In the past month, Hart Kienle Pentecost has received rulings in 3 separate rent control applications/hearings.
First, we received a ruling arising out of an application in the city of Lancaster. The city of Lancaster has a fairly expedited process for submitting discretionary rent increase applications. This park had exceptionally low rent and was literally losing money after all park operations were paid. The city hired its own independent expert to review the application and the economic basis of the application. After a half day hearing where oral testimony was presented by the park owner and the residents, the city issued its ruling. The park owner received a substantial rent increase to be implemented over 3 years. The rent increase will bring the park’s rents to the average rent of comparable rent controlled parks in the city of Lancaster. The city’s ruling was fairly prompt and, as noted, the entire hearing process was completed in one day of hearing. Chalk one up for rational decision making.
The second rent control matter concerned the city of Escondido. The city of Escondido has a very long and complicated discretionary rent increase application form. The park owner, with my office’s assistance, submitted the application in February 2016. After five different requests for “additional information,” the city finally deemed the application complete. The city of Escondido, like the city of Lancaster, hired its own independent “expert” to review the merits of the application. However, the expert retained by Escondido, Dr. Barr, issued a report that recommended granting approximately 60% of the requested rent increase. The application had been premised upon the City Council’s decision of 3 years earlier involving the same mobile home park. Rather than follow the same methodology thought process as it did 3 years earlier, the city changed its approach. Because of that change in methodology, the rent increase was not the full amount requested but was, as noted, substantially less. However, the city did grant a rent increase, noting that the net operating income methodology used by the city did compel and require that a rent increase be granted. The public hearing in Escondido was completed in one evening. The decision was made at the same hearing. The result, while not what should have been granted under the city’s ordinance, was at least supported by a semi-rational thought process. Chalk up at least half a point for a result that at least acknowledged that economic “math facts” cannot be ignored and still be faithful to actual facts in the decision making process.
The third matter handled by my office with a result in the last month concerns the city of Calimesa. The application and this matter were submitted in early 2016 and, like Escondido, required many additional submissions before the application was deemed complete. This city also wanted to retain an expert. However, the city required the park owner to pay the cost of the city’s expert. The city also required the park owner to pay an exorbitant amount of money to proceed forward with a public hearing. Finally, the city, but the aid and assistance of its deputy city attorney, caused the hearing process to last and continue onward for 8 different days causing the time and expense to process the application to exponentially increase. The upshot is that the city, rather than utilize any bona fide economic basis, decided the matter based upon politics. Specifically, the city concluded the park was entitled to no rent increase whatsoever. This, despite the fact that the real property taxes had increased by many tens of thousands of dollars, and substantial additional funds had been expended by the new owner to upgrade and maintain the park. Chalk it up for an irrational and intellectually dishonest result.
So what is the lesson from this trilogy of rent control hearings? This writer sees the lessons as fairly straight forward: If a city is going to implement a rent control ordinance, and decides to actually utilize and follow any form of sound economic analysis, a park owner will receive a rent increase when the economics demonstrate the need. In contrast, when a municipality has already decided that a rent increase will not be approved, no amount of economic facts will persuade that city to the contrary. The latter approach, sadly, precipitates expensive litigation.
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Bill Dahlin is a partner with the Southern California law firm of Hart Kienle Pentecost and a leader in the firm’s Manufactured Housing Industry Practice Group. He can be reached at office, office (direct dial) or [email protected]. This article is for general information purposes and is not intended to be and should not be taken as legal advice for any reader.