Part 2 – Expense Issues – What to look for

This is a four (4) part series on things to look out for when your Rent Stabilization Ordinance (RSO)         is under attack.

Part 3 (coming soon) is More Expense Issues
Part 4 (coming sooner or later) is Other Stuff To Be Aware Of

[If you missed Part 1 – Revenue Issues, here it is » ]

If you live in a rent-controlled mobile home park, sooner or later, your owner is going to try to raise your site rent by filing an appeal to the Rent Control Board (RCB), challenging your Rent Stabilization Ordinance (SRO).
The ‘Name of the Game’ that the park owners are playing is to show the RCB that the Net Operating Income (NOI) of the park doesn’t meet the levels set in the RSO.

That means the owners want to show LOWER revenue and HIGHER expenses (thus lowering the NOI) and get a big rent increase.

The BOTTOM LINE FOR YOU is to smell out what they are doing to determine if your park residents have a defense.

Administrative Stuff:
REMEMBER, you are making your case before a Rent Control Board (or independent arbitrator, paid by the RCB). The RCB members typically are volunteers and usually live in your area. They want to follow the rules but, generally, they don’t want to hose down the resident groups.
If you think you have a defense, you will need to hire representation to fight the proposed increase (see below for a suggestion).

But, how do owners lower revenue and increase expenses? [REMEMBER, the numbers being shown to the RCB are often NOT the ‘real’ dollars that the owner puts in his pocket.] This can be confusing, since owners typically don’t outright lie; they just interpret EVERYTHING in their favor and make ‘adjustments’ based upon THEIR logic. If the owner has multiple parks, they will sometimes allocate an expense item (such as insurance) among all the parks. Is their allocation reasonable? Maybe, but maybe not.

After they mess around with revenue (part 1 in this series), they mess around with EXPENSES – the HIGHER the EXPENSES, the lower the NOI.

Expenses are a little more involved than revenue, primarily because there are more categories. But the categories can be grouped together for analysis. Be sure to review your RSO for what items can be included.

1) Compare the current year (under attack) with the PRIOR year(s). If there are big increases in the current year, the owner may be deferring expenses from prior years so the current year expenses are larger, lowering current year NOI for RSO purposes.
2) Think about your park in the year under attack – did you really get this stuff? Do the items and amounts appear reasonable, both for what you are getting and compared to prior years.
3) Remember that, even if the owner paid for the items, it DOES NOT mean that you should be charged for them or that they should be included in your rent control adjustment.

These expenses include General Operating Expenses, Payroll, payroll benefits and Utilities, plus maybe some additional stuff like pest control, outside services, etc.

Utilities often include common area gas & electric, gas & electric billed to residents by the park, trash, water & sewer billed by the park to residents, and, sometimes, cable TV/Internet.
Owners will also sometimes attempt to exclude utility income and expenses. That’s because they make money on utilities, so excluding them LOWERS NOI, making their case for a rent increase better.

Check out what utilities are ‘direct billed’ (from the provider directly to you (the homeowner), not billed by the park owner on your monthly statement). If you have direct billed utilities, the utility amounts shown by the owner should be lower, or maybe ONLY reflect the common area utilities. Do you have common areas which require utilities – clubhouse, shop, street lighting, etc.

Do you really have folks running around the park doing stuff for which payroll is applicable? Is stuff really being done?

Sometimes, the owner does ‘big stuff’ costing a lot of money (sometimes using park staff as the labor). The issue here is whether the ‘big stuff’ is a EXPENSE or a CAPITAL IMPROVEMENT. Capital Improvements are often handled differently from expenses, usually spread over a longer period of time. If the owner can get capital items treated as expense items, it lowers the NOI.

Sometimes the park manager/assistant manager are included in this category, which is usually normal. But is the park manager’s salary reasonable? Sometimes a housing allowance is included, or the value of a ‘park-owned’ home occupied by the manager or maintenance staff. Is the value included reasonable?

This category covers expenses to maintain the park. [It DOES NOT cover stuff that should be included Capital Improvements.]
Items: repairs & maintenance, signage, street lighting, vehicle maintenance, HVAC repairs, small tools, “repairs”, cleaning/janitorial, “labor”, landscaping, supplies, outside services, street maintenance, rental home repairs/maint, pool maintenance.
Look at all these items. Did this stuff actually happen and did it get fixed by the owner? Is your park generally well maintained? Make the comparisons with prior years to see if there are big increases this year. Can the increases be justified by what was actually done in the park?
Some stuff simply is not reasonable. Do you really have a park vehicle for which maintenance/repairs would apply? I have seen ‘small tools’ shown as costing in the 1000’s of dollars. That’s a lot of small tools, more than a couple of hammers and a few paint brushes.
Use your common sense about these items and talk with your neighbors to get their opinions.

NOTE: A strong SRO makes your park LESS attractive to other park investors who might normally want to buy it. This means that THE RESIDENT GROUP IS OFTEN THE MOST ATTRACTIVE BUYER. If you want to discuss how to buy your park, check the contacts provided below.

Rent Control Attacks:
Bruce Stanton, attorney and GSMOL General Counsel: 408-224-4000
Resident Park Purchases:
Dave Loop, attorney and GSMOL VP – Resident Owned Parks: 831-688-1293
Deane Sargent, finance and organization guy: 415-271-3919

Deane Sargent
PMC Financial Services
3165 Chandler Egan Drive
Medford, OR 97504
415-271-3919 Deane Cell
CA license 01040463

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