Donovan-Smith residents challenge lot-rent increases

When Margie Cervantes moved into the Donovan-Smith manufactured home park outside Lewes in 1988, the monthly lot rent was just $95. Next month, her monthly bill will be nearly $550.

Donovan-Smith residents saw their rents increase $30 per month in 2017, and, as of April 1, the rents will increase an additional $60 monthly.

Residents say the increase is out of line, considering poor maintenance of the common areas and major violations that go unfixed, such as an open septic tank within 10 feet of a vacant home.

"These are not frivolous accusations from a bunch of people who don't want to pay a rent increase," said resident Sharon Ashe.

Prior to 2017, land owner KDM Development Corporation charged a monthly lot rent of $447.60. Their bills will soon be about $540, a 20 percent increase over the last two years. The rent includes water, wastewater (septic) and trash.

Ashe and her neighbors are going to have to start digging deeper into their pockets to cover the rent, which, they say, is a very difficult task for many who are on a fixed income.

Donovan-Smith is a largely seasonal and no-frills community of about 107 homes. Just over 80 are occupied, but many are not full-time residents. There is no clubhouse, no pool, no community playground or much of anything in terms of amenities, said resident Clara McNichol.

Donovan-Smith was started as a family campground in 1965, and sold to KDM in 1997.

"The Smiths and Donovans were colorful, quirky people who treated their guests like family," said Terry Saunders, co-president of the the homeowners association. "We have 30-year residents who speak fondly of those days."

The rent has increased every year since KDM took over. Only two times was the rent justified, she said.

The state of the Donovan-Smith community deteriorated to the point where rent increases are unjustifiable, she said, and a number of health and safety concerns have gone unaddressed. In addition to an open septic system, she said, the roads are deteriorating, vacant homes are falling apart and several wooded areas are strewn with years-old trash.

After the first hike in rent in 2017, the newly formed homeowners association took legal action, challenging the increase to an arbitrator. The arbitrator sided with KDM. The homeowners association, through the Community Legal Aid Society Inc., appealed the decision to the Superior Court. Judge Jane Brady affirmed the arbitrator's decision. But residents aren't giving up just yet. They've again appealed the decision, and the case now sits in front of the Delaware Supreme Court.

On the opposite side, Kenneth Burnham, general manager for the park, said the increases were directly related to increased expenses for improvement and maintenance of the community. At the arbitration hearing, Donovan-Smith Office Manager Jacqueline McIlvain testified that KDM installed paved driveways at each unit in the park and painted the community's maintenance building. McIlvain said she also researched the lot-rent rates at comparable manufactured home communities in the area and found that Donovan-Smith's monthly bill was far lower. She found McNichol Place near Wescoats Corner charges $570 per month and Whispering Pines in Nassau charges $535. Neither community includes water, sewer or trash in their rent, she said at the hearing.

The arbitrator decided that the increase was justifiable, even going so far as to comment that the law is in place to protect persons of limited or fixed incomes from losing their homes, and the law does not apply to Donovan-Smith because about half of the residents do not live in the community full time, suggesting many use the community as a second home.

Saunders says that's not the case. If rates continue to increase, she said, many residents will be forced to leave.

"We should be trying to keep people in their homes and away from public housing," she said. "The way it is here, people would have to leave their own homes and go into government housing."

According to KDM's website, lot rent covers the operating costs of the park, such as utilities, real estate taxes, maintenance of the common areas and roadways, payroll costs and insurance.

KDM has 42 communities in 10 states, including seven communities in Delaware – four in Seaford, two in Laurel and Donovan-Smith in Lewes. The company owns 22 communities in New York, by far the most of any state.

Attorney Seth Thompson of The Yeager Law Firm LLC is representing KDM. He said given the pending appeal to the Supreme Court, he and his client are not in a position to publicly comment.

"Our positions on the litigation issues will be addressed to the Supreme Court," he said.

Thompson must submit an answering brief by March 28.

Brian Eng, the HOA's attorney, says the arbitrator erred in its decision because it did not require KDM to prove its bottom line was affected by its recent work.

"It's not enough to say 'I spent some money on something,'" he said.

He said he isn't trying to prevent the land owner from making money, but wants to ensure the residents are treated fairly.

"We absolutely agree that community owners have to make money," he said. "They are businesses, and they are entitled to a profit."

Eng said the law protects residents from unjustifiable rent increases, but nothing prevents the landowner from offering a higher rate to new tenants to increase profits.

He said one of the missions of CLASI is to provide assistance to people who wouldn't otherwise be able to afford representation, specifically in a case where the cost of an attorney would far outweigh the lot-rent increases.

Eng will also represent the HOA in its appeal of the increase set to begin in April.

Some Donovan-Smith residents fear the recent rent increases are just the beginning and they will continue to rise if the community is annexed into the City of Lewes. KDM initiated the process last year, and Lewes Mayor and City Council is doing its due diligence to determine if it wants to move forward with an annexation election.

City Engineer George, Miles and Buhr is designing a system to extend wastewater service to the park. Design is expected to be complete this month, when it will be presented with an estimated cost. It will then be up to the park property owner to decide whether it is a good idea to move forward with annexation. If annexation occurs, Donovan-Smith must also tap into the city's water system within five years.

In an annexation election in Lewes, there are two votes. Residents of Lewes vote on whether they want annexation, and property owners seeking annexation also vote. If annexation of Donovan-Smith goes to election, KDM will have the only vote for or against annexation. Donovan-Smith residents will not have a say.

"We don't own anything except the homes on our backs, and we have no say in the process," Saunders said. "The landowner will get away scot-free with a huge capital improvement while we pay the bill."

Saunders said there are mixed feelings among residents. Many are unsure if annexation would be positive or negative for them. There is worry the cost of adding sewer, water and Lewes' other services will result in more increases to the lot rent, she said, increases many in the community cannot afford.

She said she worries that once the cost to add sewer and water is paid off, the rent will not drop.

"Where is the human side?" she said. "Some people have been here 30 to 40 years."