Indexing Net Operating Income

CALCULATION OF FAIR RETURN

Have the courts approved indexing of net operating income adjustment? Yes/No/Maybe

The correct answer is Yes. Ordinances which contain maintenance of net operating income (M-NOI) standards typically define fair return as a base year net operating income adjusted by a portion of the percentage increase in the Consumer Price Index since the base period, rather than the full increase in the CPI. The courts have not taken a definitive stand on what would be the minimally acceptable rate, but have approved indexing in various amounts.

INDEX RATE

Can net operating income adjustments be pegged at 40% of the CPI? Yes/No/Maybe

The correct answer is Maybe. Most ordinances with M-NOI standards define fair return as base period NOI adjusted by approximately two-thirds of the rate of increase in the CPI. Some index at 40% of the rate of increase in the CPI. 

Note that this CPI adjustment is separate from and, if authorized, in addition to that described in the Annual Across-the-Board Rent Increases post.

Source: The GSMOL Mobilehome Rent Stabilization Ordinance Handbook, Second Edition: Guidelines for Drafting and Enacting a Mobilehome Rent Stabilization Ordinance.

Prepared by: Bruce Stanton, Esq., Corporate Counsel

Image courtesy of Stuart Miles at freedigitalphotos.net