Annual Across-the-Board Rent Increases

ANNUAL GENERAL ADJUSTMENTS

A majority of the mobilehome RSOs now in existence provide for at least one annual rent increase for all spaces covered without any hearing or review. Commonly referred to as "across-the-board increases," these increases are usually tied to the percentage increase in the Consumer Price Index (CPI) for the same period. 

CONSUMER PRICE INDEX

The CPI is the United States Government Index that tracks inflation and the prices charged consumers for various items such as housing, food, or transportation. Most major metropolitan areas, including the San Francisco/Oakland, Los Angeles, and San Diego metropolitan areas, have their own CPI index which reflects the price changes in that particular geographic region.

Most ordinances permit base rents to be increased by an amount equal to a portion of the percentage increase in the CPI ranging from 40% to 100%, with the average being 75%. Court cases have upheld CPI indexing of as low as 40%.

One approach to considering the amount of across-the-board increases is to provide for increases that permit moderate growth in net operating income (e.g. at 75% of the rate of increase in the CPI).

There is no single answer as to the proper CPI percentage to be used in calculating annual rent increases. Operating expenses for parks typically range from 30 to 50% of the park's gross income. Therefore, rent increases calculated at 50% of the increase in the CPI will typically cover operating expense increases and therefore allow the park owner to maintain, but not expand, his net operating income.

FIXED RATE INCREASES

A few ordinances provide for a fixed percentage increase, such as five percent of the existing base rent, without any consideration of the actual rate of inflation. The problem with fixed rate increases is that as inflation rates fluctuate they become either "too low" or "too high" relative to prevailing changes in the cost of living.

AUTOMATIC ANNUAL RENT INCREASES

GSMOL recommends that rent ordinances contain automatic annual increase provisions, subject to the park owner's compliance with registration requirements and minimal reporting requirements. While rent controls are necessary to protect mobilehome owners, it is also reasonable to provide park owners with reasonable rent increases without the necessity of hearings. The purpose of rent controls is not to prevent all rent increases but rather to prevent excessive increases. There are also benefits for both residents and park owners to reduce the frequency of rent hearings, which are costly to both sides in both financial and human terms.

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