BILL ANALYSIS SENATE JUDICIARY COMMITTEE Senator Ellen M. Corbett, Chair 2007-2008 Regular Session AB 1542 A Assemblymember Evans B As Amended June 5, 2007 Hearing Date: July 10, 2007 1 Government Code 5 CS:jd 4 2 SUBJECT Mobilehome Park Conversions: Rent control of unpurchased converted spaces DESCRIPTION This bill would require, notwithstanding a conversion of a mobilehome park, that local rent control measures remain applicable to any rental of a mobilehome space within the park. The current statutory controls on rent increases on a park space in a converted mobilehome park would remain applicable to the rental of the space by a non-purchasing tenant in absence of any local rent control. BACKGROUND The Subdivision Map Act (hereinafter Map Act) governs the division of real property into parcels or condominiums and requires that a subdivider file a tentative map for approval by a local agency, which may, in its discretion impose conditions on the conversion. However, when a subdivider of a mobilehome park wishes to convert a park to resident ownership, there is an exception under the Map Act that limits the scope of the local agency's hearing and provides a separate process for the subdivider to follow. The process of converting a rental mobilehome park to resident ownership is a relatively new phenomenon. Prior to 1996, local jurisdictions were authorized to impose (more) AB 1542 (Evans) Page 2 of ? their own conditions on proposed conversions of mobilehome parks, yet many residents and park owners argued that it made conversions extremely expensive and in some cases impossible. However, the entire purpose of converting a mobilehome park for resident ownership is to afford a cost-effective way for residents to own the space on which their mobilehomes are sited, but a workable process was not afforded until recently. In response to concerns raised by residents, SB 310 (Craven, Ch. 256, Stats. 1995) was passed by the Legislature to amend the Map Act and provide a process to ensure that subdividers of mobilehome parks could give residents the opportunity to purchase a space in the park without burdensome conditions imposed by local government agencies. SB 310 also provided statutory rent protections for residents who could not purchase their spaces and therefore allowed them to remain as renters. With that, the law also prescribed a formula for how rents for non-purchasing residents would be calculated. Despite the well intended process afforded to residents, which has led to more resident owned parks, another new phenomenon was reported as a result of the law created by SB 310. As discussed in El Dorado Palm Springs, Ltd., v. City of Palm Springs , 96 Cal.App.4th 1153 (2002), various local government agencies and residents have shown that at least one park owner has engaged in what was described as a "sham" conversion, which occurs when a park owner uses the process to either price the lots out of the reach of the residents' purchasing limits or sells at least one lot in order to escape any existing local rent control measures. ( Id ., at 1165.) The problem with a sham conversion, among many, is that it is essentially legal under existing law. Following the El Dorado decision, park owners reportedly began using the exception provided by SB 310 to engage in "sham" conversions, but primarily to convert their parks to avoid local rent control measures, and obtain increased rents from their tenants as allowed under the conversion law. AB 1542 intends to close the loophole which has allowed other park owners to use the current mobilehome park conversion process in order to avoid local rent control AB 1542 (Evans) Page 3 of ? measures. In addition, the bill would remove the current limitations placed on local government agencies when they conduct a hearing in regards to a proposed mobilehome park conversion for resident ownership. CHANGES TO EXISTING LAW Existing law requires that at the time of filing a tentative or parcel map for a subdivision to be created from the conversion of a rental mobilehome park to resident ownership, the subdivider must avoid the economic displacement of all nonpurchasing residents by: 1) offering each tenant an option to either purchase his or her subdivided space or to continue residency as a tenant; 2) filing a report on the impact the conversion will have upon the residents of the mobilehome park and make a copy of the report available to each resident; 3) obtaining a survey of support from the residents of the mobilehome park, as specified; 4) subjecting the proposed conversion to a limited hearing by a local legislative body or advisory agency which will approve, conditionally approve, or disapprove the map; and 5) complying with statutory rent protections for nonpurchasing residents. (Government Code Section 66427.5.) Existing law limits the scope of the hearing conducted by the local legislative body to the issue of compliance with Government Code Section 66427.5. (Government Code Section 66427.5(e).) Existing law requires the subdivider to avoid the economic displacement of nonpurchasing residents in accordance with the following: 1) as to nonpurchasing residents who are not lower income households, as defined in Section 50079.5 of the Health and Safety Code, the monthly rent, including any applicable fees or charges for use of any preconversion amenities, may increase from the preconversion rent to market levels, as defined in an appraisal conducted in accordance with nationally recognized professional appraisal standards, in equal annual increases over a four-year period; and 2) as to nonpurchasing residents who are lower income households, as defined, the monthly rent, including any applicable fees for use of any preconversion amenities, may increase from the preconversion rent by an amount equal to the average monthly increase in rent in the four years immediately preceding the conversion, except AB 1542 (Evans) Page 4 of ? that in no event shall monthly rent be increased by an amount greater than the average monthly percentage increase in the Consumer Price Index for the recently reported period. This bill would remove the limitation on the scope of the hearing. This bill would require, notwithstanding a conversion of a mobilehome park, that local rent control measures remain applicable to any rental of a mobilehome space within the park. The existing statutory rent control measures would continue to apply to any rental of a mobilehome space for nonpurchasing residents, in the absence of any local rent control. COMMENT 1. Need for the bill According to the author: Mobilehomes have traditionally provided affordable housing to people that would otherwise be priced out of any type of ownership. [Therefore] local rent control ordinances keep mobilehomes at an affordable rate for seniors and working families who are on a fixed income. Current law allows a mobilehome park to be subdivided into residential ownership. The original law was written in order to give the residents of mobilehome parks an opportunity to buy the land they live on. Serious unintended consequences have surfaced (as a result). For instance, if one parcel in a mobilehome park is sold, the four year phase-out of rent control begins. This means that a parcel that is rented for $600 today may be rented for $1000 to $1500 in a very short four years. The end result is that the affordable housing stock will be severely compromised. Seniors and working families will be pushed from their homes. AB 1542 (Evans) Page 5 of ? In the past few years, there has been a surge in applications being filed by park owners who want to convert their parks from rental mobilehomes into residential ownership. This is often being done over the protests of local government and residents of the parks, who have no recourse to stop the conversion. AB 1542 does not ban conversions. Instead, it strikes a balance between an outright ban on conversions, and no regulation at all. 2. Senate Select Committee on Manufactured Homes and Communities Informational Hearing and subsequent transcript/report provides valuable insight on the mobilehome conversion process as reported by residents, park owners, attorneys, advocates, and staff a. Staff synopsis of issue Within the last few years, a growing number of mobilehome park owners have been utilizing a special provision of the state's Subdivision Map Act to convert their parks to so-called resident owned condominiums or subdivisions, which thereby exempts the parks from local mobilehome rent control. Condominium interests in mobilehome park spaces must be offered to renting homeowners, and low-income homeowners who cannot afford to buy can continue to rent their spaces under the statute which limits annual rent increases, including "pre-conversion" pass-through fees, to the Consumer Price Index (CPI). However, non-purchasing residents who are not low income no longer have rent control protection upon the conversion and may have their rents increased to higher so-called "market levels" over four years. b. Approximately 700,000 Californian's live in mobilehome parks ?In California, there are 4,822 mobilehome parks and manufactured housing communities listed on the California Department of Housing and Community Development's Mobilehome & RV Park website, not AB 1542 (Evans) Page 6 of ? including parks owned by public entities. The Select Committee conservatively estimates there are about 700,000 residents living in these parks. In the vast majority of parks, mobilehome residents own their homes, but rent spaces on which their homes are installed from the park on a month-to-month or long-term lease arrangement. Most of the 4,822 listed parks are owned by private investor groups, operators, or owners, but an estimated 150 parks are owned by resident organizations or by non-profit organizations. c. A minority of jurisdictions provide mobilehome park rent control Many mobilehome owners are long-time park residents, often seniors on low or moderate incomes. Since 1997, due to complaints from residents in some parks about high rent increases, and local governments' concerns about the need to preserve affordable housing in their communities to meet general plan requirements, 102 local agencies (mostly cities), according to figures compiled by the Select Committee from various sources, have enacted some form of mobilehome park rent control in California. The Select Committee report states, "[p]ark residents may feel rent control is the only protection they have from economic eviction, while park owners believe it inhibits the profitability of their investment and resale of their parks. There have been a number of legislative and legal battles over the years [as a result]?In 1996 park owners campaigned to pass Proposition 199, a statewide ballot initiative designed to phase out mobilehome park rent control, but the measure was rejected by the voters. Some park owners have successfully sued local governments over their rent ordinances, but in other cases the local governments have prevailed or the issue has been settled. ?As park rents climb in non-rent control jurisdictions, the rent control controversy continues." d. Conversions to resident-owned condo parks should not be prohibited, nor should abuse of the process be AB 1542 (Evans) Page 7 of ? ignored Based on the hundreds of letters, news articles, testimony made for and against mobilehome park conversions taken from the informational hearing, and other related information, the Select Committee concluded: ?.as a matter of policy, it would not be desirable to prohibit the conversion of mobilehome parks to resident-owned condo parks, as some opponents of conversion may wish to achieve, but it would also not be desirable to ignore the possibility of abuse of the process, which proponents of conversion may minimize or ignore. 1. Opponents claim that the bill will inhibit resident ownership and/or discourage mobilehome park conversions According to opponents, the California Association of Realtors and the Western Manufactured Housing Communities Association: AB 1542 will stifle resident ownership of mobilehome parks; will take a uniform, fair, state directed process and create local confusion regarding how to address the issue of subdividing mobilehome parks; and with proposed conversions occurring predominantly in locations in which strict rent control exists, WMA doesn't believe that the local governments will be able to act in an impartial and objective manner. (Letter of Opposition from the Western Manufactured Housing Communities Association, dated July 5, 2007.) Local controls placed upon mobilehome park conversions could delay the process and discourage owners and residents from converting their parks to resident owned. AB 1542 (Evans) Page 8 of ? Existing law provides lifetime protections for low-income residents who do not want to purchase their units, as well as a four-year phase-in for moderate income residents to full market space rent. This bill would remove those statewide provisions for municipalities with locally imposed rent controls. Often times, these local rent control provisions do not permit vacancy decontrol and create a hostile environment for park managers to operate and earn enough revenue to maintain their properties and receive a fair return on their investment. While local governments may want to preserve mobilehome parks, this bill will have the net effect of discouraging investment in them. (Letter of Opposition from the California Association of Realtors, dated July 5, 2007.) In short, opponents do not acknowledge the abuses of the current law which would allow "sham" conversions and instead argue against the imposition of local rent controls on park spaces. 2. Proponents argue that AB 1542 will prevent park owners from exploiting the current law, while continuing to promote resident ownership According to proponents, numerous cities and mobilehome owners: AB 1542 will close a loophole in existing condo-conversion law that allows for mobilehome park owners to subdivide and sell individual lots without being subject to local government approval. While in theory this exemption was meant to make it easier for Californian's to purchase the land they live on, in practice it has had negative unintended consequences on mobilehome residents across the state. Under current statute, when any one parcel of land in a mobilehome park is sold, it triggers a phase-out of any local rent control ordinance for the rest of the mobilehome park residents. During a time when affordable housing in California is difficult to find, this loophole must be closed to ensure that this type AB 1542 (Evans) Page 9 of ? of affordable housing is available to seniors and working families statewide. (Letter of Support from the California Association of Counties, dated July 6, 2007.) AB 1542 does not preclude conversions of mobilehome parks to tenant ownership. It simply allows communities that have chosen to adopt local ordinances to retain those protections for those tenants who choose not to purchase?. Lack of affordable housing continues to plague the state, and it is especially acute in those areas that have seen huge increases in the price of housing?[Therefore] AB 1542 allows local communities to preserve local discretion in retaining affordable housing stock. (Letter of Support from the sponsor, City of Santa Rosa, dated May 30, 2007.) Support: State Building and Construction Trades Council of California; California State Association of Counties (CSAC); League of California Cities; Golden State Manufactured-Home Owners League, Inc. (GSMOL); Western Center on Law & Poverty; American Planning Association-California Chapter; City of Carson; City of Scotts Valley; City of Winters; City of Cloverdale; City of Cotati; City of Hayward; County of Santa Cruz Opposition: California Association of Realtors; Western Manufactured Housing Communities Association; California Mobilehome Parkowners Alliance (WMA), California Mobilehome Parkowners Alliance (CMPA) HISTORY Source: City and County of Santa Rosa Related Pending Legislation: SB 900 (Corbett) would eliminate an existing condo-conversion law that allows for mobilehome park owners to subdivide AB 1542 (Evans) Page 10 of ? and sell individual lots without being subject to local government approval. SB 900 is pending before the Assembly Housing and Community Development Committee. SB 981(Padilla) requires, among other things, the management of a mobilehome park to keep existing physical improvements of common facilities of a park in good working order and condition through rents and not other fees. This bill is pending on the Assembly Floor. AB 1309 (Calderon) would establish, among other things, vacancy decontrol for mobilehomes sold in mobilehome parks in jurisdictions with local rent control ordinances. AB 1309 is pending before Assembly Judiciary Committee. Prior Legislation: AB 930 (Keely, Ch. 1143, Stats. 2002), required that a proposal to subdivide a mobilehome park into resident ownership must include survey results of the residents indicating their support for the conversion. SB 310 (Craven, Ch.256, Stats. 1995) established, among other things, the process for converting a mobilehome park for resident ownership. Prior Vote:Assembly Housing and Community Development Committee (Ayes 5, Noes 2) Assembly Local Government Committee (Ayes 4, Noes 2) Assembly Appropriations Committee (Ayes 10, Noes 5) Assembly Floor (Ayes 41, Noes 32) Senate Transportation and Housing Committee (Ayes 6, Noes 2) AB 1542 (Evans) Page 11 of ? **************