Loading...
Resolution Number 90-12-4-4RESOLUTION NO. 90-12-4-4 MAKING FINDINGS AND DETERMINATION - SAN JUAN MOBILE ESTATES RENT PETITION A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN JUAN CAPISTRANO, CALIFORNIA, MAKING FINDINGS AND A DETERMINATION IN THE MATTER OF SAN JUAN MOBILE ESTATES RENT PETITION PROTESTING A RENT INCREASE OF 268 BY THE SAN JUAN MOBILE ESTATES PARK OWNER, SAN JUAN INVESTORS, LTD. WHEREAS, San Juan Investors, Ltd., owner of San Juan Mobile Estates, seeks a monthly rental increase of approximately 268 over and above the average monthly rental for each space in the mobile home park; and, WHEREAS, this rental increase was imposed on park residents in a two-part form, namely, a 5.18 increase, plus additional flat amount of $70.00 per rental space per month; and, WHEREAS, the City of San Juan Capistrano has enacted rent control ordinance regulations for mobile home parks found at San Juan Capistrano Municipal Code Section 2-2.901 et seq.; and, WHEREAS, the residents of this park filed a timely petition with the City of San Juan Capistrano invoking the rent review procedures of the Municipal Code; and, WHEREAS, the park owner submitted several reasons for the large 268 increase found in the "Data and Information" sheet marked as Exhibit 3 in the Administrative Record; and, WHEREAS, the owner's reasons set forth in the data and information sheet included: a) that real property tax expenses were a basis for the increase; b) that governmental assessments were a basis for the increase; and c) that a need for fair return on property was a basis for the increase; and, WHEREAS, City, Park Owner, and Residents have stipulated that 5.18 of the total 268 increase is allowed under the CPI formula of Municipal Code Section 2-2.902(d); and, WHEREAS, it is further agreed that the issue to be resolved is whether the $70.00 portion of the rent increase which exceeds the maximum allowable increase under the CPI formula of the Code should be affirmed, modified, or reversed; and, WHEREAS, this rent review is governed by the provisions of Municipal Code Section 2-2.902 et seq.; and, -1- T72 WHEREAS, pursuant to Municipal Code Section 2-2.905(c), Hearing Officer Drosman recommended to the City Council that the $70.00 portion of the increase be disallowed as set forth in his findings of September 25, 1990; and, WHEREAS, pursuant to Municipal Code Section 2-2.905(d), the Mobile Home Park Review Committee adopted a resolution making the same finding of Hearing Officer Drosman; and, WHEREAS, the City's rent control ordinance provides for full vacancy decontrol, that is, the park owner is free to raise rents without limitation with respect to new lessees coming into the park; and, WHEREAS, the City Council has carefully considered the Hearing Officer report, Mobile Home Park Review Committee Resolution, oral and written arguments of the park owner and park residents, and all evidence submitted to the Hearing Officer during the Hearing Officer proceeding, all of which documents are set forth in the Administrative Record dated November 20, 1990. NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of San Juan Capistrano as follows: Findings. A. The Park Owner's rn on Investmen (1) The Park Owner submitted evidence showing that in 1990 the Park Owner extinguished his ground lease with the owner of the land by purchasing the land, and in so doing, incurred an additional $194,256.00 in additional interest expense per year. Had the owner not purchased the land from the landowner, the owner would have faced an additional lease expense of $209,000 since the lease term was up. The park owner sets forth his own "return on investment" formula, by arguing that this additional land expense plus the value in his capital tied up with the purchase has now substantially reduced his return on investment. The owner also argued that this expense should in fact be treated as a "pass through" that is, that he should automatically be given a rent increase by passing this cost along to the park residents. -2- The City's Municipal Code provides for a non- exclusive set of criteria to guide the Council in making a final determination as to whether the rent increase is fair and reasonable. Increased land costs is one factor the City Council does consider. It is also an element affecting fair return on property. However, the park owner did not submit any evidence, such as a current verified income and expense statement, demonstrating the current profitability of the park. The Hearing Officer found that he could not award a portion or all of the $70.00 increase because it was unclear as to the degree to which the purchase of the land (or in the alternative the lease increase) would affect the profitability of the park. The hearing officer noted that "while it is reasonable to deduce an impact on rate of return caused by higher expenses, such an increase does not automatically render the rate of return as less than adequate." The Municipal Code does not guarantee that increases of this type may be automatically passed along to the park tenant. The Code requires that all relevant factors be considered in evaluating rent increases. While acquisition expenses are relevant, a number of other factors, such as total income are also a part of the picture. The park owner possesses current income/expense statement information and could have easily presented it. It is not enough to show an increase in expenses without showing the extent to which total expenses are offset by operating income. The Review Committee made a similar finding in its resolution in stating, "The owner failed to present evidence giving a complete financial analysis as to how his increased costs would impact the profitability of the park." The Council further finds that the owner's argument on "return on investment" financial analysis is not binding on the Council in that Municipal Code Section 2-2.9905(g)(3)(iii) that a "return on investment" accounting formula is not a mandatory standard. -3- 274 4 (2) The 5.1% increase will generate approximately $62,600 in additional revenue (310 spaces x $330.00 average rent x 5.1 = $16.83 per month x 12) to the park owner by September 1991. (3) The Hearing Officer found that the park owner r-. chose not to present current income and expense statement evidence, or other evidence of owner's profits. (4) Under the City's rent control provisions, the owner is free to raise rents without restriction at the time of a space turnover. This will provide additional rent revenue, over time, to the owner to help defray his land purchase interest expense, considering that new rents for new tenants are approximately $550.00 per month at this park. Assuming for example a vacancy turnover rate of only 5% of total spaces within the next 12 months, the owner could realize an additional $36,000 in rental income just from that limited turnover of spaces. B. Real Property Tax and Governmental Assessment The Hearing Officer found that no evidence had been presented showing the County Assessor has imposed additional real property taxes, either through reassessment on the sale of the property, or from the City of San Juan Capistrano open space bond assessments. Since the exact amount of those taxes are unknown, the Council agrees with the Hearing Officer that a rent increase award for these reasons now is inappropriate. The owner is free to propose a rent increase for these costs, pursuant to either Municipal Code Section 2-2.902(d)(4) or Municipal Code Section 2-2.905(a), at such time that these taxes and assessments are incurred by the owner. II. Conclusions. A. Decision. The Council has considered all of the owner's arguments, including the owner's November 13, 1990 submittal; the Council has considered all factors in light of City's rent ordinance provisions that require Council to consider all relevant factors. Council finds that in light of all facts, the 26% increase is not fair and reasonable because the owner has not presented -4- a complete financial picture as to the extent to which the profitability of the park is in fact impacted by land acquisition costs. B. Rent Award. Pursuant to the CPI formula of the Code, the park owner is awarded a 5.1% rent increase from the date set forth in his notice of rent increase. The flat $70.00 per month/per space increase is disallowed based upon the above -stated findings. C. Excess Rents Refunded. Rents collected in excess of the 5.1% shall be refunded to each park resident within thirty (30) days from December 4, 1990. Accordingly, each resident is obligated to pay only the 5.1% increase henceforth. PASSED, APPROVED, AND ADOPTED this 4th day of December , 1990. ATTEST: -5- STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss CITY OF SAN JUAN CAPISTRANO ) I, CHERYL JOHNSON, City Clerk of the City of San Juan Capistrano, California, DO HEREBY CERTIFY that the foregoing is a true and correct copy of Resolution No. 90-12-12-4 adopted by the City Council of the City of San Juan Capistrano, California, at a regular meeting thereof held on the 4th day of December , 1990, by the following vote: AYES: Councilmen Buchheim, Bland and Mayor tlausdorfer NOES: None ABSTAIN: Councilmen Friess and Schwartze ABSENT: None (SEAL) 1t CHERYL JOHNSON, CITY CLERK Q CHECK LIST p ORD. NO. RES. NO. 90 ✓ Mayor has signed �— Clerk has signed T City Seal stamped All blanks tyF "Absent" "Noes" "Abstain" Copies sent to Legal Publication ordered to be published (date) No. Printed copies required Remarks Q.