Item 33 - Rent Stabilization Ordinance and Just Cause Eviction Ordinance

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Rent Stabilization Ordinance and Just Cause Eviction Ordinance September 21, 2021 Page 4 2 1 2 6 that was received and filed by City Council on May 21, 2019. There are twenty-nine mobilehome parks containing 3,913 spaces. Six of the mobilehome parks and 1,020 spaces in the City are currently age-restricted to persons 55 years of age or older. Relative to the State’s Tenant Protection Act of 2019 (“AB 1482”), the State’s rent stabilization law caps the statewide rent increases to 5% plus the percentage change in the CPI, or 10%, whichever is lower. The City’s local Ordinance will go further than AB 1482 and the protections provided in this Ordinance are more restrictive than those set forth in AB 1482. An owner must, on or before the date of commencement of a tenancy, give the tenant or mobilehome resident a written notice in a form prescribed by the City information on the existence and scope of the Ordinance and the tenant’s right to respond to any petition filed with the City as described in detail below. A rent increase cannot take effect until the notice has been provided. Fair Return in Response to Takings Clause In cases where a cap on rent increases poses difficulty for a particular landlord, the legal requirement for a fair return under the Fifth Amendment takings clause is satisfied so long as an adequate process is established for the landlord to seek an individualized adjustment. A CPI-based increase in the Ordinance will provide a just and reasonable return on an owner’s property, and has been included in the Ordinance to encourage good management, reward efficiency, and discourage the flight of capital, as well as to be commensurate with returns on comparable investments, but not so high as to defeat the purpose of curtailing excessive rents and rental increases. Courts in California have long upheld the constitutionality of the maintenance of net operating income (MNOI) standard in these individualized determinations. The MNOI standard typically indexes increases to those found in the CPI, including indexing the MNOI standard at less than 100% of the change in the CPI. One reason is that such indexing accounts for the fact that a landlord’s return on investment is not limited to the revenue from rent rolls, but also includes increases to the landlord’s equity in the property and overall appreciation of the property. Another reason is that a major component of the CPI is determined by increases in housing costs, which are often driven by speculation rather than maintenance costs, and thus these costs unduly influence the rise in the overall CPI. Over the last 40 years, the change in the CPI for the Los Angeles-Long Beach-Anaheim region for “All Items, less shelter” was approximately 80% of the change in the CPI for “All Items.” The Ordinance will index the MNOI standard at 80% of the change in the CPI for “All Items” as a reasonable guarantee that landlords will obtain a fair rate of return on their investments. However, any owner of residential real property or a mobilehome park who contends that the limit on rental increases set forth in the Ordinance will prevent the owner from receiving a fair and reasonable return on their property, may petition for relief from the cap. The owner’s petition must be on an application form prescribed by the City Manager