01-002350 Department Of Business And Professional Regulation, Division Of Florida Land Sales, Condominiums, And Mobile Homes vs. Chester Yu, Ronal Yu And Carol Yu Status: Closed Recommended Order on Wednesday, September 19, 2001.

Summary: Cease and desist order and civil penalty of $250--but no refund--for minor violation of prohibition against pass-through charge for electrical distribution system repairs to mobile home owners.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF FLORIDA LAND )

SALES, CONDOMINIUMS, AND )

MOBILE HOMES, )

)

Petitioner, )

)

vs. ) Case No. 01-2350

)

CHESTER YU, RONALD YU, and )

CAROL YU, )

)

Respondents. )

______________________________)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division

of Administrative Hearings, conducted the final hearing in Fort

Pierce, Florida, on August 17, 2001.

APPEARANCES

For Petitioner : Janis Sue Richardson

Department of Business and

Professional Regulation,

Division of Florida Land Sales,

Condominiums, and Mobile Homes

1940 North Monroe Street, Suite 60

Tallahassee, Florida 32399-2202

For Respondent : Bernard A. Conko

Cohen, Norris, Scherer,

Weinberger & Wolmer

712 U.S. Highway One

Fourth Floor

North Palm Beach, Florida 33408

STATEMENT OF THE ISSUE

The issue is whether Respondents imposed upon mobile h ome

owners an invalid "pass-through" charge to pay for the cost of

work on the park's electrical distribution system, in violation

of Section 723.031(5), Florida Statutes.

PRELIMINARY STATEMENT

By Amended Notice To Show Cause filed April 24, 2001,

Petitioner gave notice to Respondents to show cause why

Petitioner should not issue a cease and desist order to stop

Respondents from imposing a monthly rent increase of $28.61 per

lot, to require Respondents to refund all money already

collected, and to require Respondents to take additional

affirmative action.

The Amended Notice To Show Cause alleges that Respondents

are the directors and trustees of Tanglewood Mobile Home Park,

Inc., a dissolved corporation. The Amended Notice To Show Cause

alleges that Respondents, in such capacities, own Tanglewood

Mobile Home Park, which is located at 345 Weatherbee Road, Fort

Pierce, Florida.

The Amended Notice To Show Cause alleges that, on

February 12, 2000, a building inspector of St. Lucie County

inspected the electrical distribution system at the mobile home

park, cited Respondents for violations, and required them to

replace a damaged meter bank and bring it up to the current

electrical code. The Amended Notice To Show Cause alleges that

the building inspector required work to repair the system, but

not expand it.

After performing the required work, Respondents issued a

Notice of Pass-Through Charge, dated August 14, 2000, for $28.61

per month per lot for an "Electrical Distribution System

Up -Grade," effective Decem ber 1, 2000. The notice states that

the pass-through charge will end November 1, 2004.

The Amended Notice To Show Cause alleges that Section

723.003(10), Florida Statutes, provides that a "pass-through

charge" is the "proportionate share of the necessary and actual

direct costs and impact or hookup fees for a governmentally

mandated capital improvement . . .." The Amended Notice To Show

Cause alleges that a capital addition is a valuable addition to

real property, rather than a repair, which restores a structure

to its original condition. The Amended Notice To Show Cause

alleges that the age of the electrical distribution system and

lack of availability of parts precluded the restoration of the

system to its original condition.

Respondents denied the ma terial allegations and requested a

formal hearing.

At the hearing, Petitioner called four witnesses and

offered into evidence nine exhibits : Petitioner Exhibits 1, 5,

6, 9, 13, 14, 16, 119, and 121. Respondent called three

witnesses and offered into evidence six exhibits : Respondent

Exhibits 1 and 4-8. All exhibits were admitted except

Petitioner Exhibits 1 and 119, which were proffered. The

Administrative Law Judge sealed Respondent Exhibit 6.

The parties did not order a transcript. They filed thei r

proposed recommended orders on September 7, 2001.

FINDINGS OF FACT

1. Tanglewood Mobile Home Park, Inc., owns the Tanglewood

Mobile Home Park located at 345 Weatherbee Road, Fort Pierce,

St. Lucie County, Florida (Tanglewood). The Patricia Yu

Irrevocable Trust owns Tanglewood Mobile Home Park, Inc.

Respondents Chester Yu and Ronald Yu are the trustees of the

trust; Respondent Carol Yu is not a trustee. References to

"Respondents" shall include only Chester Yu and Ronald Yu.

2. Tanglewood was developed in 1969. The park was

originally owned and operated for many years by Respondents'

father.

3. An undated prospectus for Tanglewood Mobile Home Park

(Prospectus) contains several provisions that have some bearing

on this case. Prospectus Section VI.A.1 requires each mobile

home owner to bear the expense of "electrical connections."

Prospectus Section VI.A.2.a states that, "to the extent

permitted by law, the mobile home owner may also be required to

bear, in the form of increases in the lot rental, the costs

incurred by Owner in installing capital improvements or

performing major repairs in the Park."

4. Prospectus Section VIII.3 states that the Owner may

assess, on a pro rata basis, "pass-through charges" as rent

increases. Prospectus Section VIII.3.a prohibits more than one

increase in lot rental annually, except for "pass-through

charges." Section VIII.1.c defines "pass-through charges" as

"those amounts, other than special use fees, which are itemized

and charged separately from the rent and which represent the

mobile homeowner's share of costs charged to the Park Owner by

any state or local government or utility company." Section

VIII.3.b.4 states: "To the extent permitted by law, the mobile

home owner may also be required to bear, in the form of

increases in the lot rental, the costs incurred by Owner in

installing capital improvements or performing major repairs in

the Park."

5. The Prospectus states that Tanglewood has 158 lots. In

reality, only 148 lots are improved and available for rent. One

of these lots is the park office. At present, 139 lots are

leased.

6. In October 1999, Hurricane Irene caused flooding in

Tanglewood. After the flooding had receded, the power company

restored power to the area, but a submerged transformer blew out

and damaged part of the Tanglewood's electrical distribution

system, leaving 16 mobile homes without power. After repairing

or replacing the transformer, the power company employee

responsible for reconnecting Tanglewood's electrical

distribution system reenergized eight mobile homes, but refused

to reenergize the remaining eight due to the deteriorated

condition of their meter bank.

7. Meter banks are located in groups at various points in

the park. Power enters the park either above- or below-ground

and is fed into individual meters for each mobile home. Each

meter bank typically contains eight meters, and each meter

typically has a junction box and a disconnect box.

8. The concern of the power company employee was that the

mechanical force required to reconnect power to one meter bank

could possibly be too great for the deteriorated supports to

withstand.

9. As was typical of many meter banks at Tanglewood, the

meter bank for these eight lots was poorly supported due to the

deterioration of its support structure. Most supports at

Tanglewood were made of wood, which required close monitoring

and careful maintenance. Exposed to the elements, wood suffered

considerable damage over time from wood rot. If the support

failed, a meter bank would fall over to the ground, exposing

live electrical lines in close proximity to the mobile homes and

their occupants.

10. Many meter banks throughout Tanglewood also suffered

from deteriorated supports. Many meter banks were deficient

because of the use of plumbing-grade PVC pipes as conduit, which

are of a decreased thickness, when compared to PVC pipes

approved for outdoor electrical use and, when exposed to

sunlight, tend to deteriorate faster than the type of PVC pipes

approved for outdoor electrical use. The use of plumbing-grade

PVC pipes may not have been legal at the time it was used.

11. Other meter banks also suffered from rusted and

missing components, which might allow rainwater to enter the

system and damage the parts. Some of the larger missing

components left gaps large enough to allow a child's finger to

penetrate and touch a live wire. Meter cans were damaged, masts

(for above-ground supply lines) were inadequately supported, and

drop wires (for above-ground supply lines) were too low.

12. Confronted with the problem of eight lots without

electrical service, Respondents contacted a local electrical

contractor, who replaced the meter bank and its supports, using

new pressure-treated wood. He also increased the service for

these eight meters from 100 amps to 150 amps. The power company

promptly restored electrical service after these repairs were

completed.

13. Respondents did not try to assess the mobile home

owners a pass-through charge for this work. Instead, on

January 28, 2000, Respondents sent the mobile home owners a

notice that their monthly rent would increase by $15 (net, $12,

after relieving the tenants of the obligation to pay a $3

monthly administration fee for water and sewer). The notice

states that the rent increase is effective May 1, 2000, which

may reflect a common commencement date on all lot leases.

14. The letter notes that the park owner "has expended and

will expend substantial sums for improvements and upgrades in

the park," but warns that the park owner does not know if "any

additional tax, utility or assessment prorations will be

necessary." The rent increase covered, among other things, the

cost of the work to restore electrical service to the eight lots

whose meter bank required replacement.

15. On February 12, 2000, the St. Lucie County Building

Inspector inspected the electrical distribution system at

Tanglewood. He noted the conditions described above and issued

numerous citations, which were submitted to the St. Lucie County

Code Enforcement office.

16. In 1998, St. Lucie County adopted the National Fire

Protection Association code, which is based on the 1996 National

Electrical Code. The new code requirements prohibit a wood

support system, require the placement of meters within 30 feet

of the mobile home, and require underground wiring, but do not

require service above 100 amps, which was the minimum level of

service at Tanglewood prior to any electrical work following

Hurricane Irene.

17. On May 25, 2000, the County Code Enforcement Officer

issued a notice of citations to Respondents for unsafe

electrical equipment. The officer required the replacement of

the remainder of the electrical distribution system. When work

stopped at Tanglewood, the County Code Enforcement Officer

issued other notices of citations in June 2000.

18. Respondents responded to these demands from the County

by undertaking extensive work to Tanglewood's electrical

distribution system. The result was a modern electrical

distribution system--at a cost of $161,912, plus $28,977.76 in

finance charges, for a total of $190,889.76.

19. By Notice of Pass-Through Charge dated August 14,

2000, Respondents advised the mobile home owners of a monthly

pass-through charge of $28.61 per lot from December 1, 2000,

through November 1, 2004. The notice discloses that the reason

for the pass-through charges is the electrical distribution

system upgrade that had recently been completed.

20. The evidence is clear that, except for the upgrade to

200-amp service, the electrical work done in this case was

governmentally mandated. This finding is supported by the

reluctance of Respondents to attend to the electrical system

unless a mobile home was without electricity. Despite

Respondents' electrical invoices, their park-management policy

obviously deferred maintenance, at least with respect to the

electrical distribution system.

21. The closer question in this case is whether the work

was a capital improvement or a repair. The addition of 50-100

amps of service was a capital improvement, but it was not

mandated by the government. So the capital improvement versus

repair question applies to the remainder of the work.

22. In their proposed recommended order, Respondents

contend that the electrical distribution system was "completely

functional" prior to the inspection and citations. This is true

as to the function of conducting electricity; this is untrue as

to the function of conducting electricity safely. Weakened and

sometimes nonexistent supports, rusted holes, holes from missing

components, and occasionally exposed wiring substantially

undermined the safety of the electrical distribution system at

Tanglewood.

23. Respondents argue that new code requirements forced

them to relocate disconnects closer to the mobile homes, use

four-wire (not three-wire) feeder line to all mobile homes, use

electrical-grade conduit, and use metal supports for meter

banks. However, these are subsidiary costs of repair, not

capital improvements. As contrasted to the expansion of

service, the remaining work does not enlarge the capacity of the

electrical distribution system. The remaining work repairs the

system to make it safer, with some additional work required to

meet current code requirements.

24. Respondents argue that the work increases the value of

the land. The record does not support this assertion. Even if

such evidence were present in this case, it would not be

determinative. Although a capital improvement normally adds

value, a residential safety hazard subtracts value, so its

elimination would have the appearance of adding value.

25. Respondents argue that the work substantially extends

the life of the electrical distribution system. This argument

would be more appealing in the presence of an effective

preventative maintenance program covering such basic needs as

replacing wooden supports and metal covers when needed.

However, the nature of the work, other than raising the service

from 100 amps, is more retrospective than prospective; the work

is really only catching up on preventative repairs and

maintenance that was not done for years. Once Respondents

allowed the system to fall into such a state of disrepair, the

secondary costs of bringing the system up to code, such as

adding four-wire feeds and relocating disconnects, do not change

the nature of the expenditures; they are repair expenses, not

capital improvements.

26. Respondents have proved that a portion of the work was

clearly the responsibility of individual mobile home owners.

For instance, about two-thirds of the mobile homes required

$150 -$200 of work to separate the grounded conductors from the

grounding conductors. However, it is unclear that any of such

work, for which individual mobile home owners were directly

responsible, was performed on all lots. Even if this work were

a capital expenditure, which it is not, it could not be passed

"proportionately" among all of the mobile home owners, if only

some of them required the work.

27. Respondent contends correctly that the pass-through

charges are a minor violation, as defined in Section 723.006(9),

Florida Statutes. Respondents fully disclosed the pass-through

charges prior to assessing them. The pass-through charges did

not endanger the health, safety, or welfare of the mobile home

owners ; to the contrary. The charges arose from a substantial

expenditure by Respondents to enhance the health, safety, and

welfare of the mobile home owners. The pass-through charges

caused no economic harm to the mobile home owners because

Respondents were authorized by the Prospectus to raise the rent

by a sufficient amount to compensate for the entire cost of the

work on the electrical distribution system. For these reasons,

alone, neither a penalty nor a refund is appropriate; a

cessation of the assessment of further pass-through charges and

the imposition of the maximum civil penalty for a minor

violation are sufficient.

28. An order requiring a refund of any portion of the

collected pass-through charges may have a disproportionately

disturbing effect on Respondents and the mobile home owners.

Respondents borrowed the full cost of the work on the electrical

distribution system, and this note is payable in 48 equal

monthly instalments ending on August 4, 2004. An order

requiring a refund of any portion of the monies already

collected may result in a significant disruption in the

anticipated cash flow to Respondents, necessitating an even

greater increase in rent to cover the loss of these funds.

Mobile home owners who have left the park between the time of

the electrical work and the time of the rent increase would

unfairly be relieved of their proportionate share of the cost of

this work, and mobile home owners coming to the park after this

rent increase would unfairly be imposed with a

disproportionately larger share of the cost of this work.

CONCLUSIONS OF LAW

29. The Division of Administrative Hearings has

jurisdiction over the subject matter. Section 120.57(1),

Florida Statutes. (All references to Sections are to Florida

Statutes.)

30. Section 723.006(5) authorizes Petitioner to take

action against Respondents:

Notwithstanding any remedies available to

mobile home owners, mobile home park owners,

and homeowners' associations, if the

division has reasonable cause to believe

that a violation of any provision of this

chapter or any rule promulgated pursuant

hereto has occurred, the division may

institute enforcement proceedings in its own

name against a developer, mobile home park

owner, or homeowners' association, or its

assignee or agent, as follows:

(a ) The division may permit a person

whose conduct or actions may be under

investigation to waive formal proceedings

and enter into a consent proceeding whereby

orders, rules, or letters of censure or

warning, whether formal or informal, may be

entered against the person.

(b ) The division may issue an order

requiring the mobile home park owner, or its

assignee or agent, to cease and desist from

an unlawful practice and take such

affirmative action as in the judgment of the

division will carry out the purposes of this

chapter. The affirmative action may include

the following:

1. Refunds of rent increases,

improper fees, charges and assessments,

including pass-throughs and pass-ons

collected in violation of the terms of this

chapter.

2. Filing and utilization of

documents which correct a statutory or rule

violation.

3. Reasonable action necessary to

correct a statutory or rule violation.

(c ) In determining the amount of civil

penalty or affirmative action to be imposed

under this section, if any, the division

must consider the following factors:

1. The gravity of the violation.

2. Whether the person has

substantially complied with the provisions

of this chapter.

3. Any action taken by the person to

correct or mitigate the violation of this

chapter.

(d ) The division may bring an action in

circuit court on behalf of a class of mobile

home owners, mobile home park owners,

lessees, or purchasers for declaratory

relief, injunctive relief, or restitution.

(e )1. The division may impose a civil

penalty against a mobile home park owner or

homeowners' association, or its assignee or

agent, for any violation of this chapter, a

properly promulgated park rule or

regulation, or a rule or regulation

promulgated pursuant hereto. A penalty may

be imposed on the basis of each separate

violation and, if the violation is a

continuing one, for each day of continuing

violation, but in no event may the penalty

for each separate violation or for each day

of continuing violation exceed $5,000. All

amounts collected shall be deposited with

the Treasurer to the credit of the Division

of Florida Land Sales, Condominiums, and

Mobile Homes Trust Fund.

2. If a violator fails to pay the civil

penalty, the division shall thereupon issue

an order directing that such violator cease

and desist from further violation until such

time as the civil penalty is paid or may

pursue enforcement of the penalty in a court

of competent jurisdiction. If a homeowners'

association fails to pay the civil penalty,

the division shall thereupon pursue

enforcement in a court of competent

jurisdiction, and the order imposing the

civil penalty or the cease and desist order

shall not become effective until 20 days

after the date of such order. Any action

commenced by the division shall be brought

in the county in which the division has its

executive offices or in which the violation

occurred.

31. Section 723.006(11) adds:

Upon adoption of rules establishing minor

violations and a determination by the

division that the violation is a minor

violation, the division may levy a civil

penalty of up to $250 but shall not require

a refund of rent increases, fees, charges or

assessments, including pass-through and

pass-ons collected from mobile home owners.

Until rules have been adopted as provided in

this section, the enforcement procedures of

the division in existence on the effective

date of this act shall be in effect.

32. Rule 65B-35.002 defines "minor violations":

(1 ) Pursuant to section 723.006, Florida

Statutes, the following items are designated

as minor violations of chapter 723, Florida

Statutes:

(a) Failure to provide a prospectus to a

mobile home owner that incorporates the 1988

legislative amendments to the prospectus

pursuant to section 723.011, Florida

Statutes.

(b ) Failure to file copies of

advertising required by section 723.016(1),

Florida Statutes.

(c ) Failure to post park rules and

regulations required by section 723.035(1),

Florida Statutes.

(d ) Failure to file copies of lot rental

increases with the agency required by

by section 723.037(3), Florida Statues.

(e ) Failure to meet to discuss a notice

of change as required by section 723.037(4),

if there is mutual written agreement between

the homeowners' committee and the park owner

to meet at a time beyond the 30-day

requirement, if a meeting is requested by

either party.

(f ) Failure to file rule changes with

the division no later than 10 days after the

effective date of the changes as provided in

the notice of rules change.

(2 ) The listing of a violation as minor

violation in this section does not preclude

the division from finding that any other

violation of chapter 723 or of the rules

adopted thereunder is a minor violation as

provided by 723.006. The listing of a

violation as a minor violation in this

section does not create any presumption that

any other violation of chapter 723 or of the

rules adopted thereunder, is or is not a

minor violation.

33. Section 723.031(5)(b) restricts the ability of

Respondents to collect additional money from the mobile home

owners during the term of a one-year lease unless the additional

money qualifies as a "pass-through charge":

The rental agreement shall contain the lot

rental amount and services included. An

increase in lot rental amount upon

expiration of the term of the lot rental

agreement shall be in accordance with ss.

723.033 and 723.037 or s. 723.059(4),

whichever is applicable, provided that,

pursuant to s. 723.059(4), the amount of the

lot rental increase is disclosed and agreed

to by the purchaser, in writing. An

increase in lot rental amount shall not be

arbitrary or discriminatory between

similarly situated tenants in the park. No

lot rental amount may be increased during

the term of the lot rental agreement,

except:

(b ) For pass-through charges as defined

in s. 723.003(10).

34. Section 723.003(10) defines a "pass-through charge"

as:

The term "pass-through charge" means the

mobile home owner's proportionate share of

the necessary and actual direct costs and

impact or hookup fees for a governmentally

mandated capital improvement, which may

include the necessary and actual direct

costs and impact or hookup fees incurred for

capital improvements required for public or

private regulated utilities.

35. As amended effective July 1, 2001, Section 723.003(11)

defines a "proportionate share" as:

The term "proportionate share" as used in

subsection (10) means an amount calculated

by dividing equally among the affected

developed lots in the park the total costs

for the necessary and actual direct costs

and impact or hookup fees incurred for

governmentally mandated capital improvements

serving the recreational and common areas

and all affected developed lots in the park.

36. The governmentally mandated work in this case is a

repair, not a capital expenditure, for the reasons stated in the

findings of fact. Cf. Hillsboro Island House Condominium

Apartments, Inc. v. Town of Hillsboro Beach , 263 So. 2d 209, 213

(Fla. 1972) with Pinnacle Port Community Ass'n, Inc., v.

Orenstein , 952 F.2d 375, 378 (11th Cir. 1992).

37. Because the work constitutes repairs, Respondents

could not assess the mobile home owners their proportionate

share of the costs during the lease term, as a pass-through

charge, but could, under the Prospectus, add these costs to the

rent. Respondents chose a rent increase as the vehicle to

defray the costs of the electrical repairs to the first eight

lots. These costs were effectively passed through as of May 1,

2000.

38. Adding the considerably greater costs to the rent

would mean two things. First, they would represent a permanent

increase, rather than a pass-through charge that expires on a

certain date. Second, they could not be added to the rent until

the next anniversary of the leases, which may not have been

until May 1, 2001. However, under the provisions of the

Prospectus, Respondents could have increased the rent to recover

these considerable repair costs.

39. Instead, effective December 1, 2000, Respondents

passed through the costs to the mobile home owners over a period

roughly commensurate with the term of the note that Respondents

executed to pay for this work.

40. Although Respondents have violated Section 723.031(5)

by attempting to pass through noncapital expenditures, the

violation is a minor one in every respect. The expenditures

enhanced the safety of the mobile home owners. Respondents

clearly disclosed the nature of the pass-through. Respondents

could have raised the rent to cover the expenditures. A refund

order may have a disruptive effect on the financial health of

Tanglewood and its residents. The circumstances dictate issuing

a cease and desist order, prohibiting the collection of the

pass-through charge at anytime following the effective date of

the final order, and imposing a $250 civil penalty.

RECOMMENDATION

It is

RECOMMENDED that the Division of Florida Land Sales,

Condominiums, and Mobile Homes enter a final order dismissing

the Amended Notice To Show Cause against Respondent Carol Yu.

It i s further

RECOMMENDED that the Division of Florida Land Sales,

Condominiums, and Mobile Homes enter a final order finding that

Chester Yu and Ronald Yu have assessed a pass-through charge in

violation of Section 723.031(5), Florida Statutes; that Chester

Yu and Ronald Yu shall cease and desist from assessing this

pass-through charge upon the effective date of the final order;

that the violation is a minor violation and no refund is

appropriate under the circumstances; and that Chester Yu and

Ronald Yu shall pay a single civil penalty of $250, for which

they are jointly and severally liable.

DONE AND ENTERED this 19th day of September, 2001, in

Tallahassee, Leon County, Florida.

___________________________________

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488- 9675 SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 19th day of September, 2001.

COPIES FURNISHED:

Ross Fleetwood

Division Director

Division of Florida Land Sales,

Condominiums, and Mobile Homes

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Hardy L. Roberts, III

General Counsel

Department of Business and Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399-2202

Janis Sue Richardson

Attorney for Petitioner

Department of Business and

Professional Regulation,

Division of Florida Land Sales,

Condominiums, and Mobile Homes

1940 North Monroe Street, Suite 60

Tallahassee, Florida 32399-2202

Bernard A. Conko

Attorney for Respondent

Cohen, Norris, Scherer,

Weinberger & Wolmer

712 U.S. Highway One

Fourth Floor

North Palm Beach, Florida 33408

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this recommended order. Any exceptions

to this recommended order must be filed with the agency that

will issue the final order in this case.