(A) Fair return. It is the intent of this chapter to permit rents to be established at a level which will provide landlords with a fair return on their property, consistent with this chapter and the law and Constitution of the state.
(B) Definitions for this section on hardship increases only.
(1) Net operating income (NOI) equals gross income less allowable operating expenses.
(2) Gross income equals:
(a) Gross rents, computed as gross rental income at 100% paid occupancy, plus
(b) Interest from rental deposits, unless directly paid by the landlord to the tenants (interest shall be imputed at the rate of 5½% of all deposits un-less such deposits actually earn greater interest), plus
(c) Income from laundry facilities, vending machines, amusement devices, cleaning fees or services, garage and parking fees, plus
(d) All other income or consideration received or receivable for or in connection with the use or occupancy of rental units and housing services,
(e) Minus uncollected rents due to vacancy and bad debts to the extent that the same are beyond the landlord's control. Uncollected rents in excess of 3% gross rents shall be presumed to be unreasonable unless established otherwise by the landlord by clear and convincing evidence. Where uncollected rents must be estimated, the average of the preceding three years' experience shall be used, or in the discretion of the Commission, some other comparable method.
(3) Operating expenses:
(a) Operating expenses shall include the following:
1. Real property taxes.
2. Utility costs. Sub-metering expenses for the provision of electricity or gas to the homeowners shall not be included in calculating operating expenses for purposes of determining NOI. Each park owner shall have the burden to present to the Commission adequate financial records showing to the satisfaction of the Commission that the operating expenses do not include sub-metering expenses. If a park owner does not have sufficient financial records to show the amount of sub-metering expenses to be excluded from the 1982 base year, then such park owner shall present to the Commission and/or the Commission shall request from the park owner other data needed to show what the reasonable amount of sub-metering expenses would have been in the base year 1982. Such data may include, without limitation, financial data showing the average sub-metering expenses for other years, adjusted to reflect 1982 actual costs. After considering all available data, the Commission shall determine, in its discretion, the amount of operating expenses for the 1982 base year, after excluding the appropriate amount of sub-metering expenses.
3. Management fees (contracted or owner performed) of 5% or less of gross income are presumed to be reasonable. Management fees in excess of 5% of gross income are presumed to be unreasonable. Such presumption may be rebutted by clear and convincing evidence.
4. Other reasonable management expenses including but not limited to necessary and reasonable advertising, accounting and insurance.
5. Normal repair and maintenance expenses, including but not limited to painting, normal cleaning, fumigation, landscaping and repair of all standard services, including electrical, plumbing, carpentry, furnished appliances, drapes, carpets and furniture.
6. Owner-performed labor, which shall be compensated at the following hourly rates upon documentation of the date, time and nature of the work performed:
a. At the general prevailing rate of per diem wages for the Palm Springs area, for the specified type of work performed as determined and published by the Director of the Department of Industrial Relations of the state pursuant to § 1770 et. seq.
b. If no such general prevail- ing rate has been determined and published then:
General maintenance - $7.00 per hour.
Skilled labor - $13.00 per hour.
Notwithstanding the above, a landlord may received greater or lesser compensation for self-labor if the landlord proves by clear and convincing evidence that the amounts set forth above are substantially unfair in a given case.
Owner-performed labor in excess of 5% of gross income shall not be allowed unless the landlord proves by clear and convincing evidence that such excess labor expenses resulted in proportionately greater services for the benefit of the homeowners.
7. License and registration fees required by law to the extent same are not otherwise paid by the homeowners.
8. Capital expenses of less than $100 per item per unit actually expended in the year of application.
9. The yearly amortized portion of capital expenses not included in division (B)(3)(a)8. above, computed in accordance with the following schedule; or if not itemized therein, in accordance with any useful life table utilized by the Internal Revenue Service.
Improvement | Years |
Improvement | Years |
Air conditioners | 10 |
Appliances: | |
Dishwasher | 5 |
Garbage disposal | 2 |
Refrigerator | 5 |
Stove | 5 |
Water heater | 5 |
Cabinets | 10 |
Carpentry | 10 |
Door | 10 |
Electrical wiring | 10 |
Elevator | 20 |
Fencing: | |
Block | 10 |
Chain | 10 |
Wood | 10 |
Fire alarm system | 10 |
Fire escape (metal) | 10 |
Flooring: | |
Asbestos Tile & Linoleum | 5 |
Carpet | 5 |
Hardwood | 10 |
Furniture | 5 |
Gates: | |
Chain link | 10 |
Wood | 10 |
Wrought iron | 10 |
Heater: | |
Central | 10 |
Electric | 10 |
Gas | 10 |
Sauna | 5 |
Water (potable) | 5 |
Water (therapy) | 5 |
Water (swimming) | 5 |
Insulation | 10 |
Landscaping: | |
Planting | 10 |
Sprinklers | 10 |
Lighting | 10 |
Locks | 5 |
Plumbing: | |
Fixtures | 10 |
Pipes | 10 |
Painting: | |
Exterior | 5 |
Interior | 2 |
Pools, swimming | 25 |
Pumps: | |
Pool | 5 |
Sump | 10 |
Paving: | |
Asphalt | 10 |
Cement | 10 |
Reslurry | 3 |
Resurfacing | 3 |
Plastering | 10 |
Roofing: | |
Asphalt shingle | 10 |
Built-up Tar & Gravel | 5 |
Polyurethane | 5 |
Tile | 15 |
Wood shakes | 7 |
Sauna | 25 |
Security entry telephone intercom | 10 |
Sewers | 25 |
Stucco | 10 |
Tennis courts | 25 |
Therapy pools | 25 |
Window: | |
Awnings | 5 |
Drapes | 3 |
Screebs | 3 |
Shades | 5 |
10. Reasonable attorney's fees and costs incurred as normal and reasonable costs of doing business, including but not limited to good faith attempts to recover rents owing and good faith unlawful detainer actions not in derogation, of applicable law, to the extent same are not recovered from the homeowners.
(b) Operating expenses shall not include:
1. Avoidable and unreasonable or unnecessary expenses;
2. Mortgage principal and interest payments;
3. Lease purchase payments and rent or lease payments to landlord's lessor.
4. Any penalties, fees or interest assessed or awarded for violation of this or any other law;
5. Attorney's fees and other costs incurred for proceedings before the Commission or in connection with civil actions or proceedings against the Commission;
6. Depreciation of the real property;
7. Any expense for which the landlord has been reimbursed by any security deposit, insurance settlement, judgement for damages, settlement or any other method.
(4) Base year for purposes of this section on hardship increases only shall mean calendar year 1982.
(5) Consumer Price Index is the same as defined in § 99.02.
(C) Presumption of fair base year net operating income. Except as provided in division (D) of this section, it shall be presumed that the net operating income produced by a property during the base year provided a fair return on property. Landlords shall be entitled to maintain and increase their net operating income from year to year in accordance with division (G) of this section.
(D) Rebutting the presumption.
(1) If the Commission determines that the base year NOI yielded other than a fair return on property, it shall adjust the base year NOI accordingly. The Commission shall not make such a determination unless it has first made at least one of the following findings:
(a) That the landlord's operating and maintenance expenses in the base year where unusually high or low. In such instances, the expenses for each of the three years last preceding the base year shall be adjusted in accordance with division (F) of this section and the average of such adjusted expenses shall be substituted in calculating the base year NOI. Such average shall be presumed to reflect reasonable average annual expenses; such presumption may be rebutted by clear and convincing evidence. In the event that the property shall not have been continuously occupied as a rental unit for three years last preceding the base year, the base year operating expenses shall be adjusted to reflect average expenses over a period of time deemed reasonable by the Commission. In determining whether the landlord's expenses were unusually high or low, the Commission shall consider:
1. The landlord made substantial capital improvements during the base year, which were not reflected in the rent levels on the base date.
2. Substantial repairs were made due to damage caused by fire, natural disaster or vandalism.
3. Maintenance and repair were below accepted standards so as to cause significant deterioration in the quality of housing services.
4. Other expenses were unreasonably high or low notwithstanding the following of prudent business practice. In making this determination, the fact that property taxes prior to 1982 may have been higher than in the base year shall not be considered.
(b) That the rent on the base date was disproportionate due to one of the enumerated factors below. In such instances, adjustments shall be made in calculating gross rents consistent with the purposes of these standards:
1. The rent on the base date was established by a lease or other formal rental agreement which provided for substantially higher rent at other periods during the term of the lease.
2. The rent on the base date was substantially higher or lower than at other times of the year by reason of seasonal demand or seasonal variations in rent.
3. The rent on the base date was substantially higher or lower than preceding months by reason of premiums being charged or rebates given for reasons unique to particular units or limited to the period determining the base rent.
(2) It shall be presumed that where net operating income is less than 50% of gross income in the base year, after making adjustments as permitted by this division (D)(1)(a) and (b), the landlord was receiving less than a fair return on property. In such a case, for purpose of determining base year net operating income, gross income hall be adjusted upward to twice the amount of adjusted base year operating expenses.
(E) Determination of base year net operating income.
(1) Base year net operating income shall be determined by deducting from the annualized gross income being realized during the base year 1982, the actual or adjusted operating expenses for calendar year 1982, except as provided in this division (E)(2) hereinbelow.
(2) In the event that the landlord did not own the subject property on January 1, 1982, the operating expenses for 1982 shall be determined in accordance with one of the following:
(a) The previous owner's actual operating expenses as defined herein; or, where petitioner has established to the satisfaction of the Commission that same are unavailable.
(b) Actual operating expenses for the first calendar year of ownership, discounted to 1982 in accordance with § [pending inquiry].
(F) Schedule of increase in operating expenses. Where scheduling of rent increases, or other calculations require projections of income or expenses, it shall be assumed that operating expenses, exclusive of property taxes and management fees, increase at 10% per year, the property taxes increase at 2% per year, and that management fees are 5% of gross income.
(G) Allowable rent increases. Upon filing of an individual hardship petition by a landlord, the Commission shall permit rent increases, unless otherwise prescribed by law, such that the landlord's net operating income will be increased by 50% of the increase in the Consumer Price Index (CPI) over the base year. The increase in the CPI shall be calculated by dividing the most recently reported monthly figure at the time of close of hearing by the Commission by the monthly figure for January, 1982.
(H) Retroactive effect. In no event shall retroactive rent increases be authorized by application of this chapter, except as permitted by this chapter, and in no event shall any rent increase be retroactive to a date preceding the filing of a petition for hardship adjustment of rent.
(Ord. 892, passed 4-4-84; Am. Ord. 896, passed 5-16-84; Am. Ord. 1298, passed 7-5-01)