BILL ANALYSIS
SB 1570
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Date of Hearing: June 27, 2000
ASSEMBLY COMMITTEE ON JUDICIARY
Sheila James Kuehl, Chair
SB 1570 (Dunn) - As Amended: June 21, 2000
SUBJECT : MOBILEHOME RENTAL AGREEMENTS
KEY ISSUES :
1)SHOULD ARBITRATION OR MEDIATION AGREEMENTS IN MOBILEHOME
TENANCIES BE SEPARATE FROM RENTAL AGREEMENTS, AND SHOULD
MANAGEMENT BE PROHIBITED FROM CONDITIONING A TENANCY ON THE
ACCEPTANCE OF SUCH AN AGREEMENT?
2)SHOULD MOBILEHOME OWNERS BE PROVIDED WITH ADVANCE COPIES OF
RENTAL AGREEMENTS SO THEY CAN KNOW WHAT THEY ARE SIGNING?
SUMMARY : Requires arbitration or mediation agreements in
mobilehome tenancies to be separate from rental agreements, and
prohibits management from conditioning a tenancy on acceptance
of such an agreement. Specifically, this bill :
1)Provides that management may offer, and a homeowner or legal
or registered owner of a mobilehome in the park may
voluntarily agree and enter into, an arbitration or mediation
agreement for the resolution of disputes arising from the
rental agreement or tenancy in the mobilehome park.
2)Prohibits any arbitration or mediation agreement from being
included in the underlying rental agreement, and requires such
an agreement, if any, to be a separate document. It also
prohibits management from conditioning the tenancy in a
mobilehome park on the acceptance or signing of such an
agreement.
3)Provides that a copy of any rental agreement offered by the
management of a mobilehome park must include the actual amount
of the rent and charges of the park, and must be provided to
the purchaser of a mobilehome at least 10 days prior to the
execution of the rental agreement or at the time the
management requires prior approval of the purchaser.
EXISTING LAW :
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1)Provides, under the Mobilehome Residency Law (MRL), that a
rental agreement is an agreement between the management and
the homeowner establishing the terms and conditions of a park
tenancy. (Civil Code section 798.8. All further references
are to this code unless indicated otherwise.)
2)Requires a rental agreement to be in writing and contain,
among other things, the following: (a) the term of the
tenancy and the rent; (b) the rules and regulations of the
park; (c) a copy of the text of the MRL; (d) the
responsibilities of management, including the obligation to
maintain physical improvements in the common facilities in
good working order; and (e) services and fees, if any, to be
provided during the tenancy. (Section 798.15.)
3)Provides that rental agreements shall be exempt from any
rental control ordinance if they meet all of the following
criteria: (a) the rental agreement is in excess of 12 months;
(b) the rental agreement is entered into between the
management and a homeowner for the personal and actual
residence of the homeowner; (c) the homeowner has at least 30
days from the date the rental agreement is first offered to
the homeowner to accept or reject the rental agreement; and
(d) the homeowner may void the agreement by notifying the
management in writing within 72 hours of the homeowner's
execution of the rental agreement. (Section 798.17.)
4)Provides that a homeowner shall be offered a rental agreement
for a term of 12 months, or a lesser period as the homeowner
may request, or a longer period as mutually agreed upon by
both the homeowner and management. (Section 798.18.)
5)Defines "homeowner" as a person who has a tenancy in a
mobilehome park under a rental agreement. (Section 798.9.)
6)Provides that management may require the right of prior
approval of a purchaser of a mobilehome that will remain in
the park and that the selling homeowner give notice of the
sale to the management before the close of the sale. (Section
798.74.)
FISCAL EFFECT : The bill as currently in print is not keyed
fiscal.
COMMENTS : This bill seeks to provide new protections for
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mobilehome owners. The author provided the following statement
in support of the bill:
Homeowners are required by law to sign a lease in order to
reside in a mobilehome park. According to the testimony at
hearings conducted in 1999 by the Senate Select Committee
on Mobile and Manufactured Homes, if a mobilehome owner
will not initial an arbitration clause within the lease,
the park will usually not accept the signed lease. The
homeowner may then be threatened with eviction and
thereafter, through an abandonment procedure or a
warehouseman's lien, lose his or her home to the park
owner. Hence, consent to arbitration by the homeowner is
not really voluntary. The Mobilehome Residency Law
currently provides that parks cannot impose park rules and
regulations that unilaterally impose binding arbitration on
homeowners without their consent. SB 1570 simply clarifies
that forced arbitration cannot be required by the park of
homeowners as well through the rental agreement.
The second provision in the bill entitles a purchaser of a
mobilehome in the park to an advance copy of the rental
agreement 10 days prior to signature or at the time the
park requests the purchaser to fill out the park's
application for residency. Several homeowners at the
hearings told us that when they purchased their homes in a
park they never saw a copy of the rental agreement until
the day they were required to sign it. Then, they were
given only 5 minutes to read what in some cases is a
25-page document before signing it. Some park managers
flatly refused to give them advance copies when requested.
Mobilehome owners already living in the park have a right
to a copy of a long-term lease 30 days before signature,
but new homeowners are often required to sign without the
opportunity of seeing it.
SB 1570 addresses fair play in the negotiation and signing
of mobilehome park rental agreements by providing that
homeowners should not be forced to sign agreements giving
up their right to a jury trial or sign documents they have
not been able to see in advance of signing them.
Background . In 1978, the Legislature enacted the Mobilehome
Residency Law (MRL), which regulates the landlord-tenant
relationship between mobilehome park owners and residents. The
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MRL recognizes that, unlike other renters, mobilehome owners
cannot easily relocate if their tenancies are terminated or
unfavorable conditions are added to a lease. As the MRL states:
"The Legislature finds and declares that, because of the high
cost of moving mobilehomes, the potential for damage resulting
therefrom, the requirements relating to the installation of
mobilehomes, and the cost of landscaping or lot preparation, it
is necessary that the owners of mobilehomes occupied within
mobilehome parks be provided with the unique protection from
actual or constructive eviction afforded by the provisions of
this chapter."
Requiring arbitration or mediation agreements to be provided
separately from the rental agreements . Proponents state that
binding arbitration clauses are frequently found in park rental
agreements. They argue that while on their face the agreements
purport to be voluntarily entered into and provide a disclosure
about waiving one's right to be a jury trial, in practice, this
is not the case. Prospective homeowners are required to sign a
rental agreement in order to live in the park. Proponents claim
that prospective homeowners who are already in escrow to
purchase a home located in the park are frequently told that
they will not be able to close escrow or move into the home
unless they sign the agreement accepting binding arbitration and
waiving their right to a jury trial in the event of a dispute.
Under such circumstances, proponents argue that the prospective
homeowner is not signing the agreement, or entering into binding
arbitration, voluntarily.
Opponents, on the other hand, argue that elimination of
arbitration and mediation clauses will lead to an increase in
lawsuits between the parties, rather than the less expensive and
equally effective arbitration or mediation option. They assert
that it has been the industry's experience that mediation and
arbitration clauses provide a quick and economical method for
residents and park operators to resolve their differences.
Opponents contend that typically these clauses are utilized only
as to certain specified disputes, such as claims of failure to
maintain the park. Opponents believe that the use of mediation
and arbitration benefits the court system by alleviating case
congestion, and further benefits the residents and park
operators by keeping costs to a minimum, while still achieving
an impartial hearing on any bona fide disputes that may arise.
Does federal law preempt the arbitration and mediation
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requirements under this bill ? Opponents of this bill, most
notably the Civil Justice Association of California (CJAC),
claim that whether or not the bill is good public policy, it is
preempted under the Federal Arbitration Act (FAA). CJAC claims
that particularly under the United States Supreme Court 's
decision in Doctor's Associates, Inc. v. Casarotto (1996) 517
U.S. 681, which interpreted the FAA broadly, the bill will fall
when challenged in the courts.
Under the doctrine of federal preemption, Congressional action
pursuant to an enumerated power overrides concurrent state
legislation. The doctrine derives its Constitutional power from
both the Commerce Clause of Article I and the Supremacy Clause
of Article VI, and is primarily designed to avoid conflicting
regulation of conduct by various official bodies with authority
over a given subject matter. There are three tests the courts
look to in deciding whether federal regulation preempts the
states from acting in a particular arena. Those three tests
are: 1) express preemption; 2) implied preemption (encompassing
both the "occupation of the field" and the "dominant federal
interest" theories); and 3) conflict preemption.
Under the express preemption theory, Congress, through explicit
statutory language, prohibits states and localities from
legislating in specific areas. Such an expression may
designate a subset of issues as closed to state or local
regulation, or may nullify all state and local regulations
affecting the entire area covered by the federal law. Under the
implied preemption theory, even where there has been no explicit
preemption, courts may infer preemption where: 1) congressional
regulation is sufficiently pervasive to occupy the field,
leaving no room for supplemental state regulation; or 2) there
is a dominant federal interest such that the federal system is
assumed to preclude enforcement of state laws on the same
subject. Under the conflict preemption theory, federal law may
be found to preempt state or local law where an actual conflict
exists. This may occur where: 1) two regulatory schemes are
mutually exclusive (i.e. where federal law mandates conduct
prohibited by state law); or 2) state law impedes federal
objectives.
Ultimately, of course, the question of preemption is a decision
for the courts. However, a review of the pertinent case law
suggests that SB 1570 could survive a preemption attack under
the FAA. The FAA provides that "a written provision in a
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contract evidencing a transaction involving commerce to settle
by arbitration a controversy thereafter arising out of such
contract or transaction . . . or an agreement in writing to
submit to arbitration an existing controversy arising out of
such a contract shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for the
revocation of any contract." (9 U.S.C. Section 2.)
The FAA has been broadly interpreted, as prohibiting state laws
that fail to enforce arbitration clauses to the same extent as
other contractual provisions. (See, e.g., Southland Corp. v.
Keating (1984) 465 U.S. 1; Allied-Bruce Terminix Co., Inc. v.
Dobson, Inc. (1995) 513 U.S. 265.) In Allied-Bruce , the U.S.
Supreme Court held, specifically, that "states may regulate
contracts, including arbitration clauses, under general contract
law principles and they may invalidate an arbitration clause
upon such grounds as exist at law or in equity for the
revocation of any contract. What states may not do is decide
that a contract is fair enough to enforce all its basic terms
(price, service, credit), but not fair enough to enforce its
arbitration clause." (513 U.S. at 281.)
As the bill's opponents note, this principle of broad
application of the FAA was reiterated by the United States
Supreme Court in Doctor's Associates, Inc. v. Casarotto , supra.
In that case, the Court invalidated a Montana statute that
attempted to render an arbitration clause unenforceable if it
did not meet certain notice requirements. The Court held that
the statute was preempted by the FAA. Nevertheless, in focused
areas, courts have found the FAA to be inapplicable, and in
those areas, state statutes, even those that single out
arbitration, are enforceable.
Opponents contend that by prohibiting an arbitration agreement
from being included in a mobilehome rental agreement, SB 1570
clearly falls outside the ambit of the FAA. Opponents argue
that the courts have found that requiring a disclosure statement
in a contract stating whether a party is waiving rights to a
jury trial was preempted, thus the court would likely find a
prohibition of a similar clause within a contract also preempted
by the FAA. However, this bill requires only that parties be
fully aware of the existence of arbitration provisions, which
are now often hidden in long standardized form agreements in
which a party cannot accept the terms of the contract without
also agreeing, pre-dispute, to submit all future claims and
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controversies to binding arbitration. The bill simply provides
that the arbitration agreement must be a separate document.
Proponents also note that federal preemption cases have examined
health care service contracts and commercial franchise
agreements involving interstate commerce, not rental agreements
governing tenancy in a mobilehome park. Proponents state that
other California statutes imposing conditions on disclosure for
arbitration in real estate contracts, for example, have been in
existence for years, and have not been pre-empted, or argued
against on such grounds. (See, e.g. Code of Civil Procedure
section 1298 which has been in effect since 1988.) Proponents
argue that this bill simply imposes another condition on rental
agreements under the MRL, among other conditions on mobilehome
park rental agreements and park tenancy that already exist
(e.g., right to a one-year lease, disclosure of rent
control-exempt lease, etc.).
Providing a purchaser of a mobilehome with an opportunity to
review a rental agreement promotes informed consent . As noted
above, the bill would also require a copy of any rental
agreement offered by the management of a mobilehome park to
include the actual amount of the rent and charges of the park,
and be provided to the purchaser of a mobilehome at least 10
days prior to the execution of the rental agreement or at the
time the management requires prior approval of the purchaser.
Supporters of the bill argue that this provision would provide
protection similar, but far less comprehensive, to that
currently provided to "homeowners" (i.e., a person who has a
tenancy in a mobilehome park under a rental agreement). Under
existing law, if a rental agreement with a homeowner is for
longer than 12 months, the park owner is exempt from rent
control laws. To provide the homeowner an opportunity to make
an informed decision in these cases, the homeowner must have at
least 30 days from the date the rental agreement is first
offered to the homeowner to accept or reject the rental
agreement, as well as 72 hours to void the agreement after
execution. However, proponents of the bill state that a
purchaser of a mobilehome who has not yet signed a rental
agreement, but owns the mobilehome in the park, does not have a
similar opportunity to review the agreement and should.
The opponent park owners argue that it would be impossible for
them to implement this portion of the bill. First, they object
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to having to provide an agreement containing "the actual amount
of the rent and charges of the park." They argue that with rent
control, they can never be sure of the exact amount until the
final execution and they would not want to guess because it
could change and they would lose money. This argument assumes
that most rental agreements are subject to rent control, which
many park owners successfully avoid by only entering into leases
longer than 12 months. Moreover, the position seems to falsely
imply that people wait until the last minute to negotiate a
price and sign a rental agreement. Rental agreements are
undoubtedly already signed, or at least negotiated as to the
price with enough lead-time for the purchaser to plan expenses
and the move. In fact, existing law requires a copy of a fully
executed rental agreement or a statement signed by the park's
management and the prospective homeowner that the parties have
agreed to the terms and conditions of a rental agreement to be
part of any escrow, sale, or transfer agreement involving a
mobilehome located in a park at the time of sale, where the
mobilehome is to remain in the park. (Section 798.75.) This
bill would only require that the amount be determined 10 days
prior to execution. This does not appear to be so long as to
subject a park owner to an unreasonable risk.
Next, the opponents contend that they would not know when to
provide the agreement to the purchaser because they would not
know when it is "at least 10 days prior to the execution of the
rental agreement." They argue that the purchaser has as much
control over the execution of an agreement as they do. However,
this argument ignores that the bill also would provide the
option of giving the agreement to the purchaser "at the time the
management requires prior approval of the purchaser." Since the
management sets the time of prior approval of a purchaser, they
should have no problem figuring out when to also give the
agreement.
REGISTERED SUPPORT / OPPOSITION :
Support
California Dispute Resolution Council
California Mobilehome Resource and Action Association
Congress of California Seniors
Consumer Attorneys of California
Golden State Mobilehome Owners League, Inc.
Gray Panthers of Northern California
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Opposition
California Mobilehome Parkowners Alliance
Civil Justice Association of California
Western Manufactured Housing Communities Association
Analysis Prepared by : Dan Pone / JUD. / (916) 319-2334