On Your Side Investigation: Lot rent increase jeopardizes Clanton man's home

On Your Side Investigation: Property power
Updated: Jun. 26, 2017 at 7:26 PM CDT
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(Source: WBRC video)
(Source: WBRC video)

CLANTON, AL (WBRC) - Michael Knizel bought his brick lakefront home from his father in 1997, and says he's been visiting for many years before.

"This is better than anything you can imagine. No drug can touch what this does for stress. This is the best stress relief there is – taking a stare here at the water," Knizel says.

Even though Knizel owns the house, he's worried about how much longer he'll call it home. He does not own the land underneath the home; he rents that from Alabama Power. And the monthly rental fee is going up.

John Coley, a realtor with Lake Martin Voice Realty, explains the arrangements are called lot leases. "That is when a homeowner owns the home, the bricks and sticks and improvements on a house, but they don't own the direct beneath it," Coley explains.

Knizel was paying $120 a month to Alabama Power under his 20-year-lease agreement.

The agreement expired on May 31. A few weeks before, Knizel got a letter advising that his new rental fee is $10,000 per year, or $833.34 per month.

"I almost fell out actually. I had to sit down. I couldn't think anything," said Knizel.

"Most of the time it's being calculated on the value of the lot. And, so if the value of the lot goes up, the lease payment will go up over those 20 years," explains Coley.

Representatives of Alabama Power declined an interview but explained in a statement that the company works closely with its lake tenants to keep them advised of their options before lease expires.  The statement says:

"Lessees have the option to either purchase the property or enter into a new lease at an updated market-based rate. Under either scenario, the current value of the property must form the basis of the new contract. Many of our long-term leases were entered into twenty years ago, so clearly the fair market value of lake property has increased over this time.

Mr. Knizel has been aware of the terms of his lease as we have had ongoing dialogue with him over the years. He enjoyed the benefit of a long-term lease, with a fixed 20-year rental rate and elected to enter into a new lease at the updated market-based rate upon its expiration."

But Knizel says there's still sticker shock.

"I expected it to go up because it has in the past but nothing like this," he says.

Knizel signed the new lease agreement and plans to stay as long as he can.  "I think I'll have enough money to get back and forth to work, and eat, but barely, and that's it."

The Alabama Real Estate Commission, which regulates real estate brokers and agents, does not have any guidance on lot leases and does not track them. They fall outside of their purview.

"Some people do prefer the lot lease because they are able to buy the house for a lot lower price and they have a smaller lease payment over those 20 or 30 years," explains Coley. He says anyone with a lot lease should work with a local real estate agent familiar with the market.

"As you come to the end of your lease, you need to be aware how much the local real estate market has changed," he says.

And that's partly why Knizel is sharing his experience. "I just want people to know to be warned that this could happen to them," he says. "If they're in a situation where they can buy their property, I'd encourage them to do it."

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