Please read and reply. If this was your deal, how would you cover yourself?

Question

I have a situation that I am in need of help. I want all opinions. Can you please tell me what your thoughts are on my situation? This is my deal and I am not working on it for a client. I'm in need of verbiage for a contract. A contract that I will be a rough draft for him to view prior to us each submitting it to our lawyers. I usually due majority of our contracts. This will be viewed by my lawyer, I'm just trying to cut down the cost. It is a small mobile home park needing sewer drainage work and gas lines and meters. For the record, this is basically an abandoned park with currently no activity. The owner does not want to sell the property but only lease it to me. He refuses to sell anything to anyone. Just won't let go period. I offered for a clause that if he decided to sell then we get first option and we need to arrive at a price to state in the contract. This also stands for if something happened to him that lead to death. This is basically an exclusive lease with a first choice option. Below I will break down what I am needing.

Completion of work to comply with code requirements. Gas lines & meters installed.

Septic lines re-routed and also in compliance with code.

Length of lease with some type of back-out clause in case he interferes with tenants or whatever the situation might be.

Length of lease with extensions at no rate increase for X amount of years or until possible future sales date.

75.00 per lot rent

Exclusive right to rent all lots (meaning - no other units other than ours - not even his)

A date established (in steps) to allow units to be placed prior to lot rent. Basically enough time to get one placed and rented then the next prior to lot fees. So I won't be hit with 600.00 from day one. So, stagger fees with reasonable enough time for each.

Upkeep and maintenance ? Who's responsibility since I'm renting all spaces but no ownership. Who pays for mowing, edging, pest control etc. weekly will not be cheap.

Jim Johnson · Answer

You are really looking for a triple net lease, with a option to buy. I have a pretty complex lease that was drafted by my attorney for this very purpose for mobile home parks. It basically states I operate the entire community, all expenses and improvements are on my dime. If the owner defaults, like death, IRS problems etc, or by mutual agreement I can trip the option. The lease for the park is pre set, and the purchase price is pre set as well. My in complex in that I have built in bumps for both the lease amount and the purchase price that are tied to the cost of living index in the largest metro area that adjoins the park... So the lease to the park owner can adjust every two years off the base line, and the purchase price is figured once off the base line as well.

I use a 2 bed, 2 bath apartment as the tracking devise. If the market rent is $500 in year 1... and adjusts to $550 in year 3, that is a 10% increase and my monthly payments to the owner would bump by 10%. If the next read was at $525... my payments would remain the same (I do not adjust down). If the next read it went back to $550, I go back to the new baseline, and do not adjust. So no adjustment again until the rents area over $550. The same adjustment for the price. If I was U/C for $100,000 and when the option tripped I was at a adjusted rent of $550, that is 10% over the baseline so my new purchase price is $550,000.
I only buy at VERY favorable CAP rates on the front end, like 20 CAPS or lease parks with huge upside in pad rent, expenses that can be passed on etc...
In advance, I am very open to sharing documents but I will not share this one. It is very complex and you really need to have your own agreement drafted if your going to play in this sandbox. I have shared the foundation of the lease, and will be happy to answer questions that might pertain to things I left out...

Please read and reply. If this was your deal, how would you cover yourself?

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