A state appellate court has overturned a trial court judge’s decision to impose a mobile home park rent increase in the City of Carson. Rather than impose the rate hike, Los Angeles County Superior Court Judge Dzintra Janavs should have sent the matter back to the city’s Mobilehome Park Rental Review Board, the Second District Court of Appeal ruled.

The decision, however, does not rule out the possibility of a major rent increase for tenants in the Carson Gardens mobile home park.

Like many cities, Carson regulates the amount that park owners may charge mobile home residents for the rental of a park space. The controversy at hand stems from an application filed in October 2000 by Carson Gardens LLC for a rent increase of $105.50 per month per space.

Carson Gardens LLC had purchased the mobile home park three years earlier for $1.5 million on a line of credit. The landlord proposed the park’s first rent increase since 1993 — which would have amounted to 44% to 51% per space — based on a “gross profits maintenance analysis.” Essentially, the landlord argued that under the city’s rent control guidelines, it should earn the same profit as the previous owner, even though the previous owner had no mortgage and, thus, far lower expenses.

The city’s Rental Review Board refused the request and, in August 2001, instead granted a 9.68% rent increase based on half of the increase in the consumer price index since 1993. The board reasoned that Carson Gardens LLC could not expect to earn the same profit as the prior owner, and that only the increase in the CPI since the new landlord acquired the park should apply.

The park owner sued, and, in April 2003, Judge Janavs directed the board to set aside the 9.68% increase and conduct a new hearing. She specifically ordered the board to “apply the gross profits maintenance analysis discussed in the guidelines … or another reasonable analysis or methodology that gives due consideration to the park’s actual reasonable operating expenses, including actual reasonable expenses incurred in acquiring the park.”

The city did not appeal the judge’s ruling. It conducted a new hearing at which the board considered a “maintenance of net operating income” methodology, which excluded debt service. The board settled on a monthly rent increase of $36.44 based largely on inflation. The board found that passing through to tenants the amount of mortgage interest would be unreasonable and would create a windfall for the current park owner.

Carson Gardens LLC returned to court seeking enforcement of the April 2003 order. Judge Janavs determined that the city did not comply with the earlier order and, in December 2004, ordered a rent increase of $113.36 retroactive to August 1, 2001. Janavs conceded that the $113 hike might be excessive, but she said she could not determine a fair return for the park owner because the city had not used the methodology she ordered.

This time, the city appealed. The city argued that it complied with the first order by applying the maintenance of net operating income methodology. The appellate court promptly rejected the argument, noting that the rent board chose that approach specifically because it deleted debt service costs from the process.

However, the Second District accepted the city’s argument that Judge Janavs exceeded her authority. In issuing the December 2004 order, the judge herself conceded she could not determine a fair return based on the evidence before her. “Under these circumstances,” Justice Paul Boland wrote for the unanimous three-judge appellate panel, “we think the court was obliged to remand the case once again, so that the board can exercise its discretion on the question of whether passing through the entire amount of debt service costs was necessary to provide a fair return.”

The park owner argued that sending the case back to the rent review board was unnecessary because the board could apply only the gross profits maintenance analysis without deviation. The court disagreed.

“While the board cannot take new evidence on remand, nothing in the city’s ordinance requires the board to apply any particular formula or methodology without deviation,” Boland wrote.

The court noted that Judge Janavs’s decision amounted to punishment of the mobile home park tenants for the board’s failure to comply with a court order. The Second District threw out the $113 rent increase and sent the matter back to the city’s rent review board for a decision consistent with Judge Janavs’s original order.

The Case:
Carson Gardens LLC v. City of Carson Mobilehome Park Rental Review Board, No. B180308, 06 C.D.O.S. 482. Filed January 17, 2006.

The Lawyers:
For Carson Gardens LLC: Robert Coldren, Hart, King & Coldren (714) 432-8700.
For the city: William Wynder, Aleshire & Wynder, (949) 223-1170.