9101-10. Fair Return Standard.
(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 one hundred percent (100%) of the percentage increase in the CPI since the base year. It shall be presumed this standard provides a fair return. The base year CPI shall be the annual average CPI for 2016. 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 subsection (c)(2) of this section, “base year” means the 2016 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 the tenants may present evidence to rebut the presumption of fair return based upon the base year net operating income as set forth in subsection 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) Exceptional Circumstances 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) Base period rents were disproportionately low in comparison to the base period rents of other comparable parks in the County.
(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 the following:
1. Gross rents calculated as gross rental income at one hundred percent (100%) occupancy, adjusted for uncollected rents due to vacancy and bad debts to the extent such vacancies or bad debt are beyond the control of the landlord. Uncollected space rents in excess of three percent (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, except as provided in subsection (f)(2)(B) of this section.
(B) Gross rental income shall not include:
1. Utility charges for charges for sub-metered gas and electricity.
2. Charges for water, refuse disposal, sewer service, and/or other services which are either provided and charged to mobile home residents solely on a cost pass-through basis and/or are regulated by state or local law.
3. Any amount paid for the use and occupancy of a mobile home unit (as opposed to amounts paid for the use and occupancy of a mobile home space).
4. Charges for laundry services.
5. Storage charges.
(3) Operating Expenses.
(A) 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 the CPI, whichever is greater, between the base year and the current year unless the level of management services has either increased or decreased significantly 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 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 five (5%) percent 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 one hundred dollars ($100.00) per affected rental unit or at a total direct cost of not less than five thousand dollars ($5,000.00), 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 benefited by the improvement.
c. The costs are amortized over a period of not less than thirty-six (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 Humboldt County 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 County 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 (5)-year period, unless the County concludes that a different period is more reasonable.
b. Recovery of expenses incurred in the course of preparing and presenting a fair return petition shall be limited when a park owner rejects a settlement offer and then does not recover more than proposed settlement. The purpose of this limitation is to encourage both park owners and mobile home owners to minimize, to the extent possible, the cost and expense of fair rate of return mobile home space rent administrative proceedings by providing a mechanism for the early settlement of fair rate of return administrative proceedings.
c. At any time after filing a fair rate of return rent application, the designated representative of the residents of the mobile home park may serve an offer in writing in the mobile home park owner who has filed that petition to stipulate to a compromise amount for the fair rate of return rent increase requested in the petition. The designated representative shall also file a copy of this written settlement offer with the County in a separately sealed envelope and with a statement on the outside of the envelope stating that it is a written settlement offer pursuant to this subsection. The sealed copy of the written settlement offer that is so filed with the County is not to be opened by the County until it is either accepted by the park owner or, if it is not accepted by the park owner, after a final rent increase award or denial has been made on the park owner’s petition by either the County or by the hearing officer. Upon receiving such offer to compromise, the mobile home park owner has seven (7) days to accept the offer by filing a written acceptance with the County.
d. A mobile home park owner is not entitled to recover a portion of application expenses, fees, or other costs that are incurred following the submission of a prevailing offer and the residents may recover reasonable attorneys’ fees incurred by the residents after the rejection of a “prevailing” offer. The designated mobile home owners’ representative shall be determined to have made a prevailing offer if a settlement offer has been made and that offer has not been accepted by the park owner within seven (7) days after the making of that offer, and the park owner’s rent increase award fails to exceed the amount of that settlement offer.
e. Allowable legal expenses which are of a nature that does not recur 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 thirty (30)-year fixed rate on home mortgages plus two percent (2%). 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. In the event that this rate is no longer published, the index which is most comparable to the PMMS index shall be used.
(B) 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 provisio of this chapter or of any other provision of law.
3. Land lease expenses.
4. Political contributions and payments to organizations which are substantially devoted to legislative lobbying purposes.
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 increases in expenses since the base year.
8. Expenses associated with the provision of master-metered gas and electricity services.
9. Expenses which are attributable to unreasonable delays in performing necessary maintenance or repair work or the failure to complete necessary replacements (e.g., a roof replacement may be a reasonable expense, but if water damage occurred as a result of unreasonable delays in repairing or replacing the roof, it would not be reasonable to pass through the cost of repairing the water damage).
(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 expenditures for that item in recent years or of future expenditures for 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;
5. A base year expense is exceptionally low by industry standards and/or on an inflation adjusted basis is exceptionally low relative to current year expenses although the level or type of service has not changed significantly;
6. An increase in maintenance or management expenses is disproportionate to the percentage increase in the CPI, while the level of services has not changed significantly and/or is not justified by special circumstances.
(g) In the event that the period for determining the allowable rent increase pursuant to this section exceeds one hundred twenty (120) days, the park owner may recover increases that would have been permitted if the rent increase decision had been made within one hundred twenty (120) days. The allowance for these increases may be amortized or may be factored into the prospective allowable increase in order to avoid undue hardship on the mobile home owners.
(h) The allowable rent increase per mobile home park space pursuant to this section shall not be increased as a result of the fact that there are exempt spaces in the park.
(i) Assurance of a Fair Return. It shall be presumed that the MNOI standard provides a fair return. Nothing in this chapter shall preclude the County or the hearing officer from granting an increase that is necessary in order to meet constitutional fair return requirements.