SLJPE;RioR COURT
oF THF_
STATE OF DEI_AWARE
E. SCOTT BRADL_EY SUSSE)< COuNTY COuRTHOuSE
moss 1 THE CiR<:LE, SuiTE 2
GEORGETOWN, DEL_AWARE 19947
TELEPHONt-; (302) 856-5256
September 13, 2018
Brian S. Eng, Esquire l\/liehael P. l\/lorton, l§squirc
Community legal Aid Society, lne. Nicolc l\/l. Faries, l~isquire
840 Walker Road David C. Zerbato, Esquire
Do\/er, DE 19904 l\/liehael P. l`\/lorton, P.A.
3704 Kennett Pill<>l<>l<>l<>l<>l=>l<>l<>l<>l<>l<
The Act protects homeowners by preserving the initial
relationship between themselves and the landowners, which presumably
takes into account the landowners’ costs and expected profits, unless the
landowners’ circumstances change in specific ways. 'l`o take into
account ordinary inflation, the Act allows a landowner to raise rent by
the average annual increase ofCPl-U. To impose an increase beyond
CPl-U_ the landowner must prove more. ln particular, it must show that
the increase is “directlv related to the operating, maintainingior
"" /d. at 234.
improving the manufactured home coinmunity.” That is the landowner
must show that its original expected return has declined` because the
cost side of its le_dger has_grown. lfa landowner can show that its costs
have ggte ups that opens the door to a rent increase based on §7042(c)’s
factors, including market rent. lf a landowner invests in its
development, and therefore has “‘improv[ ed]" the comm unity, it can also
reap the reward from that investment through higher than-inflation rent
increases But, unless the landowner has seen its costs increase for
“operating, maintaining_or impro\@g the manufactured home
cominunitv"’ the Rent .lustification /\ct preserves the initial relationship
the landowner creates between its revenue and its costs.”"1 (Emphasis
added.)
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But there is nothing illogical about the General Assembly’s
determination that ifa landowner is to raise rates for homeowners above
the rate of inflation, a landowner must show some increase in the costs
on its income statement This statutory requirement is a modest one.li
***********
Taken together, these statements show that the Supreme Court requires a
community owner to show that its costs have increased in order to justify an increase
to market rent for its existing tenants. lt is not merely enough for a community owner
to show that it has incurred some costs. 'l`he community owner must show that its
costs have increased lndeed, in the portions ofthe Bon Ayre ll decision that l have
quoted, the Supreme Court four times stated, in one way or another, that the
14 hi at234-235.
" hfat235
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community owner must show that its costs have increased."`
The Supreme Court made clear its ruling on this issue again in Do//)ov¢m,‘7
stating:
In Bon Ayre lsand, L[JC v. Br)n Ay)'e Commzmity As.s‘()ei`uti`()n, we
made clear that "the landowner must show that its original expected
return has declined, because the costs side of its ledger has grown. lfa
landowner can show that its costs have gone up, that opens the door to
a rent increase based on § 7042(c)`s factorsq including market rent.""‘
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I find that the Arbitrator’s decision that Sandhill /\cres was entitled to an
increase to market rent for its existing residents is not in accordance with the
applicable law or based upon substantial evidence in the record because Sandhill
Acres did not establish that its costs increased in such a manner that caused its
original expected return to decline The Arbitrator relied on the following statement
in Borl Ayre ll to support his decision:
lf a landowner invests in its development, and therefore has
improved “improv[ed]” the community, it can also reap the reward from
"‘ (1) "...because the cost side ofthe ledger has grown." (2) "lfa landowner can show
that its costs have gone up." (3) "But. unless the landowner has seen its costs increase." and (4)
"a landowner must show some increase in the costs on its income stateinent." ((,`itations
omitted).
‘7 l)r)m)\'¢m .S'milli l[()/f \.’. Dom)vun .S`mt`lh MH}’. 20|8 WL 33()()585 ([)cl. .luly l(). 2()18).
m ]d. at * l.
ll
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that investment through higher than inflation rent increases
The Arbitrator used this isolated statement to reason that a mere investment,
regardless ofthe amount, by the community owner can form the basis for an increase
to market rent. However, this is an incomplete statement on the issue. The Supreme
Court added the following right after this statement:
But, unless the landowner has seen its costs increase for
“operating, maintaining or improving the manufactured home
community,” the Rent Justification Act preserves the initial relationship
the landowner creates between its reserves and eosts.z"
The Supreme Court in Bon Ayre 11 recognized that a community owner incurs
costs each year in operating, maintaining or improving a manufactured home
community. The Supreme Court also recognized that a community owner’s costs and
expected profits are used to establish the initial relationship between a community
owner and its existing residents To alter that relationship and raise the rent above
the consumer price index, the Supreme Court has made it clear that the community
owner’s costs must increase in such a manner that has caused its original expected
return to decline Otherwise, the Act preserves the initial relationship between the
community owner and its existing residents
w Bon Ay)'e Lcmd. L[/(`. 149 /\.3d at 234.
3" ld. at 234-235.
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Sandhill Acres only established that it spent 812,185 to improve the water
filtration system. Sandhill Acres did not establish that this was an increase in its
costs Sandhill Acres also did not establish that because of this expenditure its
original expected return has declined. ln order for Sandhill tojustify an increase to
market rent for its existing tenants it would have had to offer evidence about its
original costs and original expected return and how the expenditure of $12,185
altered that relationship 1 would expect, as the Supreme Court also expected, that a
community owner incurs costs each year in order to operate, maintain or improve a
mobile home community. That is not enough. A community owner must show an
increase in its costs such that its expected return has declined in order to move to
market rent for its existing residents Sandhill Acres did not show that.
CONCLUS|ON
The Arbitrator’s decision is REVERSED.
lT lS SO OR[)ERED.
Very truly yours,
W
E. Scott Bradley
ESB/sal
cc: Prothonotary
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