Capital Improvements

INTRODUCTION

Should park owners be reimbursed for capital improvements?

GSMOL does not favor a provision which would allow the park owner to receive reimbursement for capital improvements dollar-for-dollar that is separate from NOI adjustments to base rent.  Such provisions are constitutional and some ordinances contain them. 

Standards for capital improvement increases vary substantially among ordinances, depending on what types of incentives are intended and for what types of improvements they are intended.  The following discussion describes some of the issues associated with these standards.




CONSIDERED SEPARATELY OR WITH A FAIR RETURN ANALYSIS

Are Capital Improvements considered independently or only in conjunction with a Fair Return Analysis?

An ordinance may authorize rent increases for capital improvements regardless of a park owner’s profit level.  This approach ensures that there are extra incentives for capital improvements regardless of the owner’s profit level.  At the same time, such an approach may encourage an attempt to divert ordinary expenses into capital improvement categories, where the hearing would not require an examination of the park’s entire income or expenses.

If capital improvements are considered in conjunction with overall profit levels, then the definition of capital improvements becomes less critical since all expenses will be considered regardless of how they are classified (unless certain types of expenses are expressly disallowed).

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