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Do those who are impacted have rights?

February 23, 2017

As I read the letter from Roger Truitt, which repeatedly told us how many years he and his brother had been the landowners, and how many decades his family had held the land, and their desire to keep it in the family for the next century, I was led to think about something that future buyers of the homes in this new development ought to be aware of - something likely to affect their cost of living and the likely cost of the assisted living facility as well.

Clearly the goal here is to have a large, perpetual and growing cash flow for future generations of Truitt descendants. Think how much land rent generations of Truitts will be able to collect from their 90-plus tenants over the coming decades. As I understand it, it is acceptable to raise land rent by the percentage increase of the Cost of Living Index, year in and year out.

We have other examples in Sussex County. In Dewey Beach, Rehoboth-by-the-Sea owns over 200 lots. The homes which sit on those lots are owned by others, and an annual land rent is paid to the landlord. Those leases today seem very inexpensive: tenants are paying perhaps $700 a year. According to a 2006 CG article, "Land rent was established based on the value of land at the time of the lease, many issued in the 1950s or 1960s. Rent was fixed for the first 20 years, raised 75 percent for the next 10 years and since then rent increases are based on cost-of-living increases for the remaining years of the agreements." (Those land leases are expiring in 2025, and the houses will revert to the landowner.)

Two real estate listings give a notion of what future income on those Dewey lots will be. See the listing for the house at 122 Chicago St. in Dewey. The asking price for the new house is $599,000. Read far enough, and you'll see that it comes with a 60-year land lease, at an annual rate of $18,200, for a 7,500-square-foot lot close to Coastal Highway. For the moment, the house and lot are owned by the same entity, and that $599,000 house is assessed by the county at $25,800 and the lot at $17,800 (that's an attempt to equate to 1974 values). Total taxes are $1,770, of which $716 is on the land. So under that land lease, the remaining $17,500 of the annual land rent is pure profit for the landowner. (Note that the annual tax on the house - $1,054 - is 0.17% of the asking price - you'll see in a moment why I mention this.)

The other listing, for 20 Carolina St., shows an older home in the ocean block, on a 5,000-square-foot lot, also with a 60-year ground lease, at $24,950 per year. The annual county/school tax on this lot is $485; the other $24,450 per year is pure profit for the landlord. At eight lots per acre, that’s $200,000 income per acre per year for the landlord. And if all 200 lots are over $20,000 per year, that’s $4,000,000 per year - a nice annuity for future generations of the landowners!

West of Rehoboth Beach is another group of land-lease communities, where land rents rise regularly. Many homes there sell for well under $100,000, but carry land rents of $8,000, $10,000 or more per year - and some as high as $20,000 per year. The owners help fund our local cancer center. Closer to Rehoboth, on the Coastal Highway, are dozens of manufactured homes on small lots. The owners of those modest homes pay significant land rent to their landlords.

Land rent at one runs $7,200 a year (and for a home whose asking price is $14,000, the county/school tax is $138 - 1 percent of the asking price, or five times what the Dewey house pays!) Land rises in value over time. It rises for reasons that have nothing at all to do with the virtues of or any activity on the part of the landowners, and everything to do with the activity of the community and the health of the local and national economy, and the public’s investment in infrastructure such as Coastal Highway.

The Truitts want to join the ranks of the landlords, and continue to profit from their grandparents’ foresight. One can’t blame them for wanting. But is a system in which we permit some to harvest value that we all create really serving the common good? Can’t we do better?

The folks who buy the proposed 90 homes built on the Truitts’ land need to understand what the rules are by which their land rent will be raised over time. They need to realize that they or their estates won’t be able to resell those homes for much as a direct result of the size of their land rent. Houses depreciate, and private-profit land rent rises, leaving the homeowner with not all that much. Incidentally, community land trusts also operate on a land rent model, and can be affordable and appealing places to live, because the land trust is not designed to profit anyone. Near Wilmington, the three Ardens (Arden, Ardentown and Ardencroft) also are based on land rent, and are wonderful and affordable places to live.

The 99-year leases are renewable, and the trustees collect sufficient rent to cover the communities’ costs, including the cost of the local school district. To the traffic questions, having sat in traffic on Coastal Highway this week, I am reminded that in an evacuation situation, those in Rehoboth Beach’s surroundings who don’t leave immediately are likely to spend many hours trying to get clear of the area on our three-four lane and then one- or two-lane roads. Adding more traffic to a set of roads for which there is no immediate plan in place to match the capacity to the load is not wise.

Even getting out of Shuttle Drive (northbound) or Country Club Road (southbound) could take many hours, given the hundreds of homes whose only way out is those two roads. (And saying that it is possible to use Bald Eagle Road, too, isn’t an answer! Coastal Highway will already be full.)

Why would we want to make it worse? I’m guessing Mr. Truitt is willing, but do those who are impacted also have rights? Or are his landlord profits somehow more important? Does the fact that his ancestors came here years before we did give him more rights than the rest of us have? Sussex County’s 2018 Comprehensive Land Use Plan needto address the day-in-and-day-out traffic issues, already serious and made worse by additional development such as Mr. Truitt, and others, are planning, and, importantly in this era of extreme weather, the issue of making it possible to evacuate our area when that is necessary.

Wyn Achenbaum
Rehoboth Beach

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