A park owner may petition for a rent increase in order to obtain a fair return.
(A) Presumption of fair base year net operating income. It shall be presumed that the net operating income received by the landlord in the base year provided the park owner with a fair return.
(B) Fair return. A park owner has the right to obtain a net operating income equal to the base year net operating income adjusted by 100% of the percentage increase in the CPI since the base year. The base year CPI shall be the annual average CPI for 2005 (base period = 1996). The current year CPI shall be the annual average CPI for the calendar year which is used as the current year in the application.
(C) Base year.
(1) Except as provided in division (B) of this section, base year means the 2005 calendar year.
(2) In the event that a determination of the allowable rent is made pursuant to this section, if a subsequent petition is filed the base year shall be the year that was considered as the "current year" in the prior petition.
(D) Current year. The current year shall be the calendar year that precedes the year in which the application is filed.
(E) Adjustment of base year net operating income. The park owner or mobilehome owners may present evidence to rebut the presumption of fair return based upon the base year net operating income as set forth in division (A) of this section based on at least one of the following findings:
(1) Exceptional expenses in the base year. The park owner's operating expenses in the base year were unusually high or low in comparison to other years. In such instances, adjustments may be made in calculating operating expenses so the base year operating expenses reflect average expenses for the property over a reasonable period of time. The following factors shall be considered in making such a finding.
(a) Extraordinary amounts were expended for necessary maintenance and repairs.
(b) Maintenance and repair was below accepted standards so as to cause significant deterioration in the quality of services provided.
(c) Other expenses were unreasonably high or low notwithstanding the application of prudent business practices.
(2) Exceptionally low rent in the base year. The gross income during the base year was disproportionately low due to exceptional circumstances. In such instances, adjustments may be made in calculating base year gross rental income consistent with the purposes of this chapter. The following factors shall be considered in making such a finding:
(a) If the gross income during the base year was lower than it might have been because some residents were charged reduced rent.
(b) If the gross income during the base year was significantly lower than normal because of the destruction of the premises and/or temporary eviction for construction or repairs.
(c) The pattern of rent increases in the years prior to the base year and whether those increases reflected increases in the CPI.
(d) The base year rents were exceptionally low compared to the rents for spaces in comparable parks in the Modesto area.
(e) Other exceptional circumstances.
(F) Calculation of net operating income.
(1) Net operating income. Net operating income shall be calculated by subtracting operating expenses from gross rental income.
(2) Gross rental income.
(a) Gross rental income shall include:
1. Gross rents calculated as gross rental income at 100% occupancy, adjusted for uncollected rents due to vacancy and bad debts to the extent such are beyond the control of the landlord. Uncollected space rents in excess of 3% of gross space rent shall be presumed to be unreasonable unless established otherwise and shall not be included in computing gross income.
2. All other income or consideration received or receivable in connection with the use or occupancy of the rental unit.
(b) Gross rental income shall not include:
1. Income which constitutes reimbursement for utilities provided by the park owner.
2. Income associated with provision of utility services when the charges for the utility service are preempted by state and consideration of said income is preempted by state law. (As of the date of the adoption of this chapter state law regulates and preempts consideration of income and expenses associated with the provision of sub-metered gas and electricity. Consideration of gas and electricity income and expenses for common area services is not preempted by state law.)
(3) Operating expenses.
(a) Included in operating expenses. Operating expenses shall include the following:
1. Reasonable costs of operation and maintenance.
2. Management expenses. It shall be presumed that management expenses have increased by the percentage increase in rents or in the CPI, whichever is greater, between the base year and the current year unless the level of management services has either increased or decreased between the base year and the current year.
3. Utility costs. Utility costs except utility where the consideration of the income associated with the provision of the utility service is regulated by state law and consideration of the costs associated with the provision of the utility service is preempted by state law.
4. Real property taxes. Property taxes are an allowable expense, subject to the limitation that property taxes attributable to an assessment in a year other than the base year or current year shall not have been considered in calculating base year and/or current year operating expenses.
5. License and registration fees. License and registration fees required by law to the extent these expenses are not otherwise paid or reimbursed by tenants.
6. Landlord-performed labor. Landlord-performed labor compensated at reasonable hourly rates.
a. No landlord-performed labor shall be included as an operating expense unless the landlord submits documentation showing the date, time and nature of the work performed.
b. There shall be a maximum allowed under this provision of 5% of gross income unless the landlord shows greater services were performed for the benefit of the residents.
7. Costs of capital replacements. Costs of capital replacements plus an interest allowance to cover the amortization of those costs where all of the following conditions are met:
a. The capital improvement is made at a direct cost of not less than $100 per affected rental unit or at a total direct cost of not less than $5,000, whichever is lower.
b. The costs, less any insurance proceeds or other applicable recovery, are averaged on a per unit basis for each rental unit actually benefitted by the improvement.
c. The costs are amortized over a period of not less than 36 months.
d. The costs do not include any additional costs incurred for property damage or deterioration that result from any unreasonable delay in undertaking or completing any repair or improvement.
e. The costs do not include costs incurred to bring the rental unit into compliance with a provision of the Riverbank Municipal Code or state law where the original installation of the improvement was not in compliance with code requirements.
f. At the end of the amortization period, the allowable monthly rent is decreased by any amount it was increased because of the application of this provision.
g. The amortization period shall be in conformance with a schedule adopted by the City Manager unless it is determined that an alternate period is justified based on the evidence presented in the hearing.
8. Legal expenses. Attorneys' fees and costs incurred in connection with successful good faith attempts to recover rents owing, successful good faith unlawful detainer actions not in derogation of applicable law, and legal expenses necessarily incurred in dealings with respect to the normal operation of the park to the extent such expenses are not recovered from adverse or other parties, subject to the following requirements:
a. Reasonable fees, expenses, and other costs incurred in the course of successfully pursuing rights under or in relationship to this chapter and regulations adopted pursuant to the chapter including costs incurred in the course of pursuing successful fair return petitions. Said expenses shall be amortized over a five year period, unless the Hearing Officer concludes that a differing period is more reasonable.
b. Allowable legal expenses which are not of a nature that recurs annually shall be amortized over a reasonable period of time. At the end of the amortization period, the allowable monthly rent shall be decreased by any amount it was increased because of the application of this provision.
9. Interest allowance for expenses that are amortized. An interest allowance shall be allowed on the cost of amortized expenses; the allowance shall be the interest rate on the cost of the amortized expense equal to the "average rate" for 30 year fixed rate on home mortgages plus 1%. The "average rate" shall be the rate Freddie Mac last published in its weekly Primary Mortgage Market Survey (PMMS) as of the date of the initial submission of the petition.
(b) Exclusions from operating expenses. Operating expenses shall not include the following:
1. Mortgage principal or interest payments or other debt service costs.
2. Any penalties, fees or interest assessed or awarded for violation of any provision of this chapter or of any other provision of law.
3. Land lease expenses.
4. Political contributions.
5. Depreciation.
6. Any expenses for which the landlord has been reimbursed by any utility rebate or discount, security deposit, insurance settlement, judgment for damages, settlement or any other method or device.
7. Unreasonable expense increases since the base year.
8. Expenses associated with the provision of master-metered gas and electricity services.
9. Expenses incurred as a result of unreasonable delays in performing necessary maintenance or repair work or the failure to complete necessary replacements.
(c) Adjustments of operating expenses. Base year and/or current operating expenses may be averaged with other expense levels for other years or amortized or adjusted by the CPI or may otherwise be adjusted, in order to establish an expense amount for that item which most reasonably serves the objectives of obtaining a reasonable comparison of base year and current year expenses. Grounds for such adjustments include, but are not limited to:
1. An expense item for a particular year is not representative;
2. The base year expense is not a reasonable projection of average past expenditures for that item in the years immediately preceding or following the base year;
3. The current year expense is not a reasonable projection of future expenditures of that item;
4. A particular expense exceeds the normal industry or other comparable standard for the area, the park owner shall bear the burden of proving the reasonableness of the expense. To the extent that it is found that the expense is unreasonable it may be adjusted to reflect the normal industry standard; or
5. A base year expense is exceptionally low by industry standards and relative to current year expenses although the level or type of service has not changed significantly.
(G) Assurance of a fair return. Notwithstanding any other provision of this chapter, nothing shall preclude the hearing officer and the City Council from granting an increase that is necessary in order to meet constitutional fair return requirements and to take into account factors which a court directs the city to consider in a fair return hearing.
(Ord. 2008-015, passed 10-27-08)