Opinion
In аction No. A091354 plaintiff and appellant Concord Communities, L.P. (Communities), doing business as Diablo Mobile Lodge, appeals from a judgment of the Contra Costa County Superior Court denying Communities’ petition for writ of administrative mandamus and dismissing Communities’ cause of action for violation of due process against defendant and respondent City of Concord (City). Similarly, in action No. A091361 plaintiff and appellant
The appeals arise out of the denial by Concord Rent Review Board (Board) of Communities’ requests to adjust the base year rents at its mobile-home parks Diablo Mobile Lodge and Adobe Mobile Lodge. The superior court denied the writ petitions on the ground that the City’s administrative decisions were supported by substantial evidence. Communities contends that the base year rents at the Adobe and Diablo parks were significantly below the
Background
In August of 1993, Communities entered into a purchase agreement for both Diablo Mobile Lodge and Adobe Mobile Lodge for $1,816,000 and $2,724,000, respectively. Pursuant to the terms of the agreement, Communities made a down payment of $500,000 and obtained a one-year option to close escrow on both parks. Communities’ down payment was refundable only if the parks’ operating expenses were not as had been represented by the seller. At the time the agreement was entered into, the City had not enacted a mobilehome park rent control ordinance.
In November 1993, Communities noticed a $75 per month per space rent increase at Adobe and a $50 per space increase at Diablo. On January 25, 1994, before the notice periods for the increases were complete, the city council adopted a moratorium on all mobilehome space rent increases. Communities closed escrow on the purchase of the parks in August 1994. On October 25, 1994, while the rent freeze was still in effect, the City enacted Mobilehome Pаrk Rent Stabilization Ordinance No. 94-13 (ordinance), codified as Concord Municipal Code section 4990 et seq., providing for permanent rent regulation.
Pursuant to the ordinance, rents at Adobe and Diablo were forced to reflect the rate charged on January 1, 1994. (Concord Mun. Code, § 4991, subd. B.) The ordinance provided for a general annual adjustment (GAA) of rents once per year at a rate of 60 percent of the consumer price index (CPI) for the year. (Id., § 4994, 2d ft) However, the ordinance required a park owner to obtain approvаl of the Board to obtain a “[sjpecial [rjent [i]n-crease” in excess of the 60 percent of CPI adjustment. (Id., §§ 4996, 4994.) Furthermore, the ordinance operates under the presumption that the park owner’s net operating income (NOI) in the unregulated market of the “base year” (1993) provided it with a “fair and reasonable return.” (Id., §§ 5012, 5013.) The ordinance also establishes a base rent adjustment mechanism under which the presumption that the base year NOI provided a “fair and reasonable return” may be rebutted. (Id., § 5015.) Under section 5015, subdivision C, the presumption of a fair аnd reasonable return based on the base year NOI may be rebutted if “[t]he rents charged by the park owner in the Base Year were significantly below the rents for mobilehome spaces in the City with comparable amenities, because of unique or extraordinary circumstances.”
In 1995 the Adobe park earned $3,495 less in gross income than the sum of its operating expenses and debt service, while the Diablo park lost more than $34,000. In April of 1996, Communities noticed a special rent increase at the Adobe park of $146.71 per month per space, and an increase of $102.29 at the Diablo park. At the same time, Communities filed petitions with the City pursuant to the ordinance in order to have the increases approved. (Concord Mun. Code, § 4496.) The Board granted a $34.26 per space maintenance of net operating income (MNOI) rent increase at the Adobe park and a $17.03 per space MNOI rent increase to Diablo as contemplated under the ordinance’s GAA of 60 percent of CPI increase. (Id., §§ 5019, 4994.) Communities appealed the Board’s decisions and the city council affirmed the Board’s decisions.
On May 23, 1997, Communities filed a petition on behalf of each park for a writ of administrative mandate with the Contra
At the rеmand hearing the Board heard evidence pertaining to whether the 1993 base rents at Adobe and Diablo should be adjusted. Both the City’s mobilehome park appraisal expert, James Brabant, as well as Communities’ expert appraiser, Gerald C. Taylor, opined that the parks’ purchase prices were reasonable and consistent with market indicators and that base rents at Adobe and Diablo were below the base rents of comparable parks. According to Brabant, the average space rent at the Adobe park in 1993 was $312, and the average rent at the Diablo park was $267. Brabant concluded that the space rents for both Adobe and Diablo in the base year were $38 per month lower than those in the City’s parks with comparable amenities. Furthermore, Brabant stated that the Adobe and Diablo base year rents were at least' 12 to 14 percent lower than comparable rents in the area and that this was a “significant” amount. Taylor also found the difference between the Adobe and Diablo parks’ base rents from the rents of parks with compаrable amenities to be significant. Taylor was of the opinion that the market value of the space rent at Adobe park in 1993 was $408, which was $91 to $108 more than the rate Adobe was charging tenants at the time. Taylor also stated that the market value of the space rent at the Diablo park in 1993 was $356, which exceeded the amount tenants were actually charged during that year by between $82 and $91. Both Brabant and Taylor opined that the Adobe and Diablo parks were most comparable to Town and Country Mobilehome Park, which was also owned by Communities. In 1993, Town and Country’s average space rents were $381, and the high end of the range of rents being charged was $434.
Brabant stated that as per a 1985 market rate study he conducted, which incorporated data and inspections of all the City’s parks, the most recent space rent increase had been effective May 1, 1985. The adjustment made at that time totaled 5.7 percent plus $16 per month which had been “a negotiated adjustment to bring the rents closer to a market level.” Communities’ principal, Richard Hall, testified that base rents in 1993 were significantly below market because the previous owner, Mr. Thompson, built the parks and was free and clear of debt from as early as 1985, had “pre-Proposition 13 taxes” and “didn’t want any government involvement.” Joe Mitchell, a tenant at the Adobe park, testified that Thompson had told him “he [was] real satisfied with the rents he was charging [and] that’s why he didn’t increase it.” Furthermore, Hall stated that in his opinion the market rent in 1993 for Adobe was $450 per space while Diablo was $350 per space.
The Board found that the space rents in the 1993 base year at Adobe and Diablo were not significantly below the rents for mobilehome parks in the City with comparable amenities. The Board also determined that Communities failed to establish that its lower rents were due to any “unique or extraordinary circumstances.” Therefore the Board denied Communities’ requests for base rent increases. Communities appealed to the city council, which affirmed the Board’s decisions. Communities then filed a second petition for writ of administrative mandamus for each park.
Discussion
I. Standard of Review
We commence our analysis with a statement of the appropriate standard of review since the parties disagree as to what standard of review governs their dispute. On appeal from a writ of administrative mandamus an appellate court must determine whether the decision of an administrative agency will substantially affect “vested, fundamental rights.” (Bixby v. Pierno (1971)
“[I]f a rent control commission renders a decision denying a just and reasonable return on property, the decision involves an unconstitutional deprivation of a property right.” (San Marcos Mobilehome Park Owners’ Assn. v. City of San Marcos (1987)
“In analyzing the fundamental nature of the right asserted, [the] court[] manifest[s] slighter sеnsitivity to the preservation of purely economic privileges . . . .” (Bixby v. Pierno, supra,
Therefore, the issue presented is whether the Board’s decisions not to adjust Communities’ 1993 base year rent at the Adobe and Diablo parks was supported by substantial evidence that could give rise to the conclusion that Communities was receiving a fair rate оf return on its equity investment.
II. Base Year Rents Were Significantly Below Market Value
City contends that “there was substantial evidence that the parks’ base year rents were not ‘significantly below’ comparable rents.” This contention lacks merit.
Price controls on rent are within the City’s police power if they are reasonably calculated both to eliminate excessive rents and to provide the owner with a “just and reasonable” return on its property. (Birkenfeld v. City of Berkeley (1976)
“ ‘[T]o be “just and reаsonable” a rate of return must be high enough to encourage good management including adequate maintenance of services, to furnish a reward for efficiency, to discourage the flight of capital from the rental housing market, and to enable operators to maintain and support their credit.’ ” (Oceanside Mobilehome Park Owners’ Assn. v. City of Oceanside (1984)
In Whispering Pines Mobile Home Park, Ltd. v. City of Scotts Valley (1986)
Similarly, in Yee v. Mobilehome Park Rental Review Bd., supra, 17 Cal.App.4th at pages 1109-1110, the court held that the board’s award of a base year rent increase that resulted in a 4.2 percent return on investment was not substantively supported because there was no evidence that like investments involving similar risks, with similar capital appreciation and tax benefits to the owners produced similar returns. Thus, there was no evidence that a 4.2 percent return on investment was a fair return. By the same token, there was no evidence that evеn after the GAA adjustment, Communities’ 4 percent return at the Adobe park or its -1 percent return at the Diablo park was a fair return on its investment.
III. “[Ujnique or [Ejxtraordinary [C\ircumstances”
Communities contends that the low base year rents were caused by “unique or extraordinary circumstances.” This contention has merit.
Pursuant to the ordinance, to rebut the presumption that the base year NOI provided the owner with a fair and reasonable return, the owner must prove that the base year rent was significantly below the rents for mobilehome spaces in the City, “because of unique or extraordinаry circumstances.” (Concord Mun. Code, § 5015, subd. C.) The superior court found that facts constituting “unique or extraordinary circumstances” called for a subjective determination to be made by the Board. The superior court found this subjective standard “troublesome” because “[i]t [could] mean anything” and was
Subdivision (b) of Code of Civil Procedure section 1094.5 sets forth that “prejudicial abuse of discretion” is the standard by which courts should review a final administrative order. The statute further states that “[ajbuse of discretion is established if the respondent has not proceeded in the manner required by law, the order or decision is not supported by the findings, or the findings are not supported by the evidence.” (Ibid.) Abuse of discretion has at least two components: a factual component that is governed by a standard such that the substantial evidence must support the court’s findings and a legal component. (Quackenbush v. Mission Ins. Co. (1996)
“[Ujnique or extraordinary circumstances” has been defined by the relevant case law. Based on a similar ordinance, Vega v. City of West Hollywood, supra,
The circumstances surrounding the previous owner of Diablo and Adobe become even more extraordinary in light of the fact that he had preProposition 13 taxes and did not wаnt any government involvement, thus justifying rents being significantly below market value. In Hillcrest Terrace Corporation v. Brown (Emer.Ct.App. 1943)
Communities’ timing in its purchase of the Diablo and Adobe parks also cannot be ignored in the context of contributing to “unique or extraordinary circumstances.” Communities entered into the purchase agreement for the parks in August of 1993 whereby its down payment was not refundable unless operating expenses were misrepresented by the seller. In November of 1993, Communities noticed a $75 increase at Adobe and a $50 increase at Diablo. In response to the noticed increases, the city council placed a moratorium on mobilehome rent increases in January of 1994 and enacted permanent rent control in October of 1994 while the rent freeze was still in effect. Thus, Communities never had the opportunity to place rents at a level that “reflected general market conditions” and was forced to accept rents at prices set by the previous owner which were “significantly below rents for mobilehome spaces in the City with comparable amenities.” In Apartment Assn. of Greater L.A. v. Santa Monica Rent Control Bd. (1994)
City’s argument that “unique or extraordinary circumstances” must conform exactly to those factual scenarios set forth in Birkenfeld and Vega, fails to recognize that those situations served merely as indicia of the type of circumstance that could rise to a level which could be labeled “unique or extraordinary,” and did not purport to be exhaustive lists. In Birkenfeld, while evaluating the facial validity of a rent control ordinance, the court stated
When base date rents can be adjusted to reflect prevailing rents for comparable units, everyone within the ambit of the rent control scheme participates on equal footing. (Vega v. City of West Hollywood, supra,
While the City’s ordinance properly seeks to maintain the same rate of return which property owners experienced prior to the enactment of rent control with adjustments for inflation, a property owner must be permitted to start rent calculations with a base date rent similar to comparable properties. (Vega v. City of West Hollywood, supra,
Disposition
We reverse the judgments of the trial court and direct entry of judgments granting Communities’ writs of mandate compelling the Board to vacate its decisions and reconsider what a fair return on investment would be. The Board in its discretion may take additional evidence or rely on the existing evidence, consistent with this opinion.
Reardon, Acting P. J., and Sepulveda, J., concurred.
A petition for a rehearing was denied September 6, 2001, and respondent’s petition for review by the Supreme Court was denied December 19, 2001.
Notes
Judge of the San Francisco Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
City’s contention that this was “anecdotal hearsay” by Hall is without merit since there was no timely objection made and because our finding is not based upon this testimony alone. (Gov. Code, § 11513, subd. (d); Borror v. Department of Investment (1971)