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	Old Lease Forms Can Spell Trouble Down the Road Business  By Arthur Grebow A friend of mine once told me that successful leases are like successful marriages. I thought that he had slipped off the edge, but let him explain. The key to a successful marriage, he continued, is that both parties evolve or grow more or less at the same rate. The key to a successful lease, he added, is that the agreement is a living document, which adapts in response to changes in the law. The analogy seemed forced, but nevertheless had a germ of truth. During the last decade, courts have been asked to review leases or rental agreements with increased scrutiny. Several favorite lease provisions have been summarily rejected as unfair to residents (unconscionable is the legal term). Too often leases have not changed to keep up with court interpretations. Community owners who attempt to enforce lease clauses that are antiquated risk not only that the clauses will not be enforced but also that the complaining residents will be awarded penalties under Civil Code §798.86 for “willful” violations of the Mobilehome Residency Law. Some trial and appellate courts have interpreted “willful” in the broadest way possible, equating it with “consciousness,” Even reliance on an attorney, who is a manufactured home community specialist, will not insulate the community owner from penalties (hopefully the Supreme Court will redress this when it decides the Cacho v. Boudreau case). The following are some of the lease clauses (by no means complete), which courts have not only refused to enforce, but in some cases have attached penalties 1. Resident’s breach “Owner shall not be required to consider the application of a prospective buyer in the event Resident or any of Resident’s guests shall be in breach of this agreement. Such breach need not have been communicated to Resident prior to the submission of the proposed application. Owner shall have the right to require as a condition to approval of such Application, that Resident remedy such breach.” Civil Code §798.74 (a) says that management can’t refuse the sale of a manufactured home if the buyer has the financial ability to pay the rent “unless the management reasonably determines that, based on the purchaser’s prior tenancies he or she will not comply with the rules and regulations of the park.” This language attempts to make the conduct of the resident or even the resident’s guest as grounds for withholding approval. The net effect is to give the community owner a scope of discretion on approval of sales wholly inconsistent with §798.74. 2. Uninsured losses “On 90 days’ prior notice, the Base Rent may be adjusted for uninsured losses of Owner.” This violates §798.42, which prohibits management from passing through any fee or increase in rent that reflects the cost 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 MRL. One court said that since there surely are some instances where such violations would not be covered by insurance, this provision is unenforceable. 3. Shortened statute of limitations “Residents shall report defects in the maintenance of the Park’s common facilities…Should resident fail to report any such defect within 6 months of its discovery…resident shall be deemed to have waived any damages resident had or had by reason of such unreported defect completely and without qualification.” One appellate court called this clause “draconian” and “Kafkaesque.” It does community residents little practical good, the court observed, if their own “failure” to “report” defects in management’s maintenance of the community is somehow deemed to be their own breach and they lose rights to be compensated for failure to maintain after six months. 4. Compulsory arbitration agreement This has been the subject of many court decisions. It has sometimes been argued that binding arbitration agreements are only prohibited if they are contained in the community’s rules and regulations under §798.25.5. This may be true, but courts are becoming less willing to enforce involuntary agreements regardless of where they are contained. The better procedure is to have an arbitration agreement that is both voluntary and is separate from the lease. Some of the older arbitration agreements contain the following language: “Costs for the arbitration shall be advanced equally between owner and resident and are due and payable on demand…Failure of any party to make such a deposit, including any additional deposit subsequently determined to be necessary by the arbitrator during the course of arbitration, shall result in a forfeiture by the non-depositing party of the right to defend or prosecute the claim which is the subject of the arbitration.” Courts have uniformly refused to enforce this provision. It is not uncommon for JAMS to require a deposit of $4,000 or more. Residents who cannot afford to pay half that amount are barred, by this provision from both arbitration and, by the arbitration provision, from court. Community owners are advised to review their lease agreements at least every two years and update them where necessary to minimize risk and potential liability. Published in WMA Reporter, October 2006 Back
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