. This will allow tenants to determine their own future, establish lax rent increases, and prevent development.
Common Questions about AB 519
Q: When will this law go into effect?
A: Right now the law is proposed and needs to be voted in both assembly and senate, and signed by the governor to become a law. It may go into effect in 2020.
Q: What is a resident organization of a mobile home park?
A: A proper organization must form before the landlord received an offer to purchase or placed the property for sale. It must represent the people who live in the MHP, establish bylaws, and other requirements detailed in the language of the law.
Q: What is the deadline to match the offer to purchase?
A: Tenant’s organization has 15 days from the notice of sale to tell the landlord if they intend to exercise the option to purchase. Then the organization has 30 days to make a bonafide offer for the owner that matches the price and terms.
Q: What do I have to do if I want to purchase a mobile home park?
A: If AB 519 passes, the seller will have to present your offer to the tenant’s organization so they can make a decision wether to match or waive the right to purchase. Buyers will have to actively ask sellers for waivers of the right to purchase or risk the transaction, or worse – purchase just to see the property changing hands post-sale.
Impact of AB 519 on Mobile Home Park Investments
AB 519 will apply to every MHP in the state – near urban areas or suburban areas. It will allow the park’s tenant organization tremendous power if the owner wants to sell the property. Anytime the owner wants to sell the property, the transaction will have to stay put until the tenant’s organization chooses to match or waive.
Buyers approaching MHP owners will have to accept significant delay and it seems that quick purchase will be out of the question. This could strike out 1031 buyers who have limited time to identify and close on a replacement real estate.
Mobile home parks are already well regulated in some parts of the state with rent control.
Currently the law does not define what is an ‘offer’ – and which transactions are qualified as a ‘sale’. For example:
- Will a sale of a portion of the property (say a 15% stake) qualify?
- Entity sale – from an individual owner to an LLC?
- Adding a spouse to the title – will that qualify as a sale?
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