Rent Control: Court Upholds City Board's Denial of Requested Increase
Carson's mobile home rent control board acted properly in granting a mobile home park owner a rent increase of only $58 per month rather than the $160-170 that the park owner requested, the Second District Court of Appeal has ruled. The court also ruled that the city's formula for granting rent increases is constitutional even though it is vague.
The city board reduced the rent increase by determining that the mobile home park should amortize the cost of remediating contaminated wetlands over three years, rather than just one year. The board also denied the park owners' request to include in the rent increase the cost of attorney fees incurred in seeking to recover the cost of the remediation from oil companies and other parties — including the city itself.
The case involved the Carson Harbor Village Mobilehome Park, described by the appellate court as an "upscale" mobile home park with 420 spaces on 70 acres. Of the 420 spaces, 407 are subject to Carson's mobile home rent control laws because they were completed before 1995. As with most mobile home parks, the "owner" is the investment company that owns the land, while the "tenants" are the residents, who own their mobile home "coach" but rent the land underneath it from the landowner.
In 1995, Carson Harbor Village Ltd. filed a request for rent increases on the 407 controlled spaces ranging between $163 and $178 per month. Between the time the request was filed and the time the city's rent control board actually heard the case 18 months later, the rent board's staff issued three staff reports. Each one proposed a lower rent increase than the previous one. The first recommended a $99 rent increase, the second proposed a $76 rent increase, and the final one — adopted by the board — recommended a $58 rent increase. These changes came about largely because of the staff's unwillingness to permit the park owner to charge higher rents to cover the cost of the attorney fees.
The park owner sued, claiming that the rent board had abused its discretion in granting the lower rent increase. Unlike many mobile home rent control cases, the park owner did not challenge the constitutionality of the rent control ordinance but rather disputed the way it was applied by the board. Los Angeles Superior Court Judge David Yaffe ruled in favor of the rent board and the Second District, Division Seven, affirmed his ruling.
On appeal, the Second District did declare that Carson's formula for granting increases is constitutional. The court acknowledged that the ordinance "offers little assistance in clarifying the definition of a ‘just, fair and reasonable' return," which is the legal requirement contained in the ordinance. The court ruled that it must defer to the rent board's interpretation "unless we find its construction lacks substantial evidence to support its findings." On both the wetlands remediation and the attorney fees, the court found that there is indeed substantial evidence to support the board's decision.
The wetlands remediation cost the park owners $190,000, which they paid for out of the proceeds of a $300,000 third trust deed loan payable over 28 months. The park owner then submitted the entire $190,000 to the rent board as a 1995 operating expense. The board chose instead to allocate the expense over three years on a pro-rated basis to reflect the 28-month mortgage. The park owner argued in court that this was an abuse of discretion because an expense incurred during 1995 had not been permitted as an expense in that same year. But the court agreed with the rent board's interpretation. "Allocating the cost, paid out of loan proceeds, to a single year, would understate the 1995 gross profit figure and artificially inflate CHV's need for a monthly rental increase," the court wrote. "A permanent, artificially high monthly rent increase would permit CHVB to realize unwarranted profits from increases long after repayment of the loan obligation incurred to remediate the wetlands contamination."
The park owner had also claimed the rent board abused its discretion by disallowing $100,000 of the park owner's $208,000 in attorney fees. The park owners had sought to recover the cost of remediation from Unocal, Caltrans, and others, including the City of Carson itself. The board also disallowed fees incurred in seeking to recover cleanup costs from insurers. The board did permit inclusion in the rent increase of attorney fees incurred in obtaining regulatory approval for the remediation plan from the Regional Water Quality Control Board.
The city's rent control guidelines cover mostly the question of whether to pass along the cost of attorney fees associated with dealing with the rent board itself. The cost of seeking rent increases is permitted; the cost of challenging the rent control ordinance is not permitted. The ordinance is silent on the question of environmental remediation.
Nevertheless, the Second District concluded that the board deliberated carefully and "did not regard suits against other parties to recover legal expenses associated with wetlands remediation project as directly related to regular park operations." The appellate court added: "A court should not substitute its judgment for that of the local mobilehome rent control board even though the court may arrive at different findings of fact after hearing the case on its merits."
Carson Harbor Village Ltd. v. City of Carson Mobilehome Park Rental Review Board, No. B118282, 99 Daily Journal D.A.R. 1797, 99 C.D.O.S. 1461 (filed February 24, 1999).
For Carson Harbor Village: Frank Gooch III, Gilchrist & Rutter, (310) 394-5492.
For City of Carson: Glen R. Watson, Richards, Watson & Gershon, (213) 626-8484.