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June 17, 2009 > Rent controls for mobilehome park residents threatened

Rent controls for mobilehome park residents threatened

By Simon Wong

Mobilehome park owners may be able to charge new tenants double the pad, or space, rent paid by their predecessor if Assembly Bill 761 (Mobilehomes: Rent Control) passes.

Many mobilehome occupants own their homes but rent the space on which the unit sits. Hayward has nine mobilehome parks and 2,500 spaces; many others dot the Greater Tri-City area. California has around 4,822 parks with about 700,000 residents.

The bill's passage would override most local rent control ordinances for new tenancies in mobilehome parks constructed before 1990 throughout California. Hayward City Council declared its opposition to AB 761 (Calderon) on June 2.

Such ordinances restrict the amount of rent or impose a maximum that may be charged to a tenant. Rent for new tenancies are usually determined through vacancy control, vacancy decontrol or partial vacancy decontrol. Mobilehome park rent control is not subject to the Costa-Hawkins Act which proscribes the form of rent control ordinances permitted for other types of residential property, such as apartments.

Vacancy control tends to restrict rent increases when a mobilehome is sold and a new tenant occupies the space. Vacancy decontrol allows unlimited rent increases that are subsequently subject to local rent controls. Partial vacancy decontrol permits limited increases, usually a specified amount or a percentage of the current rent.

About a fifth of California's jurisdictions employ full vacancy decontrol. The remainder use either vacancy control or partial vacancy decontrol. Park owners often have the right of appeal if they feel they are not receiving a fair rate of return. Many ordinances also allow automatic, index-linked annual rent increases.

Assemblyman Calderon (58th Assembly District) introduced the bill, sponsored by non-profit Western Manufactured Housing Communities Association which promotes and protects the interests of owners, operators and developers of manufactured home communities in California. Several agencies, including the League of California Cities, oppose the bill.

AB 761 intends to harmonize local rent controls and stimulate investment in mobilehome parks. The number of parks has fallen and their quality deteriorated. Rent control dampens investment and investment returns.

The bill replaces vacancy control with a variation of partial vacancy decontrol that allows park owners to charge an initial rental rate for a new tenancy that is up to twice the amount paid by the previous tenant.

It proposes that "upon the sale, assignment, transfer or termination of an interest in a mobilehome, or a mobilehome tenancy in a mobilehome park, the management of the park may offer a new rental agreement containing an initial rent that is the lesser of an amount that is in excess of the maximum rent established by a local measure by specified percentages [at up to 14.285% of the prior rate in 2011, up to 28.57% in 2012, up to 42.85% in 2013, up to 57.14% in 2014, up to 71.425% in 2015, up to 85.71% in 2016 and up to 100% in 2017 and beyond], which would increase, beginning January 1, 2011, up to 100% of the last-charged rent, or market levels, as specified."

Increases greater than 100% would be allowed if authorized by the local rent control ordinance. Once the initial rent is set, rent will be subject to local rent control ordinances, if one exists.

Some parks, including those with common facilities condemned for health and safety reasons for six months or longer, will be exempt from AB 761. The legislation will not apply to any rent adjustments permitted by local rent control ordinances greater than those allowed by the bill.

Opponents point out that park owners have the upper-hand when negotiating with tenants. The landlord-tenant relationship for mobilehome parks differs markedly to that for an apartment. Owners of mobilehomes have little choice but to remain on the space where their home, which is relatively immobile, is located. Apartment tenants have the choice of many similar units and different locations.

The bill could lower mobilehome prices substantially with loss of equity for the owners. A unit's value derives from the ownership interest in the home, the right to keep the home in situ and leasehold interests or rights. The park owner retains the right of reversion for the pad. AB 761 overlooks the complex property rights in mobilehome parks.

The loss of equity/security would reduce the value of lenders' mobilehome mortgage books and reduce the availability of affordable mortgages to purchase mobilehomes. This would deplete the affordable housing stock in California.

For some, the bill represents state interference with local solutions to community issues. Decades-old, local rent control ordinances have evolved to balance affordability for mobilehome owners and profitability for the park owner.

The City of Hayward does not wish to see the affordable housing stock shrink. Ostensibly, the City might benefit from a small increase in property taxes and real property transfer taxes arising from increased values of mobilehome parks for the owners, or developers, and changes in ownership.

Although AB 761 has its opponents, its passage and terms would come too late for the senior community at Fremont's Besaro Mobilehome Park whose owners wish to raise the average rent by 33.67% to $895. Hypothetically, if residents could avoid the proposed increase and it were possible to replace their existing tenancy agreements with new agreements effective from January 1, 2011, the maximum permitted increase in pad rent would be 14.285%.

Rather than encourage investment and improve the quality of mobilehome parks, the bill might be the demise of some as tenants are "priced out." Besaro's residents claim this is happening to them because the owners wish to develop the land whose estimated value is $68 million. They oppose the rent increase and an administrative hearing is set for June 15-17.

The bill was last amended on May 28, heard and passed by the Committee on Housing & Community Development on June 8 and had its second Assembly reading on June 15.

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