2014 -- H 7132

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LC003001

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

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A N   A C T

RELATING TO PROPERTY - LEASED LAND DWELLINGS

     Introduced By: Representatives McNamara, Guthrie, and Shekarchi

     Date Introduced: January 16, 2014

     Referred To: House Judiciary

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 34-18.2-3 of the General Laws in Chapter 34-18.2 entitled "Leased

Land Dwellings" is hereby amended to read as follows:

     34-18.2-3. Transfer of leased land -- Right of first refusal. -- (a) In any instance in

which a land owner has been sent a certified letter from an incorporated home owners' association

indicating that the association has at least fifty-one percent (51%) of the home owners owning

residential dwellings on the landowners land as members and has articles of incorporation

specifying all rights and powers, including the power to negotiate for and acquire land on behalf

of the member homeowners, then, before leased land may be sold for any purpose and before it

may be leased for any purpose that would result in a discontinuance, the owner shall notify the

association by certified mail of any bona fide offer that the owner intends to accept, to buy the

leased land or to lease it for a use that would result in a discontinuance. The owner shall also give

notice by certified mail to the incorporated home owners' association of any intention to sell or

lease the land for a use which will result in a discontinuance within fourteen (14) days of any

advertisement or other public notice by the owner or his agent that the land is for sale or the land

upon which the residential dwelling is located is for lease.

      (b) The notice to the home owners' association shall include the price, calculated as a

single lump sum amount which reflects the present value of any installment payments offered and

of any promissory notes offered in lieu of cash payments or, in the case of an offer to rent the

capitalized value of the annual rent, and the terms and conditions of the offer. Any incorporated

home owners' association entitled to notice under this section shall have the right to purchase, in

the case of a third party bona fide offer to purchase, or to lease in the case of a third party bona

fide offer to lease, the land, provided it meets the same price and the same terms and conditions

of any offer of which it is entitled to notice under this section by executing a contract or purchase

and sale or lease agreement with the owner within one hundred eighty (180) days of notice of the

offer. No owner shall attempt to terminate the tenancy of any member of the incorporated home

owners' association except for nonpayment of rent for a period of one hundred and eighty (180)

days following a notice of sale or lease under this section. No owner shall unreasonably refuse to

enter into, or unreasonably delay the execution of a purchase and sale or lease agreement with a

home owners' association that has made a bona fide offer to meet the same price and the same

terms and conditions of an offer for which notice is required to be given pursuant to this section.

Failure of the incorporated home owners' association to execute such a purchase and sale

agreement or lease within the first one hundred eighty (180) day period shall serve to terminate

the right of the association to purchase or lease the land. The time periods may be extended by

agreement of the association and the owner. Nothing herein shall be construed to require an

owner to provide financing to any association or to prohibit an owner from requiring an

association which is offering to lease land to have within its possession a sum equivalent to the

capitalized value of the proposed rent of the land and requiring that a portion of the sum, of an

amount necessary to pay the rent on the land for a period of no greater that two (2) years, be kept

in escrow for such purpose during the term of the lease. In the event that an incorporated home

owners' association accepts an offer under this section, the tenancy of the members of the

association shall be extended on a month to month basis until the time set in the offer for closing

on the offer.

      (c) (1) When an owner has been properly notified under the terms of this section of the

existence of an incorporated home owners' association, the owner shall include in any purchase

and sale agreement or lease agreement which would be subject to this section, a statement

informing the purchaser or lessee of the home owners association's right of first refusal pursuant

to this section.

      (2) In addition, the home owners' association shall record in the land evidence records of

the city or town where the leased land is located, a copy of its articles of incorporation together

with a statement setting forth its statutory right of first refusal to purchase or lease the land of the

owner pursuant to this section.

      (3) The right of first refusal created herein shall not be deemed to allow a homeowners'

association to vary the terms of any offer made to an owner and to make a counteroffer to said

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owner. The homeowners' association shall have the right of first refusal only on the exact terms

and conditions as set forth in the offer received by the owner; provided, however, that the home

owners' association shall not be required to meet any terms or conditions that would result in the

removal of members of the association from the property which is the subject of the offer.

      (4) The right of first refusal created herein shall inure to a home owners' association for

the time periods provided in this section, beginning on the date of notice to the home owners'

association. The effective period of the right of first refusal shall apply separately for each

substantially different bona fide offer to purchase the land or to lease it for a purpose that would

result in a discontinuance, and for each offer the same as an offer made more than three (3)

months prior to the later offer; provided, however, that in the case of the same offer made by a

prospective buyer who has previously made an offer for which notice to a home owners'

association was required by this section, the right of first refusal shall apply only if the

subsequent offer is made more than six (6) months after the earlier offer. The right of first refusal

shall not apply with respect to any offer received by the owner for which notice to a home

owners' association is not required pursuant to this section.

      (5) No right of first refusal shall apply to a government taking by eminent domain or

negotiated purchase, a forced sale pursuant to a foreclosure, transfer by gift, devise or operation

of law, or a sale to a person who would be included within the table of descent and distribution if

there were to be a death intestate of a land owner.

      (d) In any instance in which the incorporated home owners' association of leased land is

not the successful purchaser or lessee of the land, the seller or lessor of the land shall prove

compliance with this section by filing an affidavit of compliance in the official land evidence

records of the city or town where the property is located within seven (7) days of the sale or lease

of the land.

      (e) No land owner shall attempt to increase any rental amount due regarding leased land

from the time of his or her receipt of any bona fide offer to purchase or to lease for a purpose

which would result in a discontinuance, until the expiration of the time period during which a

home owners' association may exercise its right of first refusal or until the time set in the offer for

closing on the offer.

      (f) In the event that an owner terminates the tenancies of all of the members of the

incorporated association, the right of first refusal created by this section shall inure to the benefit

of the former membership of the association for a period of one year after the termination of the

tenancies, or until the houses which they occupied are removed or destroyed, whichever first

occurs, with the former members having the same rights and obligations as existed prior to the

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terminations. Each homeowner whose residential dwelling is removed or destroyed shall be paid

fair and reasonable compensation by the land owner for all loss or damages caused to the

homeowner. The landowner shall make a written offer of compensation to the homeowner of fair

compensation within thirty (30) days before removal or destruction of the residential dwelling. If

the homeowner believes that the offer does not constitute fair and reasonable compensation, the

homeowner may submit the matter to binding arbitration pursuant to chapter 3 of title 10.

     (1) Selection of arbitrator. After submission to arbitration by the homeowner, one

arbitrator shall be selected from the list of qualified arbitrators of the court annexed arbitration

program of the superior court in the same manner as arbitrators are selected in accordance with

the rules of that program. Each party shall share the expenses of arbitration in accordance with

the rules of the court annexed arbitration program.

     (2) Hearings. The arbitrator shall call a hearing and provide seven (7) days notice of the

time and place of the hearing to the parties. The hearing shall be informal, and the rules of

evidence prevailing in judicial proceedings shall be binding. Any and all documentary evidence

and other data deemed relevant by the arbitrator may be received in evidence. The arbitrator shall

have the power to administer oaths and to require by subpoena the attendance and testimony of

witnesses, and the production of books, records, and other evidence, relative or pertinent to the

issues presented to the arbitrator for determination. The decision of the arbitrator shall be binding

upon the parties, subject to the provisions of chapter 3 of title 10.

     (g) This chapter shall not apply to chapter 31-44 of the Rhode Island general laws.

     SECTION 2. Chapter 34-18.2 of the General Laws entitled "Leased Land Dwellings" is

hereby amended by adding thereto the following section:

     34-18.2-4. Rent increases for leased land. – (a) A landowner as defined in section 34-

18.2-2 shall give the homeowner sixty (60) days written notice prior to any lot rent increase going

into effect. The written notice shall set forth the current rent, the proposed rent, and the date upon

which the increase shall take effect.

     (b) If a homeowner or a homeowners’ association having the power and authority to

negotiate rental terms on behalf of member homeowners, believes that the rent increase is

“excessive” as defined in this section, the homeowner or authorized homeowners’ association

may submit the matter to binding arbitration pursuant to chapter 3 of title 10.

     (1) Selection of arbitrator. After submission to arbitration by the homeowner, one

arbitrator shall be selected from the list of qualified arbitrators of the court annexed arbitration

program of the superior court in the same manner as arbitrators are selected in accordance with

the rules of that program. Each party shall share the expenses of arbitration in accordance with

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the rules of the court annexed arbitration program.

     (2) Hearings. The arbitrator shall call a hearing and provide seven (7) days notice of the

time and place of the hearing to the parties. The hearing shall be informal, and the rules of

evidence prevailing in judicial proceedings shall be binding. Any and all documentary evidence

and other data deemed relevant by the arbitrator may be received in evidence. The arbitrator shall

have the power to administer oaths and to require by subpoena the attendance and testimony of

witnesses, and the production of books, records, and other evidence, relative or pertinent to the

issues presented to the arbitrator for determination. The decision of the arbitrator shall be binding

upon the parties, subject to the provisions of chapter 3 of title 10.

     (c) An “excessive” rent increase for purposes of this section is an increase which is

unreasonable based on the landowner’s total expenses, including debt service and a reasonable

return on the landowner’s investment or equity in the leased land, provided, that the debt service

is directly related to acquisition of the land. Debt service used to or otherwise employed for

purposes other than that which is directly related to the acquisition or capital management of the

leased land shall be excluded. Further, the arbitrator shall perform an analysis as to the land

owner’s need for rent increase and services provided to the homeowner. This analysis shall be

performed for a period of not less then three (3) years prior to the application for rental increase.

Specifically excluded in any such analysis shall be any debt service incurred using the leased land

as collateral or other security for investment, enterprises, businesses or similar ventures separate

and apart from the leased land.

     (d) The arbitrator will promptly hear the dispute and render a decision based on the

“excessive” rent increase standard as defined in this section. For purposes of determining a

reasonable return on the landowner’s investment or equity, the arbitrator shall perform a risk

analysis and consider alternative and comparative investments.

     (e) No lot rent increase shall go into effect until the earlier of:

     (1) Completion of the binding arbitration process; or

     (2) One hundred-twenty (120) days after the written notice given under subsection (a) of

this section.

     (f) This section shall not apply to chapter 31-44 of the Rhode Island general laws.

     SECTION 3. This act shall take effect upon passage.

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LC003001

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PROPERTY - LEASED LAND DWELLINGS

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     This act would provide for the fair and reasonable compensation of homeowners for the

removal or destruction of their residential property on leased land, and would also provide for a

process of binding arbitration for a landowner and homeowner to resolve their dispute over the

compensation to be paid. This act would also provide binding arbitration for a landowner and a

homeowner of a leased land dwelling to resolve claims of excessive rent increases.

     This act would take effect upon passage.

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