RENT CONTROL ATTACKS – Part 3

RENT CONTROL ATTACKS

(Part 3 – Other 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 4 (coming sooner or later) is Other Stuff To Be Aware Of

[If you missed Parts 1 & 2 –go to my web site (www.pmcfinancialservices.com) and click on the links on the right of the home page.]

The park owners want to show LOWER revenue and HIGHER expenses (thus lowering the NOI) in order to get a big rent increase.

But, how do owners lower revenue and increase expenses?

[REMEMBER, the numbers being shown to the Rent Control Board (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, memberships, etc.) among all the parks. Is their allocation reasonable? Maybe, but maybe not.

OTHER EXPENSE ISSUES

We have, in part 2, talked about Park Operating Expenses, Utilities, Capital Improvements and Park Maintenance. Now we talk about the remainder of the expenses.

This area covers a multitude of sins, and owners may try to throw in everything including the kitchen sink, since the more expenses, the LOWER the NOI and the HIGHER THE RENT INCREASE REQUEST.

Stuff sometimes included:

Key services (Do you really have keys?)

Vehicle maintenance (Does the park have a vehicle?)

HVAC repairs (Does the clubhouse have HVAC? Do you really have a clubhouse?)

Small Tools (Should not be a big number – below $1,000)

Repairs (For what?)

Labor (For what?)

Housing (Does the park really provide housing for someone?)

Insurance (Is this an allocation from other owner parks?)

Various fees – state, local, county (Does the park really pay these fees?)

Audit fees (For what? Audit fees are usually for the benefit of the owner, not the residents)

Meetings & Conferences (Who goes? Are the residents really paying for the manager to attend a conference on how to be a manager? Is this an allocation?)

Dues & Subscriptions (This may be an allocation. Unless this is for the clubhouse, the group should not pay for them)

Legal (Should be reasonable and based on activities in the park)

Management Fee (Should be about 3%-5% of gross income, depending upon size of park – larger park = smaller % fee)

Postage (for what?)

Bank charges (Should be reasonable, look at your own bank statement for a suggested monthly amount)

Office supplies & Expense (Do you have a park office?; Are the amounts reasonable?)

Telephone (Are the amounts shown reasonable)

Auto travel (Whose auto and for what was the travel?)

Owner expenses (Should you have to pay for these?)

Outside services (What services?)

Operating supplies (Is the amount reasonable, what supplies?)

You get the idea. There are certainly other items that are too numerous to list. Look at everything. Is it reasonable? Should the group be paying for it?

I’ll take about Other Stuff to Be Aware Of in the final part (4).

Administrative Stuff:

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 (RSO).

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.

REMEMBER, you are making your case before a Rent Control Board (RCB) (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). The BOTTOM LINE FOR YOU is to smell out what they are doing to determine if your park residents have a defense.

ANALYSIS STEPS:

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.

NOTE: A strong RSO 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.

Contacts:

Rent Control Attacks:

Bruce Stanton, attorney and GSMOL General Counsel: 408-224-4000 brucestantonlaw@yahoo.com

Resident Park Purchases:

Dave Loop, attorney and GSMOL VP – Resident Owned Parks: 831-688-1293 deloop1@sbcglobal.net

Deane Sargent, finance and organization guy: 415-271-3919 deane.f.sargent@gmail.com

Deane Sargent

PMC Financial Services

3165 Chandler Egan Drive

Medford, OR 97504

deane.f.sargent@gmail.com

415-271-3919 Deane Cell

www.pmcfinancialservices.com

CA license 01040463