Sec. 17.1-6. Fair return adjustments.
(a) Purpose. The purpose of this section is to provide a mechanism for the review and approval of requested rental increase in excess of CPI adjustments, and to allow a mobilehome park owner to request rental increases in excess of that allowed in Section 17.1-5, when the owner believes that the CPI rent adjustment does not allow a fair return. The standard to be utilized in determining whether a proposed increase allows for a fair return shall be based upon the following:
(b) Terminology and Concepts. For the purposes of rent adjustment review hearings, the following concepts shall apply:
(1) Net operating income equals gross income less operating expenses;
(2) Gross income equals the following:
(A) Gross rents computed as gross rental income at one-hundred percent paid occupancy, plus
(B) Interest from rental deposits, unless directly paid by the owner to residents (interest shall be imputed at the rate of six and one-half percent of all deposits, but if such deposits in fact earned greater interest, then actual interest earned shall be used), plus
(C) Income from utilities, except to the extent the charges are not deemed rent, laundry facilities, cleaning fees or services, garage, storage and parking fees,
(D) All other income or consideration received or receivable for or in connection with use or occupancy of mobilehome/ mobilehome spaces and related services, minus
(E) Uncollected rents due to vacancy and bad debts to the extent that same are beyond the owner's control. Uncollected rents in excess of three percent of gross rents shall be presumed to be unreasonable unless established otherwise. Where uncollected rents must be estimated, the average percentage of the preceding three year's experience shall be used or some other comparable method;
(3) Operating Expenses.
(A) Operating expenses shall include the following:
(i) Real property taxes,
(ii) Utility costs, except to the extent charges for the utilities are not deemed rent and are passed through to the mobilehome owner,
(iii) Management expenses contracted or owner performed, including necessary and reasonable advertising, accounting, insurance and other managerial expenses, and allowable legal expenses. Management expenses are presumed to be five percent of gross income, unless established otherwise,
(iv) Normal repair and maintenance expenses, including painting, normal cleaning, fumigation, landscaping, and repair of all standard services, including electrical, plumbing, carpentry, furnished appliances, drapes, carpets, furniture, pool and laundry, recreational equipment,
(v) Owner-performed labor which shall be compensated at the average hourly rates charged for such work upon documentation provided showing the date, time and nature of the work performed,
Notwithstanding the foregoing, an owner may receive greater or lesser compensation for self-labor if it can be shown that the amounts set forth are substantially unfair in a given case. There shall be a maximum allowable expense for this paragraph of five percent of gross income, unless the owner shows greater services for the benefit of residents.
(vi) License and registration fees required by law to the extent same are not otherwise paid by residents, and
(vii) Capital expenses with a total cost of less than one hundred dollars per year per benefited unit,
(viii) Capital improvements and major repairs, provided that the cost of such expenses, if they exceed one hundred dollars per space shall be amortized over their useful life. When said expenses have a useful life of four years or more, an interest cost of twelve percent a year on the unamortized balance of the cost of improvement shall be allowed as an expense. Amortization of the cost shall be on a straight line basis over the life of the improvement;
(B) Operating expenses shall not include:
(i) Avoidable and unnecessary expense increases since the base year,
(ii) Mortgage principal, interest payments and payments by the owner under any underlying ground lease,
(iii) Any penalties, fees or interest assessed or awarded for violation of this or any other law,
(iv) Legal fees except as provided below,
(v) Depreciation of the property,
(vi) Any expense for which the owner has been reimbursed by any security deposit, insurance settlement, judgment for damages, settlement, or any other method,
(vii) Reserve accounts;
(4) Allowable legal expenses shall include attorney's fees and costs incurred in connection with successful good faith attempts to recover rents owing and successful good faith unlawful detainer actions not in derogation of applicable law, to the extent such expenses are not recovered from residents. Attorney's fees and costs incurred related to proceedings under this chapter are not allowable as operating expenses. No other attorney fees are allowable. Park owners shall bear the burden of production and proof of the amount and purpose of such fees including reasonable rate per hour and hours spent and, should they fail to produce such evidence, all such fees shall be disallowed.
(5) Base year operating expenses and gross income for purposes of these rent adjustment provisions shall mean operating expenses and gross income in the year of June 1, 1989 to June 1, 1990.
(6) Gross income and operating expenses shall be adjusted to reflect the portion of the mobilehome park that is subject to this chapter. Income from spaces that are exempted from this chapter shall not be considered. (For example, if forty percent of the mobilehome owners are subject to the ordinance, then forty percent of the income and expenses shall be considered).
(c) Determination of Base Year Net Operating Income.
(1) To determine the net operating income during the base year, there shall be deducted from the "base year gross income" a sum equal to the actual "base year operating expenses" unless the owner demonstrates to the satisfaction of the board that some other twelve consecutive month period is justified by exceptional reasons independent of the purpose of this chapter, provided that in all cases, January 1, 1990 shall fall within the twelve-month period utilized herein except as provided in subdivision 2 of this subsection.
(2) In the event that the owner did not own the subject property on June 1, 1989, the operating expenses for June 1, 1989 to June 1, 1990 shall be determined in one of the following manners, whichever the board determines to be more reliable in the particular case:
(A) The previous owner's actual operating expenses as defined above, or where unavailable;
(B) Actual operating expenses for the first calendar year of ownership discounted to the twelve-month period of June 1, 1989 to June 1, 1990 by the schedule in Section 17.1-7(e).
(d) Special Base Year Operating Income Adjustment. It may be determined that the base year net operating income yielded other than a fair return in which case, the base year net operating income may be adjusted accordingly. In order to make such determination, at least one of the following determinations is required:
(1) The owner's operating and maintenance expenses in the base year were unusually high or low in comparison to other years. In such instances adjustments may be made in calculating such expenses so the base year of operating expenses reflects average expenses for the property over a reasonable period of time. The following facts shall be considered in making this decision:
(A) The owner made substantial capital improvements during the base year which were not reflected in the rent levels;
(B) Substantial repairs were made due to damage caused by natural disaster or vandalism;
(C) Other expenses were unreasonably high or low, notwithstanding prudent business practices.
(2) The gross income during the base year was significantly lower than normal because of destruction of the premises and/or temporary eviction for construction or repairs, or other special circumstances.
(e) Schedule of Increases in Operating Expenses. Where the schedule of rent increases, or other calculations require projections of a prior year's income and expenses, it shall be presumed, subject to rebuttal, that operating expenses, exclusive of property taxes and management expenses, increased at the CPI, that property taxes increased at two percent per year, and that management expenses are five percent of gross income.
(f) Authorized Adjustments. The hearing officer shall grant an increase to an owner, in excess of that allowed by Section 17.1-5, if it finds and determines that it is necessary to provide the owner with a net operating income, after adjustment for seventy-five percent of the increase in the CPI, equal to the net operating income realized for the park during the base year. The percentage rent increase needed to cover increases in operating expenses shall be calculated in the following manner:
Current
Base Year Net Year Net
Minimum Percentage Operating Income minus Operating
Income
Increased Required = (adjusted by the CPI)/Current Year Gross Rents
(Ord. No. 2110 (NCS), § 1.)