Oceanside Mobilehome Park Owners' Assn. v. City of Oceanside

• Decision Date: 27 June 1984
• Citation: 157 Cal.App.3d 887,204 Cal.Rptr. 239
• Court: California Court of Appeals Court of Appeals
• Parties: OCEANSIDE MOBILEHOME PARK OWNERS' ASSOCIATION, Plaintiff and Respondent, v. CITY OF OCEANSIDE, et al., Defendants and Appellants. D000736. Civ. 28680.

Page 239

204 Cal.Rptr. 239

157 Cal.App.3d 887

OCEANSIDE MOBILEHOME PARK OWNERS' ASSOCIATION, Plaintiff and Respondent, v. CITY OF OCEANSIDE, et al., Defendants and Appellants.

D000736.

Civ. 28680.

Court of Appeal, Fourth District, Division 1, California.

June 27, 1984.

As Modified on Denial of Rehearing July 19, 1984.

Hearing Denied Aug. 23, 1984.

Charles R. Revlett, City Atty., Warren B. Diven, Asst. City Atty., Jennings, Engstrand & Henrikson, C. Michael Cowett and Henry E. Heater, San Diego, for defendants and appellants.

D. Dwight Worden, Solana Beach, amicus curiae for defendant and appellant City of Oceanside.

Lazof & Swanson, C. Brent Swanson and Terry R. Dowdall, Santa Ana, for plaintiff and respondent.

Walters and Ward and R. Michael Walters, San Diego, amici curiae for plaintiff and respondent.

WORK, Associate Justice.

The City of Oceanside appeals an order preliminarily enjoining it from applying and enforcing its mobilehome park rent control ordinance. The trial court held the ordinance facially unconstitutional because it believed the formula for setting initial rents and providing for adjustments fails to consider the property's fair market value and existing general market conditions and deprives park owners of a fair rate of return on their property. The City also challenges the trial court's finding other provisions facially invalid, but alternatively argues they are of subordinate importance and even if invalid they may be severed from the remainder of the ordinance.

For the reasons which follow, we conclude: (1) the reasonable return on fair market value standard is not constitutionally required; (2) the fair or maintenance of net operating income standard effectively allows property owners a just and reasonable return; (3) the ordinance insures a just and reasonable return under general market conditions; (4) by limiting the restriction of an annual adjustment (except for certain pass-through adjustments) to only permissive adjustments, the ordinance is not constitutionally deficient for not allowing the Commission to adjust maximum rents without a substantially greater delay than is practically necessary; (5) the space rent agreement exemption is constitutionally valid; (6) there is a rational basis for limiting the amount of owner-performed labor which can be deemed an operating expense; (7) the provision excluding all attorney fees and costs incurred in challenging the ordinance or related proceedings from operating expenses is constitutionally valid; and (8) there is a rational basis for requiring park owners to obtain a tenant's prior consent before including capital expenditures designed to upgrade the premises, as operating expenses.

I FACTUAL AND PROCEDURAL BACKGROUND ¹

The Ordinance

Ordinance No. 82-27, entitled "An Ordinance of the City of Oceanside, California, amending chapter 16B of the Oceanside City Code," was enacted because of low vacancy rates for manufactured homes and rapidly escalating rents. A shortage of vacant spaces makes alternative sites for relocation difficult to find. The problem of shortage of vacant spaces is compounded by miscellaneous restrictions on manufactured homes in many parks, and the installation requirements of manufactured homes, including permits, landscaping and site preparation. Moreover, the cost for moving a manufactured home is substantial with significant risk of damage. The ordinance explains these conditions create a captive market of manufactured homeowners whose immobility greatly imbalances "the bargaining position of the park owners and manufactured homeowners in favor of the park owners." (§ 16B.1.B.) The City Council states the ordinance is

"to facilitate and encourage fair bargaining between manufactured home owners and park owners in order to achieve mutually satisfactory agreement regarding space rental rates in manufactured home parks. Absent such agreements, this Council further finds and declares it necessary to protect the owners and residents of manufactured homes from unreasonable space rental increases while simultaneously recognizing and providing for the need of park owners to receive a just and reasonable return on their property." (§ 16B.1.D.)

In the event of a vacancy rate exceeding five percent, the ordinance is suspended, to be automatically reinstituted when the City Council declares the vacancy rate to be five percent or less. The ordinance applies only to parks having more than 25 manufactured home sites and excludes tenancies under pre-existing agreements exceeding a month-to-month tenancy until the agreement terminates.

The ordinance establishes a Manufactured Home Fair Practices Commission (Commission) and requires manufactured home park owners to register their home parks within 60 days of its effective date. The ordinance exempts parks where the park owner and at least one adult resident from 67 percent of the rental spaces within the park have entered into a space rent agreement establishing a space rent schedule for a term of at least two years.

The ordinance establishes the following rent control formula:

1. A rental base or "space rent ceiling" is established using the rent charged by the park owner in effect on December 31, 1979, or where no space rent was in effect on December 31, 1979, the rent charged on the first date space rent was charged after December 31, 1979.

2. Initial adjustments:

a. Permissive Adjustment: The park owner shall be entitled to an initial permissive adjustment to gross base rental income equal to the lesser of an eight percent increase per annum since the base year or an increase equal to the percentage increase in the consumer price index (CPI) from the end of the base year to the date of application for the adjustment. ²

b. Net Operating Income (NOI) Adjustment: If the park owner does not receive a just and reasonable return on his property after receiving the maximum permissive adjustment, he may apply with with the Commission for an initial adjustment of the space rent ceiling. The park owner is entitled to an adjustment of the rent ceiling so as to enable his base year NOI to be increased by a rate equal to the lesser of (1) the percentage increase in the CPI since the end of the base year multiplied by that percentage of the CPI which composes the expenditure category of housing or the equivalent thereof, or (2) 40 percent of the percentage increase in the CPI since the end of the base year.

3. Annual Adjustments: Starting 1983, park owners shall be entitled to the following annual adjustment:

a. Permissive Adjustment: An annual permissive adjustment of gross space rental income equal to the lesser of eight percent increase or an increase equal to the percentage increase in the CPI from the date of the most recent initial or annual adjustment to the date of application for the proposed adjustment.

b. NOI Adjustment: Where the park owner does not receive a just and reasonable return on park property after receiving the maximum permissive adjustment provided above, he may apply to the Commission for an adjustment of the space rent ceiling. Park owner is entitled to an adjustment of the space rent ceiling so as to enable his NOI for the next year to be increased by a rate equal to the lesser of (1) the percentage increase in the CPI since the date of the most recent annual or initial adjustment multiplied by that percentage of the CPI which composes the expenditure category of housing or the equivalent thereof, or (2) 40 percent of the percentage increase in the CPI since the date of the most recent annual or initial adjustment.

c. Pass Through Adjustments: Park owner may at any time apply to the Commission for a pass through adjustment of the space rent ceiling to enable the park owner to pass on increases in governmental assessments and utility costs where such utilities are included in the space rent. Such adjustments are available for gas, electricity, water, trash and sewer service utility costs. When considering annual adjustment applications, pass through adjustments from the most recent preceding annual or initial adjustment shall not be included in the gross space rent income used to calculate any current annual adjustment to which the park owner may be entitled.

As defined, NOI equals gross income less operating expenses; gross income equals the sum of the gross space rent (computed at 100 percent occupancy), other income generated as a result of operating the park (i.e., laundry facilities, recreational vehicle storage, etc.) and revenue received by the park owner from the sale of gas and electricity to park residents where such utilities are billed individually to the park residents by the park owner, less uncontrolled space rents due to vacancy and bad debts. Operating expenses include real property taxes and assessments, utility costs, listed management expenses, normal repair and maintenance expenses, operation and/or maintenance labor by the owner, operating supplies, insurance premiums prorated over the life of the policy, other taxes, fees, and permits, reserve for replacement of long-life items not exceeding five percent of the gross income, and necessary capital improvement costs exceeding existing reserves for replacement. Expenditures for capital improvement are allowable operating expenses only if the park owner has consulted with the park residents before beginning construction of the improvements and has received written consent from at least one adult resident from a majority of the manufactured home rental spaces. Operating expenses do not include debt service expenses (unless specifically provided), depreciation, any expense for which a park owner is reimbursed, attorney fees and costs incurred in proceedings before the Commission or in connection with legal proceedings against the Commission or challenging this chapter, and any late charges incurred for failure to pay registration fees to the City authorized by...