Savings Clause

DEFINITION

While the Courts have consistently indicated that a local jurisdiction can select its fair return standard, they have also permitted property owners to use other formulas in fair return hearings.  A “savings clause” is a provision which authorizes a board, commission or hearing officer to consider any information on fair return that may be relevant, as well as the information that the jurisdiction requires under its particular formula.

COURT REVIEW

Rent Stabilization Ordinances commonly contain maintenance of net operating income (M-NOI) standards without providing authority for a board to consider other standards. In one decision, involving Oceanside mobilehome space rent controls, a Court of Appeal ruled that the Rent Commission must consider whatever fair return evidence the park owner chooses to present (1).

In the event that a board fails to consider all the alternatives that the owner elects to present, a fair return hearing may be conducted by the court. When this occurs, the costs may be extremely high, far higher than the cost of a hearing held by a board or hearing officer.

MIXED RESULTS

Experts polled were not unanimous over whether a "savings" clause should be included. On the one hand, such a clause may protect the city from judicial intervention in the administration and interpretation of fair return issues. On the other hand, a savings clause opens up each administrative hearing to the possibility of becoming a long and open-ended process, based on consideration of highly subjective factors. Furthermore, while other types of fair return formulas may lead to reasonable results in some cases, they do not consistently lead to logical results.

When a savings clause is used, it is recommended that the M-NOI ordinance also contain a requirement that a  analysis must be performed, as well as any other types of analysis that are required in order to respond to a park owner's fair return claims.

REFERENCES

1. Merrill L. Kirkpatrick v. City of Oceanside (June 1993) San Diego County Superior Court No. 655132.

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