Welcome to the second article in our series, an initiative of HopgoodGanim Lawyers’ Manufactured Homes team designed to provide operators and developers with information about the requirements for establishing and operating a park, from its acquisition and development, through to its sale. The series will also provide information about the employment, discrimination, and privacy laws particular to the operation of a manufactured home park.
The current manufactured home park model has come a long way from its humble mobile or relocatable home park beginnings. Now, home owners want to be part of a lifestyle community, whether that be within a park with basic amenities or those with luxury resort-style facilities, and manufactured home parks provide a solution, at various levels, for that demand. Home owner demand and attractive potential returns for park owners are driving increasing interest from established and new operators in the development and operation of manufactured home parks across Queensland.
Part 2: Developing a new manufactured home park – important considerations
In the first article in our series we discussed what you need to know about acquiring an established manufactured home park. If there are no suitable parks available to acquire, those operators wanting to either enter the market or increase their existing holdings may need to consider the possibility of establishing a new park.
Although the timeframe for returns is likely to be much longer than when purchasing an established park, and the associated risks may be higher, there are also advantages of going down this path as the park owner can customise the park to their requirements.
This article, authored by Special Counsel Anthony Pitt and Associate Janelle Metcalf, details some of the matters that should be considered in establishing a new park from the ground up.
6 things you need to think about:
The benefit of purchasing an established park is that the performance of the asset can be measured in tangible ways, including reviewing financial returns and liabilities, conducting a physical assessment of the existing construction, auditing approvals and site agreements in place, etc. Essentially, with a thorough due diligence investigation, you should know what you’re getting. When looking to establish a new park from the ground up, a different type of due diligence will need to be conducted to consider the potential of the land. Often, this can’t be measured by tangible means or with certainty, and so the commercial risks associated with this type of hypothetical analysis are increased.
Site selection and approvals
Location and site selection will be one of the first decisions to be made, and there will be a number of factors that influence this decision.
An important consideration will be whether the required planning approval is likely to be granted, and if so, what the potential or likely conditions of that may be. The conditions of any approval may greatly impact the viability of the development. The advice of planning specialists will be invaluable in this process.
In addition, the physical characteristics of the land (such as the size of useable/developable land, its location, accessibility and nearby amenities, etc.), legal and other development constraints (including easements, statutory covenants and local, State and federal planning policies and restrictions) need to be carefully considered as they will affect the development potential of the land, and any potential financial returns. Expert advice should be sought and thorough due diligence should be undertaken in relation to these matters.
Park design, facilities and utilities
Consideration will need to be given to the intended design for the park and how that will make the best use of the land from a planning and economic perspective.
Park owners should also consider the types of facilities proposed to be offered at the park, as these will have an impact on the site rent that may ultimately be charged to home owners (both initially, and as part of any subsequent site rent review or market review process), as compared with other parks in the locality and what facilities they offer.
Careful thought should also be given to the manner in which utilities are to be supplied to home owners. That is, whether they will be on-supplied by the park owner; or supplied direct to home owners by the relevant utility providers. As existing park owners will be aware, more stringent requirements have been introduced where utilities are on-supplied to home owners; and the park owner’s decision in this regard will likely impact how the park is designed and what input is required from third parties to finalise it.
Manufactured home design
In order for the Manufactured Homes (Residential Parks) Act 2003 (Qld) (Act) to apply, it is critical that the homes proposed to be constructed and sold are “manufactured homes” for the purposes of the Act. The Act defines a “manufactured home” as being a structure, other than a caravan or tent, that:
- as the character of a dwelling house;
- is designed to be able to be moved from one position to another; and
- is not permanently attached to land.
In case the design of the homes constructed is challenged at any time in the future, as part of the design phase, park owners should obtain from their relevant consultants (e.g. designers, architects, engineers, etc.) detailed reports that contain as much evidence as possible so as to support the above criteria, particularly the matters in points (2) and (3).
Site agreements, park rules and home sale agreements
A distinct advantage of creating a park from the ground up is that all park specific documents will be able to be custom drafted to meet the park owner’s requirements from day one.
Site agreements and special terms
The site agreement and special terms are critical documents, as together (in conjunction with the Act) they will be the primary document that governs a home owner’s occupation of a site for the term of the site agreement. As a site agreement is potentially an agreement in perpetuity and intergenerational, it is necessary for the special terms to be sufficiently comprehensive to cover potential matters and issues which may arise in the future.
Just as site agreements will contain details specific to the site and the park, so too the special terms should be tailored specifically to each park. Although there will be common issues in most special terms which can be tailored to suit, there is no “one size fits all” document.
If there are particular rights, obligations or reservations that the park owner wishes to put in place for the park, subject to any conflict with the Act, these will need to be included in the special conditions at the outset, as a park owner is not able to later unilaterally amend the terms of a site agreement.
The Act permits a park owner to make park rules about the use, enjoyment, control and management of the park. However, the Act limits the matters that can be addressed in the park rules.
For the same reason as noted for special terms, park rules need to be tailored to suit each specific park.
Once established, the park rules are not able to easily be amended and home owners have the right to object to a change in the park rules.
Home sale agreements
Often, the homes in a new park will be constructed or sold by the park owner, or a related entity of the park owner. In this scenario, the construction entity may have flexibility to either contract to sell the homes prior to completion of construction, or after construction is complete.
For contracts entered into prior to completion of construction, the construction entity will also need to decide matters such as whether instalments of the purchase price are payable throughout construction, whether the home buyer is able to make variations or have a choice of colours and finishes, and determine by what date construction will be complete.
In all circumstances, it is important that a home owner’s entry into a home sale contract is conditional on their entry into a site agreement.
Any subsequent sale of a home by a home owner will need to address different issues.
As part of their marketing campaign, a park owner will need to consider who their target audience is, and decide if they wish to deal solely with a particular group. A common example is to target a particular age demographic (e.g. over 50’s). If that is the case, before marketing material is issued to this effect, advice should be sought on whether an exemption is required under the relevant anti-discrimination law.
Careful consideration will also need to be had to the statements made by a park owner in any advertising or marketing material, including with respect to the facilities and amenities intended to be provided at the park, in two respects. First, the park owner should ensure that they have reasonable grounds for saying that they intend to provide such facilities and amenities in the park. Second, if any facility or amenity described in advertising or another document provided to the home owner is not provided at the park, then a home owner who was aware of this statement or received that document before entering into their site agreement may be entitled to seek a reduction in their site rent from the Tribunal.