Watsonville Municipal Code Art. 4 Fair Rate of Return

“Fair rate of return” shall mean that assigned to that term by courts of competent jurisdiction with reference to reasonable return on investment rather than return on property value. Changes in ownership of a park after the effective date of this Chapter shall not entitle any succeeding Park Owner to higher rents than would have been paid if the original owner had remained the Park Owner.

(§ 1, Ord. 1018-96 C-M, eff. November 15, 1996)

It shall be presumed that application of this Chapter and current rent as of July 1, 1988, result in a fair rate of return on investment. A Park Owner or a Homeowner’s agent, who believes that presumption can be overcome may apply to the City Manager for determination of the minimum rent adjustment necessary to produce a fair rate of return. Any such application must articulate the definition of fair rate of return under which the claim is being made and cite the authority which establishes that the existing return is not the minimum fair rate of return. The application should also contain all such supporting information as is necessary or appropriate for an accurate disposition of the application. If the application is successful, rents shall be adjusted to the minimum amount necessary to produce a fair rate of return.

(§ 1, Ord. 1018-96 C-M, eff. November 15, 1996)

Upon the receipt of a fair rate of return application, the City Manager should determine if the employment of experts will be necessary or appropriate for a proper analysis of the applicant’s presentation. If the City Manager so determines, it shall also determine the anticipated cost of employing any such experts. The resulting figure shall be communicated to the applicant. The application shall not be further processed until the applicant has paid to the City the estimated cost of expert analysis. Any unused portion for payments so collected shall be refunded to the applicant. An application for a fair rate of return adjustment shall be decided by the City Manager within sixty (60) days of the date that the application, including the receipt of fees for expert analysis, has been completed. Any experts hired pursuant to this Section shall be instructed to give an unbiased analysis.

(§ 1, Ord. 1018-96 C-M, eff. November 15, 1996)

It shall be presumed that the maximum rent increase permitted under Sec. 11-3.230 of this chapter yields a Fair Rate of Return. A Park Owner or a Homeowner’s agent, who wants to appeal the decision of the City Manager shall apply for arbitration pursuant to Sec. 11-3.515.

(§ 1, Ord. 1018-96 C-M, eff. November 15, 1996)

(a) Recitals and Purpose. The purpose of this Ordinance is to:

(1) Ensure that the owners of mobile homes located in mobile home parks that are subject to the Watsonville Mobile Home Park Rent Stabilization

Ordinance are not precluded from participating in the underlying administrative proceeding in a Park Owner’s request for a Fair Rate of Return for mobile home space rent increase because of the high cost of professional expenses reasonably required in order to be able to effectively participate.

(2) Ensure that owners of Mobile Home Parks that are subject to the Watsonville Mobile Home Park Rent Stabilization Ordinance can recover the cost of professional expenses reasonably incurred in the following three (3) situations:

(i) If the Park Owner accepts the designated Homeowners’ representative’s settlement offer under Section 11-3.445 of this Code; or

(ii) If such expenses were incurred in order to participate in administrative proceedings that have been made unnecessarily and unduly expensive as a result of requests for information by the City which deliberately flout existing law; or

(iii) If the landlord would suffer confiscation if such expenses were not recoverable.

(3) 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 of Rate Return administrative proceedings.

(4) Discourage Park Owners from filing requests for Fair Rate of Return Mobile Home space rent increases that are grossly in excess of the amounts that they are reasonably likely to recover, a practice that has occurred in this and other jurisdictions.

(5) Discourage Mobile Home owners from unreasonably opposing legitimate requests for Fair Rate of Return Mobile Home space rent increases.

(6) Avoid unnecessarily protracted Fair Rate of Return administrative proceedings which impose excessive costs on the City which is charged with enforcing the Ordinance.

(b) Encouragement of Reasonable Settlement Offers. 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 City 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 City is not to be opened by the City 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 City Manager under Section 11-3.510 of this Code, or by the arbitrator under Section 11-3.515 of this Code. 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 City Clerk.

(c) Recovery of Reasonable Expenses in a Fair Rate of Return Administrative Proceeding.

(1) Recovery of Expenses by the Owner of a Mobile Home Park.

(i) Except as provided in (c)(1)(iv) below, the Mobile Home Park Owner’s reasonable expenses, fees, and other costs for professional services, including, but not limited to, legal, accounting, appraisal, bookkeeping, consulting, property management, or engineering services, reasonably incurred in the course of successfully pursuing a Fair Rate of Return Rent Increase Application shall be included as a limited duration pass-through expense in any calculation of net operating income and operating expenses used to determine a Fair Rate of Return to the Mobile Home Park Owner in the following three situations:

(aa) If the Mobile Home Park Owner accepted the designated Homeowners’ representative’s settlement offer under Section 11-3.445 of this Code; or

(ab) If such expenses were incurred in order to participate in administrative proceedings that have been made unnecessarily and unduly expensive as a result of requests for information by the City which deliberately flout existing law; or

(ac) If the landlord would suffer confiscation if such expenses were not recoverable.

All expenses, fees, and other costs reasonably incurred by a Mobile Home Park Owner in relation to administrative proceedings for purposes specified in this Subsection, subject to the limitations provided in Subsection (c)(1)(iv) and (d) below shall be included in the calculation specified in this Subsection as a limited duration pass-through expense.

(ii) Notwithstanding Subsection (I), absent substantial evidence in the record that the expenses reasonably incurred in the underlying proceeding will reoccur annually, expenses determined to be reasonable pursuant to this Section shall be amortized and passed through to the residents as a limited duration pass-through expense, for a period of five (5) years, except that in extraordinary circumstances, the amortization period may be extended to a period of eight (8) years. This pass-through expense shall be deleted from the residents monthly rent at the end of the amortization period. The amortization schedule shall also include a reasonable rate of interest.

(iii) Any determination of the reasonableness of the expenses claimed, of an appropriate amortization period or of the award of an upward adjustment of rents to compensate the owner for expenses and costs incurred shall be made within thirty (30) days following the final decision in the underlying administrative proceeding by either the City Manager under Section 11-3.510 of this Code, or, by the arbitrator under Section 11-3.515 of this Code.

(iv) A Mobile Home Park Owner is not entitled to recover expenses, fees, or other costs if the Mobile Home Homeowner’s designated representative is determined to have made a prevailing offer under Subsection (2)(i) below, or if the Park Owner has failed to achieve a rent increase that is greater than forty percent (40%) of the original amount of the rent increase requested in the Mobile Home Park Owner’s original petition.

(2) Recovery of Expenses by the Mobile Homeowners.

(i) The reasonable expenses, fees, and costs of their preparation for and participation in the administrative proceeding underlying the Mobile Home Park Owner’s Fair Rate of Return rent increase request shall be awarded to the designated Homeowners’ representative, and the petitioning Mobile Home Park Owner shall be required to pay this award, if either (1) the designated Homeowners’ representative is determined to have made a prevailing offer, or if (2) the Park Owner has failed to achieve a rent increase that is greater than forty percent (40%) of the original amount of the rent increase requested in the Park Owner’s original petition.

The designated Mobile Home owners’ representative shall be determined to have made a prevailing offer if a settlement offer has been made, under Section 11-3.445 (b) of this Code, 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.

(ii) Any award of, and the determination of the reasonableness of the expenses claimed of the designated Homeowners’ representative’s expenses, fees and costs incurred shall be made as part of, or within thirty (30) days following, the decision in the underlying administrative proceeding by either the City Manager under Section 11-3.50 of this Code, or, by the arbitrator under Section 11-3.515 of this Code. The award of the expenses, fees, and costs to the designated Homeowners’ representative shall be made in a one lump sum payment and shall be made directly to the Homeowners’ designated representative and/or his attorney, and shall not be amortized.

(iii) Any award of expenses, fees, and costs against a Park Owner to a designated Homeowners’ representative shall be paid to the designated Homeowners’ representative, or to his attorney, within thirty (30) days following the decision that awards such expenses, fees, and costs. If such payment is not made within this time period, then the designated Homeowners’ representative shall have the right to file a civil action pursuant to this chapter to recover the awarded, expenses, fees, and costs. In any such civil action filed to recover the designated Homeowners’ awarded expenses, fees, costs, the prevailing party shall also be entitled to recover court costs, and court expenses, including the additional attorney fees of that litigation.

(d) Factors to be Considered In Determining Reasonableness of Claimed Expenses. Any and all of the following factors shall be considered in the determination of the reasonableness of the expenses, fees, or other costs authorized by Subsections (c)(1) and (c)(2) of this Code:

(1) The rate charged for those professional services in the relevant geographic area.

(2) The complexity of the matter.

(3) The degree of administrative burden or judicial burden, or both, imposed upon the Park Owner.

(4) The amount of adjustment sought or the significance of the rights defended and the results obtained.

(5) The relationship of the result obtained to the expenses, fees, and other costs incurred (that is, whether professional assistance was reasonably related to the result achieved).

(6) The relationship between the amount of the rent increase award and the original amount requested in the Fair Rate of Return petition and also the relationship between the amount of the rent increase award and the settlement offer, if any, offered by the designated representative of the Mobile Homeowners under Section 11-3.450(b) of this Code.

(§ 1, Ord. 1152-02 C-M, eff. November 15, 2002)