Actual Utility Costs - Which Costs Can Mobile Home Park Owners Pass on to Their Tenants?

By Doug Owens

The meaning of this phrase “actual utility costs” was at the center of a recent Court of Appeals case that presents mobile home park investors with some cautions about the writing of their rental agreements. The case involved a mobile home park in Olympia, and a complaint by a single tenant to an entity called the Manufactured/Mobile Home Dispute Resolution Program (MHDRP) which is operated by the state Attorney General’s Office. This entity has statutory authority to investigate complaints by mobile home park tenants and order relief, subject to appeal by the park owners to the state Office of Administrative Hearings. In this case, the tenant claimed that the amount she had been charged for water by the park owner was higher than allowed by law. The law says that the mobile home park owner may pass on to the tenants in utility charges “actual utility costs.”

The landlord had charged the 151 tenants of the park for water according to a formula that added to the amount billed by the City of Lacey each month for investment in and maintenance of the pipes from the main source to each mobile home lot. The result was that the total charge for all 151 lots exceeded the charge from the City of Lacey over almost a three year period by between six and twelve percent, varying by year. The rental agreements allowed the park owner to charge the tenants for “water service.”

The MHDRP, although it had received a complaint from only a single tenant, broadened its investigation to cover the entire park on the theory that the practice alleged in the tenant’s complaint would affect all of the tenants.

The MHDRP found that the landlord was liable to the tenants collectively for an overcharge of $35,240 and issued a notice of violation. On appeal, the landlord argued that the statutory phrase “actual utility costs” should be interpreted to include actual costs the landlord incurred to bring the water to the tenants in addition to the amount paid to the City of Lacey for the water. The landlord also challenged the MHDRP’s broadening of the investigation to include all of the park’s tenants, saying this amounted to a “de facto class action lawsuit.”

The court rejected the landlord’s argument that the rental agreement’s terms for water service charges allowed the landlord to include costs above the payments to the City of Lacey for water. The court held that the statute prohibits the charging of any utility fee in excess of actual utility costs and that the phrase “actual utility costs” means the amount paid to the utility provider and nothing more.

The court also rejected the landlord’s claim that the MHDRP exceeded its authority by broadening the investigation to include the entire mobile home park. The court held that not only was the MHDRP allowed to consider the impact of the practice alleged in the complaint on the entire park, it was required to do that by its statutory authority.

The court did leave the door open for mobile home park investors to recover their costs of providing utility services where those costs exceed the billed amounts from the utility providers.  The court indicated that these costs could be included in base rent. The court noted that maintaining the pipes and other utility facilities is no different in principle from maintaining the roads in the mobile home park and the cost of that maintenance and the recovery of the investment could be included in base rent.

Also according to the court the landlord’s costs in excess of the bills paid to the utility provider could be included in separate charges for maintenance, as long as those charges are differentiated from utility service charges in the rental agreement.

There was one ruling that was helpful to the park investor. The OAH had more than doubled the amount of the required refund by using a different calculation than the MHDRP had used. The court held that this was beyond the power of the OAH. The preceding is intended to be educational and should not be considered legal advice.

About the author... 

Doug Owens practices real estate law and general business law from his office in Anacortes. He offers a 20% discount for REAPS members and he can be reached at (360) 299-3990 or [email protected].

REAPS is the oldest – and largest - Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you've never attended one of our meetings, just email our office at [email protected] and be our guest for free!"

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