§ 540-2.1006. Net operating income evaluation for major rent increases.

In evaluating a major rent increase proposed to maintain the park owner's net operating income from the mobilehome park, the following definitions and provisions shall apply:

(1)

Net operating income of a mobilehome park means the gross income of the mobilehome park less the operating expenses of the mobilehome park.

(2)

Gross income means gross income from the operating of the mobilehome park business, including the sum of the following:

(A)

Gross space rents received, provided that uncollected space rents in excess of one percent of gross space rent shall be presumed to be unreasonable and shall be computed as income. The park owner may rebut the presumption by demonstrating that reasonable efforts to collect said uncollected rents, in conformance with industry standards have been made; plus

(B)

All other income or consideration received from operation of the mobilehome park business, and/or in connection with use or occupancy of a mobilehome space and related service, including, but not limited to interest paid by the mobilehome owners to the park owner.

(3)

Operating expenses means actual expenditures in operating the mobilehome park business, including the sum of the following:

(A)

Real property taxes and assessments;

(B)

Utility costs to the extent that they are included in space rent;

(C)

Management expenses, including the compensation of administrative personnel (including the value of any such services), reasonable and necessary advertising to ensure occupancy only, legal and accounting services as permitted herein, and other managerial expenses. Management expenses are presumed to be not more than five percent of gross income, unless greater management expenses can be documented;

(D)

Normal repair and maintenance expenses for the grounds and common facilities of the mobilehome park, including but not limited to landscaping, cleaning and repair of equipment and facilities;

(E)

Park owner-performed labor in operating or maintaining the park. In addition to the management expenses listed in subsection (3)(C) of this section, where the park owner performs managerial or maintenance services which are uncompensated, the park owner may include the reasonable value of such services. Park owner-performed labor shall be limited to five percent of gross income unless the hearing officer finds that such limitation would be unfair in a given case. No credit for such services shall be authorized unless the park owner documents the hours utilized in performing such services and the nature of the services provided;

(F)

Operating supplies such as janitorial supplies, gardening supplies, stationery and so forth;

(G)

Insurance premiums prorated over the life of the policy;

(H)

Other taxes, fees and permits, except administration fees assessed or paid pursuant to Section 540-2.1602 that are passed through to mobilehome owners;

(I)

Reserves for replacement of long-term improvements or facilities, provided that accumulated reserves shall not exceed five percent of gross income;

(J)

Capital improvement costs, to the extent said capital improvement costs are not passed through in the form of a rent increase pursuant to Section 540-2.408:

(i)

To be included as an operating expense, a capital improvement expense shall be amortized over the reasonable life of the improvement or such other period as may be deemed reasonable under the circumstances when considered in light of existing IRS standards, using the "Class Life Asset Depreciation Range System" ("ADR System"),

(ii)

In the event that the capital improvement expenditure is necessitated as a result of accident, disaster, or other event for which the park owner receives insurance benefits, only those capital improvement costs otherwise allowable exceeding the insurance benefits may be calculated as operating expenses;

(K)

Involuntary refinancing of mortgage or debt principal. The park owner may include certain debt services costs as an operating expense. Such costs are limited to increases in interest payments from those interest payments made during 1994 which result from one of the following situations or the equivalent thereof:

(i)

Refinancing of the outstanding principal owed for the acquisition of the mobilehome park where such refinancing is mandated by the terms of a financing transaction entered into prior to the effective date of the ordinance codified in this chapter (e.g.) for termination of a loan with a balloon payment,

(ii)

Increased interest costs incurred as a result of a variable interest rate loan used to finance the acquisition of the mobilehome park and entered into prior to the effective date of the ordinance codified in this chapter.

In refinancing, increased interest shall be permitted to be considered as an operating expense only where the park owner can show that the terms of the refinancing were reasonable and consistent with prudent business practices under the circumstances.

(4)

Operating expenses shall not include the following:

(A)

Avoidable and unnecessary expense increases since the base year;

(B)

Debt service expenses, except as provided in subsection (3)(K) of this section;

(C)

Depreciation;

(D)

Any expense for which the park owner has been or will be reimbursed by any security deposit, insurance payment, judgment for damages, settlement, or any other method;

(E)

Legal or attorney's fees or costs incurred or related to proceedings under this chapter;

(F)

Any damages, penalties, fees or interest assessed or awarded for violation of any provision of this chapter or of any other provision of law;

(G)

Reserve accounts except as set forth in subdivision (3)(I) of this section;

(H)

Expenses unrelated to the operation of the mobilehome park;

(I)

Expenses clearly excessive in relation to the industry standard for the same item;

(J)

Expenses related to the sale or conversion of the mobilehome park;

(K)

The costs of capital improvements associated with the purchase and/or installation of meters or other similar devices used for the separate billing of utilities, unless the park owner can demonstrate said capital improvement benefits the mobilehome owners.

(5)

All Operating Expenses Must Be Reasonable. Whenever a particular expense exceeds the normal industry or other comparable standard, the park owner shall bear the burden of proving the reasonableness of the expense. To the extent that the hearing officer finds any such expense to be unreasonable, the hearing officer shall adjust the expense to reflect the normal industry or other comparable standard.

(6)

Base year operating expenses and gross income for purposes of this chapter shall mean operating expenses and gross income in calendar year 1994.

(7)

Notwithstanding any other provision of this chapter, in evaluating a major rent increase proposed on the ground that the park owner is not receiving a fair and reasonable return on investment, the hearing officer shall consider all relevant factors, without limitation, including actual income and actual expenditures associated with operation of the mobilehome park business to determine that return.

(Ord. 95-31, § 2).