Justice officials file suit against owner of two local parks

Delaware Department of Justice Consumer Protection officials have filed a lawsuit against the owner of three manufactured home parks alleging violations of the 2013 Manufactured Home Owners and Community Owners Act and the Rent Justification Act.

Two of the parks – Angola Beach and Estates and Rehoboth Bay – are located in the Cape Region; each has about 590 lots. The third park, Barclay Farms, is in Camden.

In the Nov. 13 lawsuit filed in Sussex County Superior Court, the Attorney General's Office claims Chicago-based Hometown America Communities Inc. issued 2016 rent-increase notices that required tenants to waive their right to arbitrate proposed rent hikes in exchange for giving them a purported discount to a substantial rent increase.

“Such conduct is forbidden under Delaware’s manufactured housing laws,” according to a press release issued by the Attorney General's Office.

The laws prohibit community owners from factoring arbitration and other litigation-related costs into the rent charged to homeowners under any circumstances. The laws also prohibit community owners from trying to force tenants to waive rights provided to them by law.

Tenants can petition for arbitration if they do not agree with justification for a proposed increase above the consumer price index for urban consumers. The applicable CPI-U at the time of the proposed rate increases was 1.1 percent.

According to the lawsuit, the proposed increase at Angola Beach and Estates was 4.9 percent or an increase of $24.75 per month; the proposed increase at Rehoboth Bay was 3.7 percent or $18.73 per month more. Lot rent in both communities is currently $500 per month.

The park owner's historical rate increases have averaged 2.5 percent annually; the proposed 2016 rents were 50 percent more than the historic average in Rehoboth Bay and 100 percent higher in Angola Beach and Estates.

According to the lawsuit, the park owner gave tenants a second option, offering a reduced rent increase of 2.5 percent – if the tenants agreed to waive their right to arbitrate.

The park owner also offered another option, allowing tenants to pay the full increase in 2016 and in 2017, the capital improvements increase fee – which is about half the total increase – would be subtracted from the 2017 base rent, but tenants were once again asked to waive their right to arbitration to accept this option.

Tenants were required to choose one of the options within 21 days or pay the full amount of the rent increase. Tenants had 30 days to file for arbitration. Tenants who did not sign on for the 2.5 percent increase or arbitration were forced to pay the higher increase.

“This unreasonable increase would create a significant burden for tenants and diminishes the substantial investment tenants have made in their homes,” the lawsuit states.

“The 2.5 percent rent amount increase has really been the defendant's goal all along, and defendant is using the prospect of the massive first proposed rent increase to coerce tenants into accepting defendant's lesser proposed rent-increase offer while removing the risk that a tenant would seek to arbitrate the lesser amount, which is still above CPI-U,” the lawsuit contends.

“This tactic of getting community tenants to sign away their legal rights in exchange for a lower rent increase is reprehensible,” Attorney General Matt Denn said. “When predatory conduct by community owners threatens to upset the balance struck by the General Assembly when it passed the rent justification law for manufactured home communities, my office will act aggressively to protect tenants.”

The lawsuit seeks, among other things, a declaration that Hometown America’s rent increase notices are invalid, an order directing Hometown America to pay affected tenants the equivalent of three month’s rent for having violated Delaware’s manufactured housing laws, payment of civil penalties, and an order requiring Hometown America to cease and desist its unlawful activities.

Hometown America Communities, the fifth-largest owner of manufactured home parks in the country, operates parks in 10 states. The company did not respond to a request for comment.