Part 3.5

FIRM OFFER BASE RENT

Sections:

• A. Any mobilehome owner may request the landlord quote the base rent that would be charged for the rent or lease of the mobilehome lot immediately following the transfer of the

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mobilehome by the mobilehome owner where the mobilehome will remain on the mobilehome lot. The request shall be in writing.

• B. Within five working days from the receipt of the request for a base rent quote, the landlord shall provide a written base rent quote to the mobilehome owner.

• C. The base rent quote provided by the landlord shall be a firm offer of base rent that would be charged by the landlord for the rent or lease of the mobilehome lot upon the transfer of the mobilehome by the mobilehome owner in the case of any transfer where the mobilehome will remain on the mobilehome lot. Subject to subsection D. below, said firm offer shall re-

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main in effect for not less than one hundred fifty days from the date the landlord gives such written notice to the mobilehome owner.

• D. In the event the rent increase anniversary date for the mobilehome park falls within the onehundred-fifty-day period of the firm offer, the firm offer base rent shall be adjusted by the rent increase permitted on the anniversary date under the provisions of this chapter. This adjusted amount shall be the "adjusted firm offer base rent."

• E. Upon the transfer of the mobilehome, the transferee shall pay the firm offer base rent, or the adjusted firm offer base rent if applicable, as the rent for the mobilehome lot. The landlord shall not charge, demand or receive any rent in excess of the firm offer base rent, or the adjusted firm offer base rent if applicable, until the next anniversary date rent increase applicable to the park. Any increase of said base rent shall be in accordance with the provisions of this chapter.

• F. If the one-hundred-fifty-day firm offer period expires before the transfer of the mobilehome, the mobilehome owner may request a new firm offer quote from the landlord in accordance with this section.

• (Ord. 23294.)

Part 4

ALLOWABLE RENT INCREASES

Sections:

• 17.22.455 Required notice following allowable rent increases.

• 17.22.460 Increases subject to hearing.

• 17.22.470 Fair return rent increases.

• 17.22.480 Presumption of fair base year net operating income.

17.22.500 Determination of base year net operating income.

17.22.510 Rebuttal of fair net operating income presumption.

17.22.520 Determination of current net operating income.

17.22.530 Calculation of gross income.

17.22.540 Calculation of operating expenses.

17.22.550 Fair and reasonable return.

17.22.570 Applicable percentage of Consumer Price Index.

• 17.22.580 Determination of allowable rent increase.

The following rent increases shall not be subject to review under the administrative hearing process set forth in Part 7 of this chapter:

• A. Any rent increase which does not exceed the maximum annual percentage increase as applied to the then current base rent.

• B. If the effective date of the last rent increase for the rental unit was more than twenty-four months prior to the effective date of the current rent increase, then a rent increase equal to the cumulative total of the maximum annual percentage increase for the current year and the previous year, as applied to the then current base rent.

• C. Any rent increase immediately following the termination of the tenancy of the mobilehome owner by the landlord in accordance with the Mobilehome Residency Law, California Civil Code Sections 798.55 through 798.58 and Section 798.60, as amended.

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• D. Any rent increase immediately following a voluntary vacancy by the mobilehome owner.

  1. A voluntary vacancy includes the following situations:

     • a. A vacancy occurring pursuant to a post-judgment settlement following the termination of the tenancy of the mobilehome owner by the landlord in accordance with the Mobilehome Residency Law, California Civil Code Sections 798.55 through 798.58 and Section 798.60, as amended.

     • b. An abandonment of the mobilehome as such term is defined in the Mobilehome Residency Law.

     • c. A dealer pullout as defined in Section 17.22.135.

  2. The following situations shall not constitute a voluntary vacancy under this subsection D. and no rent increase shall be allowed:

     • a. A removal of the mobilehome from the lot for the purpose of performing rehabilitation or capital improvements to the lot or for the purpose of upgrading the mobilehome.

     • b. An in-place transfer of a mobilehome.

     • c. A repossession of a mobilehome as that term is defined in the Mobilehome Residency Law, Chapter 2.5 of Part 2 of Division 2 of the California Civil Code.

     • d. A transfer following the death of the mobilehome owner to an heir, joint tenant or personal representative of the decedent in accordance with the provisions of the Mobilehome Residency Law, Chapter 2.5 of Part 2 of Division 2 of the California Civil Code.

• E. Any rent increase immediately following a vacancy by a mobilehome tenant under the following circumstances:

  1. A vacancy occurring because the prior mobilehome tenant was evicted for nonpayment of rent; issuance by the tenant of checks drawn against insufficient funds or closed accounts; chronically late payment of rent; the tenant's commission of waste upon the mobilehome; the tenant's maintenance, commission or permitting of a nuisance on the premises; the tenant's use of the premises for an unlawful purpose; or other material violation of a reasonable provision of a written rental agreement; or

suance by the tenant of checks drawn against insufficient funds or closed accounts; chronically late payment of rent; the tenant's commission of waste upon the mobilehome; the tenant's maintenance, commission or permitting of a nuisance on the premises; the tenant's use of the premises for an unlawful purpose; or other material violation of a reasonable provision of a written rental agreement; or

2. A voluntary vacation of the mobilehome by the prior tenant. A vacancy arising from the issuance of a termination notice pursuant to the California Civil Code, which notice does not state a reason that would legally entitle a landlord to evict a tenant on three days notice under Section 1161(2) through 1161(4) of the California Code of Civil Procedure shall not be deemed a voluntary vacancy for the purposes of this subsection E.

(Ords. 22020, 22053, 22284, 24257, 24400, 26792.)

The burden of proving that a rent increase is not subject to review under this chapter shall be on the landlord.

(Ord. 24257.)

When a new rent is established following the vacancy of a rental unit the landlord shall give written notice to the new mobilehome owner or mobilehome tenant of the anniversary date for rent increases and shall give written notice to such owner or tenant that the rental unit may be subject to a rent increase on such anniversary date. (Ord. 24257.)

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• A. The rent increases permitted by Section 17.22.450 are presumed to be sufficient to account for any increased costs of operation and maintenance, debt service, capital improvements and/or rehabilitation incurred by a landlord and to permit the landlord to receive a fair and reasonable return. Any rent increase in excess of the amounts specified in Section 17.22.450 shall be subject to the administrative hearing process set forth in Part 7 of this chapter.

• B. No rent increase in excess of the amounts specified in Section 17.22.450 shall become effective or be collected by the landlord until such time as the excess is approved by an administrative hearing officer.

(Ords. 22020, 22053, 22284.)

• A. It is expected that a rent increase pursuant to Section 17.22.450 will provide the landlord with a fair and reasonable return. However, in the event a rent increase in the amounts specified in Section 17.22.450 does not provide the landlord with a fair and reasonable return, the landlord may request an increase in excess of said amounts by filing a petition in accordance with the provisions of Part 6 of this chapter.

• B. In the case of a rent increase in conjunction with the consolidation of rent increase anniversary dates as required or permitted by Section 17.22.670, the administrative hearing officer shall approve rent increases as set forth in Section 17.22.680. if the administrative hearing officer makes the following findings:

  1. The landlord filed a timely petition requesting such rent increases;

  2. The landlord submitted the statements required by Section 17.22.700.D.;

  3. The proposed rent increases are in the percentage amounts set forth in Section 17.22.680; and

  4. The landlord has demonstrated to the satisfaction of the administrative hearing officer the number of months since the last rent increase for each rental unit subject to the proposed rent increases.

• C. In all cases where the rent increase is not in conjunction with the consolidation of rent increase anniversary dates and in all cases where the consolidated rent increase is in excess of the amounts set forth in Section 17.22.680, the administrative hearing officer's determination of the rent increase necessary to provide the landlord with a fair and reasonable return shall be made in accordance with the standards set forth in this part.

• (Ords. 22020, 22053, 22284, 22470.)

For the purposes of determining the rent increase necessary to provide the landlord with a fair and reasonable return, it shall be presumed that the net operating income, as described in this part, received by the landlord in the base year, provided the landlord with a fair and reasonable return. (Ord. 22284.)

• A. Except as provided in subsection B. of this section, base year means the 1985 calendar year.

• B. For rental units which were exempt from the provisions of this chapter pursuant to a rental agreement as described in Section 17.22.370 and which are subject to the provisions of this chapter because of the expiration or other termination of such rental agreement, base year means the last twelve months of the term of the rental agreement.

• (Ord. 22284.)

Notwithstanding any provision of Chapter 17.22 of Title 17 of this Code, in instances in which the exact information regarding base year income

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and expenses is not available for the mobilehome park which is the subject of the hearing, the hearing officer shall have the discretion to consider all other information available to estimate the 1985 net operating income for the mobilehome park.

• A. Such information may include, but shall not be limited to the following:

  1. Information from tax returns, bank statements, annual reports or other financial data.

  2. Information from the files of the rental rights and referrals program regarding the mobilehome park which is the subject of the hearing, including but not limited to previously issued rental mediation and arbitration decisions.

  3. Such other information which may be available.

• B. In making an estimation under this section, the hearing officer may make reasonable inference and assumptions about the existing data as are necessary to project what the actual amount was.

• C. The hearing officer shall consider the comments form all parties to the hearing regarding the accuracy of the data used and the methodology in arriving at the estimated data.

• D. In determining the burden of proving the reasonableness of the rent increase under Section 17.22.820, the hearing officer may consider the circumstances under which missing data became unavailable as well as the credibility of testimony from all parties.

(Ords. 25996, 26792.)

The base year net operating income shall be determined by subtracting the actual operating expenses for the base year from the gross income realized during the base year. (Ord. 22284.)

The landlord or any mobilehome resident who is a party to the administrative hearing may present evidence to rebut the presumption of fair and reasonable return based upon the base year net operating income as set forth in Section 17.22.480 and the administrative hearing officer may adjust said net operating income accordingly if the administrative hearing officer makes at least one of the following findings:

• A. The landlord'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 administrative hearing officer shall consider the following factors in making this finding:

  1. Extraordinary amounts were expended for necessary maintenance and repairs.

  2. Maintenance and repair was below accepted standards so as to cause significant deterioration in the quality of services provided.

  3. Other expenses were unreasonably high or low notwithstanding the application of prudent business practices.

  4. Costs of debt service paid during the base year, where the proceeds of the debt were used for capital improvements or rehabilitation in the mobilehome park, do not reflect increases in interest payments resulting from either:

     • a. Refinancing of the outstanding principal where such refinancing is mandated by the terms of the financing transaction; or

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     - b. Increased interest costs incurred as a result of a variable interest rate loan. 

• B. The gross income during the base year was disproportionate. In such instances, adjustments may be made in calculating gross income consistent with the purposes of this chapter. The administrative hearing officer shall consider the following factors in making this finding:

  1. The gross income during the base year was lower than it might have been because some residents were charged reduced rent.

2. 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.

(Ords. 22284, 22802.)

The net operating income as of the date of filing a petition requesting an increase in excess of the amounts specified in Section 17.22.450 shall be determined by:

• A. Annualizing the rents in effect as of the date of filing to determine the annualized gross income.

• B. Determining the operating expenses during the immediately preceding calendar or fiscal year.

• C. Subtracting the operating expenses determined pursuant to subsection B. from the annualized gross income.

• (Ord. 22284.)

• A. For the purposes of determining the net operating income, gross income shall be the sum of the following:

  1. Gross rents calculated as gross rental income at one hundred percent occupancy, adjusted for uncollected rents as provided in subsection B. of this section;

  2. Income from laundry facilities and garage or parking fees;

  3. Costs of utilities paid directly to the landlord by the mobilehome owners or mobilehome tenants; and

  4. All other income or consideration received or receivable in connection with the use or occupancy of the rental unit.

• B. Gross rents shall be adjusted for uncollected rents due to vacancy and bad debts to the extent such are beyond the control of the landlord. No such adjustment shall be greater than three percent of gross rents unless justification for a higher rate is demonstrated by the landlord.

• (Ord. 22284.)

• A. For the purposes of determining net operating income, operating expenses shall include the following:

  1. Costs of operation and maintenance.

  2. Utility costs to the extent they are not included in costs of operating and maintenance.

  3. 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 percent of gross income unless the landlord shows greater services were performed for the benefit of the residents.

  4. License and registration fees required by law to the extent such are not otherwise paid by the residents.

  5. Costs of capital improvements where all of the following conditions are met:

     • a. The capital improvement is made at a direct cost of not less than one

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hundred dollars per affected rental unit or at a total direct cost of not less than five thousand dollars, 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 sixty months.

• d. The costs do not include any additional costs incurred for property damage or deterioration resulting from any unreasonable delay in the undertaking or completion of any repair or improvement.

• e. The costs do not include costs incurred to bring the rental unit into compliance with a provision of the San José Municipal Code or state law where the rental unit has not been in compliance from the time of its original construction or installation and such provision was in effect at the time of such construction or installation.

• 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.

6. Costs of rehabilitation, where all of the following conditions are met:

   • a. 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 rehabilitation.

   • b. The costs are amortized over a period of not less than thirty-six months.

   • c. The costs do not include any additional costs incurred for property damage or deterioration resulting

from any unreasonable delay in the undertaking or completion of any repair or improvement.

d. The costs do not include costs incurred to bring the rental unit into compliance with a provision of the San José Municipal Code or state law where the rental unit has not been in compliance from the time of its original construction or installation and such provision was in effect at the time of such construction or installation. The costs may include costs incurred to maintain code compliance.

The costs do not include costs incurred to bring the rental unit into compliance with a provision of the San José Municipal Code or state law where the rental unit has not been in compliance from the time of its original construction or installation and such provision was in effect at the time of such construction or installation. The costs may include costs incurred to maintain code compliance.

• e. 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.

7. Legal expenses limited to 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. Allowable legal expenses which are of a nature that recurs annually shall be considered as elements of operating expenses.

   • b. Allowable legal expenses which are not of a nature that recurs annually shall be amortized over a reasonable period of time and 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.

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• 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 provision of this chapter or of any other provision of law.

  3. Legal expenses, including attorneys' fees and costs, incurred in relation to administrative or judicial proceedings in connection with this chapter and legal expenses, where the pass-through of the expenses would constitute a violation of public policy.

  4. Political contributions.

  5. Depreciation of the rental unit or rental units.

  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.

• (Ords. 22284, 25017.)

• A. A fair and reasonable return is that amount required for the landlord to maintain the base year net operating income adjusted for inflation.

• B. The adjustment for inflation shall be that amount required for the base year net operating income to be increased annually by a percentage of the Consumer Price Index. The applicable percentage of the Consumer Price Index shall be set in accordance with Section 17.22.570.

• C. The increase in the consumer price index shall be the increase from the filing date of the last landlord petition to the filing date of the current landlord petition. For the first net operating income adjustment, the increase in the Consumer Price Index shall be the increase

from the effective date of the last rent increase to the filing date of the current landlord petition.

• (Ord. 22284.)

• A. The city rental rights and referrals program shall set the percentage of the Consumer Price Index to be used in the adjustment for inflation described in Section 17.22.550. Said percentage shall be set annually before November 1 of each year.

• B. The inflation adjustment percentage of the Consumer Price Index shall be eighty-five percent.

• C. The inflation adjustment percentage shall apply to all rent increases which become effective on or after the first day of January immediately following the determination.

• (Ords. 22284, 24666, 26792.)

• A. The administrative hearing officer shall set the rent increase in the amount required to provide the landlord with a fair and reasonable return.

• B. In determining the rent increase required to provide the landlord with a fair and reasonable return, the administrative hearing officer shall determine:

  1. The fair and reasonable return in accordance with Section 17.22.550.

  2. The gross income required to produce the fair and reasonable return.

  3. The rent increase needed to produce the required gross income.

• C. Rent increases based upon costs of capital improvements and/or costs of rehabilitation shall apply only to those rental units benefitted by the capital improvements and/or rehabilitation.

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• D. Rent increases based upon increased operating expenses shall apply only to those rental units for which such increased operating expenses were incurred.

• (Ord. 22284.)

• A. If the administrative hearing officer finds that service reductions have occurred, the administrative hearing officer shall determine the value of the service reductions and shall offset the allowable rent increase by the value of the service reductions. Service reductions which affect all rental units subject to the proposed rent increase shall be prorated over all such rental units, regardless of the number of residents claiming such service reductions.

• B. In determining the value of any service reductions, the administrative hearing officer shall consider the following factors:

  1. The area affected by the service reduction.

  2. The length of time the resident has been subjected to the service reduction.

  3. The degree of discomfort the service reduction imposes on the resident.

  4. The extent to which the service reduction causes the rental unit or rental units to be uninhabitable.

  5. The extent to which the service reduction causes a material reduction in the usability of the rental unit.

  6. Other similar factors deemed relevant by the administrative hearing officer.

• (Ord. 22284.)