Purpose of Rent Stabilization

TWO PURPOSES OF RENT STABILIZATION

Spiraling mobilehome space rents have led more than 100 California local governments to enact some form of mobilehome rent stabilization. The two purposes of this type of legislation are accomplished as follows:

ANNUAL INCREASE TIED TO CPI

Excessive rent increases are typically eliminated by allowing one rent increase per year which is usually tied to the Consumer Price Index, and which cannot exceed a certain percentage or dollar amount. Provisions are also commonly inserted which prevent additional rent increases at the time of resale (vacancy control) or which prohibit a park from requiring that new buyers sign a lease (prospective purchaser protection).

FAIR RETURN HEARINGS

A park owner's right to receive a fair return on their investment is guaranteed by providing for a fair return hearing that gives the park owner an opportunity to prove that the annual increase described above is insufficient to keep up with the increases in the operating expenses of the park. This is typically accomplished in what is called a Net Operating Income (NOI) formula. This rent review process is conducted pursuant to the Ordinance, and may be convened before a hearing officer or an appointed commission. In some jurisdictions, the City Council is appointed to rule upon fair return issues, or may hear appeals from what happened at the original hearing.

NOT A SOLUTION TO ALL PROBLEMS

Rent stabilization is not a solution for all of the homeowners’ problems.  It is simply a form of consumer protection which has become necessary to prevent unjustified or excessive rent increases.  In some jurisdictions, rent regulation has become the sole means of ensuring the survival of the mobilehome lifestyle.

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