BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 761
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          Date of Hearing:   June 8, 2009

               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
                                 Norma Torres, Chair
                    AB 761 (Calderon) - As Amended:  May 28, 2009
           
          SUBJECT  :   Mobilehomes:  rent control.

           SUMMARY  :   Allows the management of a mobilehome park in a  
          jurisdiction with a mobilehome rent control ordinance to set the  
          initial rental rate upon a new tenancy at either market rate or  
          up to twice the last-charged rent, whichever is less.   
          Specifically,  this bill  :  

          1)Provides that, upon the sale, assignment, transfer, or  
            termination of an interest in a mobilehome or a mobilehome  
            tenancy in a mobilehome park, the management may offer a new  
            rental agreement containing an initial rent in excess of the  
            maximum rent established by an ordinance, rule, regulation or  
            initiative measure adopted by the local jurisdiction.

          2)Specifies that beginning January 1, 2011, a mobilehome park  
            owner may establish the initial rental rate for a new  
            mobilehome tenancy at the lesser of the following:

             a)   Market levels, as defined in an appraisal conducted in  
               accordance with nationally recognized professional  
               appraisal standards; or

             b)   The following amount:

               i)     Beginning January 1, 2011, a rate that is up to  
                 14.285% higher than the last-charged rent for the space;

               ii)    Beginning January 1, 2012, a rate that is up to  
                 28.57% higher than the last-charged rent for the space;

               iii)   Beginning January 1, 2013, a rate that is up to  
                 42.85% higher than the last-charged rent for the space;

               iv)    Beginning January 1, 2014, a rate that is up to  
                 57.14% higher than the last-charged rent for the space;

               v)     Beginning January 1, 2015, a rate that is up to  
                 71.425% higher than the last-charged rent for the space;








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               vi)    Beginning January 1, 2016, a rate that is up to  
                 85.71% higher than the last-charged rent for the space;  
                 and

               vii)   Beginning January 1, 2017, and thereafter, a rate  
                 that is up to 100% higher than the last-charged rent for  
                 the space.

          3)Prohibits the initial rental rate from exceeding market  
            levels, as defined in an appraisal conducted in accordance  
            with nationally recognized professional appraisal standards.

          4)Specifies that after the initial rental rate is set, the rent  
            shall be subject to the local rent control ordinance, rule,  
            regulation, or initiative measure, if one exists.

          5)Specifies that the rules for setting the initial rental rate  
            do not apply when a tenancy is exempt from rent control, when  
            the local rent control ordinance allows a higher rate, or when  
            the park is not subject to a local rent control ordinance.

          6)Exempts the following from the rules described above for  
            setting the initial rental rate:

             a)   Changes in ownership or tenancy due to the death of a  
               mobilehome owner or tenant where the deceased homeowner's  
               or tenant's spouse takes ownership and occupancy of the  
               mobilehome;

             b)   An assignment of any existing lease that specifies the  
               amount of rent applicable to the assignee upon a transfer  
               of the interest in the mobilehome; and,

             c)   A park that has common facilities or improvements that  
               constitute an unreasonable risk to life, health, or safety  
               for which a citation has been issued that remains unabated  
               for six months or longer preceding the vacancy.

           EXISTING LAW  : 

          1)Under the Costa-Hawkins Rental Housing Act (Costa-Hawkins),  
            prohibits "vacancy control" rent control laws for residential  
            real property, excluding mobilehome parks.  Costa-Hawkins  
            requires a local rent control law for residential real  








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            property to permit the owner to raise the rent upon the  
            termination of a prior tenancy and the creation of a new one,  
            where the prior tenancy was "voluntarily vacated."  (Civil  
            Code Section 1954.50 et. seq.)

          2)Exempts from local rent control all newly constructed  
            mobilehome spaces held out for rent after January 1, 1990  
            (Civil Code Section 798.45). 

          3)Exempts from local rent control mobilehomes that are not the  
            principle residence of the homeowner and that are not rented  
            to another party (Civil Code Section 798.21).

          4)Prohibits a park owner from requiring the removal of a  
            mobilehome when it is sold (Civil Code Section 798.73.)

          FISCAL EFFECT  :   None

           COMMENTS  :  

           Background  :
          There are approximately 4,822 mobilehome parks and manufactured  
          housing communities in California, with an estimated 700,000  
          residents living in these parks.  In the majority of parks,  
          mobilehome residents own their homes but rent the spaces on  
          which their homes are installed.  "Mobilehome" is something of a  
          misnomer in that once installed in a park, it is very rare for a  
          mobilehome to be moved.  This is due to both the difficulty and  
          cost involved, and also because the supply of mobilehome spaces  
          is very limited, vacancies are rare, and most park owners do not  
          allow the installation of older mobilehomes in their parks.
          Birkenfeld v. Berkeley (1976) 17 Cal. 3d 129, provides that  
          cities and counties have within their police power the authority  
          to enact rent control laws so long as property owners are  
          assured a fair rate of return.  Under existing law, local  
          governmental entities are free to enact rent control for  
          mobilehome parks.  Mobilehome park rent control is not subject  
          to the Costa-Hawkins Act, which restricts permissible rent  
          control ordinances for other types of residential real property.  
           However, the Mobilehome Residency Law (MRL) does limit the  
          application of rent control in certain cases.  Under existing  
          law, rental agreements of twelve months or longer are exempt  
          from local rent control.  Additionally, if a mobilehome is not  
          the homeowner's principle residence and is not being rented to  
          another party, then it is exempt from rent control.  The MRL  








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          also exempts from local rent control any mobilehome space  
          constructed after January 1, 1990.  

          Over 100 jurisdictions in California have some form of local  
          rent control ordinance limiting the amount of rent or  
          establishing a maximum amount of rent that the management of a  
          mobilehome park may charge a tenant.  Under rent control, the  
          space rent is set upon a change in tenancy through vacancy  
          control, vacancy decontrol, or partial vacancy decontrol.  With  
          vacancy control, rent increases are generally prohibited when a  
          mobilehome is sold and a new tenant occupies the space.  Under  
          vacancy decontrol, the park owner can set the rental rate upon a  
          new tenancy without limit.  The new rental rate is then  
          controlled by the local rent control ordinance going forward.   
          Some jurisdictions have partial vacancy decontrol, allowing for  
          some rent increase upon turnover but limiting the increase to a  
          specified amount, usually a certain percentage of the current  
          rent.  Most California jurisdictions with mobilehome rent  
          control use either vacancy control or partial vacancy decontrol  
          to regulate the initial rental rate; only about 20% allow for  
          full vacancy decontrol.  All rent control ordinances allow the  
          owner to seek rent increases through an administrative process  
          if the owner does not feel that he or she is getting a fair rate  
          of return.  They commonly also provide for automatic annual rent  
          increases tied to the Consumer Price Index or some other index.   


           Purpose and scope of the bill  :  
          According to the author, severe and inconsistent local rent  
          control regulations have had a significant negative impact on  
          the investment in mobilehome parks and have resulted in a  
          reduction in the quantity and quality of parks.  AB 761  
          prohibits local governments with mobilehome rent control  
          ordinances from using vacancy control as a means of regulating  
          rents upon changes in tenancy in mobilehome parks.  Instead, the  
          bill requires a form of partial vacancy decontrol starting in  
          2011 under which park owners can set the initial rental rate for  
          a space upon a new tenancy at the lesser of market rate or a  
          rate that is a specified percentage increase over the  
          last-charged rent as follows:  an increase of up to 14.285% over  
          the last-charged rent in 2011, up to 28.57% over the  
          last-charged rent in 2012, up to 42.85% over the last-charged  
          rent in 2013, up to 57.14% over the last-charged rent in 2014,  
          up to 71.425% over the last-charged rent in 2015, up to 85.71%  
          over the last-charged rent in 201, and up to 100% over the last  








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          charged rent in 2017 and beyond. Market rate would be determined  
          by an appraisal conducted in accordance with nationally  
          recognized certified appraisal standards, and the initial rent  
          could not be set higher than market rate, unless the local rent  
          control ordinance allows for greater increases.  The bill's  
          provisions do not apply in jurisdictions that do not have  
          mobilehome rent control ordinances.

           Arguments in suppor  t:  

          In background materials provided to the Committee, the author  
          states:

               "Over the last twenty years the Legislature has stepped in  
               on at least two occasions to address and ameliorate the  
               negative impacts of rent control at the local level.  In  
               1987 it outlawed commercial rent control (controls on  
               retail, office, industrial and other non-residential uses).  
                In 1995 the Costa-Hawkins Rental Housing Act established  
               guidelines for local apartment rent control ordinances.   
               The guidelines principally require that local ordinances  
               permit vacancy decontrol, the ability of an owner to raise  
               rent to market when a tenant voluntarily vacates (in the  
               mobilehome context the sale of a coach)?.

               In the cases when the Legislature stepped in to modify  
               local rent controls the Legislature and Governor balanced  
               the general preference for local land use controls with the  
               overriding issues of statewide importance-the need  for  
               investment in new and existing housing to add to the stock  
               and preserve the existing stock by stabilizing its  
               financial viability.  In effect the Legislature was saying  
               that when local control either does not work, or worse,  
               causes negative local and extraterritorial impacts, which  
               stringent apartment rent control was found to have caused,  
               it is time to step in.  For mobile home parks it is time,  
               indeed well past time, to restore some semblance of  
               regulatory balance and stability."

          According to the sponsor, the Western Manufactured Housing  
          Communities Association (WMA), vacancy decontrol is necessary in  
          order to help stabilize and preserve the long-term financial  
          viability of the manufactured housing community industry.  WMA  
          further writes that in strict vacancy controlled jurisdictions,  
          "there is no balance between what price the homeowner may set in  








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          selling the home and what the park owner may rent the land for.   
          You have many instances where the 'rent' value of the space may  
          be 'affordable' but the resale price of the home is not.  Local  
          government jurisdictions have essentially created a false value  
          for homes in severely rent restricted communities.  New  
          homeowners are paying a 'premium' to occupy a rent controlled  
          space, value that is inherent to the land and not the home."

          The California Mobilehome Parkowner Alliance argues, "In theory,  
          local rent control ordinances are designed to maintain  
          affordable housing.  Ironically, they have the opposite effect.   
          Artificially low rents for mobilehome park spaces have  
          significantly increased the sales prices for the homes on those  
          rent-controlled spaces.  In many cases this has eliminated  
          affordable housing otherwise offered by mobilehome parks because  
          the purchase price of the home increases beyond the reach of  
          many potential buyers."

           Arguments in opposition  :  

          The Golden State Manufactured-Home Owners League, the California  
          Rural Legal Assistance Foundation, and the Western Center on Law  
          and Poverty argue that "AB 761 ignores the complexities of  
          property rights within mobilehome parks.  Despite the claims of  
          some anti-rent control advocates that property ownership is some  
          sort of absolute with all of the rights vested in only one  
          party, for centuries the law has recognized that property  
          ownership is a bundle of rights that can vary.  Mobilehome  
          ownership illustrates this concept: the homeowner has certain  
          property rights-the ownership interest in their home, the right  
          to keep the home in place, and the rights in his or her  
          leasehold interests-while the park owner retains the right of  
          reversion in the park space.  The value of the homeowner's  
          property rights, which they have paid for, are lost if  
          state-imposed vacancy decontrol forces a homeowner to sell at a  
          fraction of what they paid.  This is not simply a theoretical  
          argument over the nature of property ownership.  The  
          consequences for homeowners are the loss of essentially most/all  
          of their equity in what is most likely their greatest single  
          asset."

          The Bay Federal Credit Union writes that AB 761 will "devastate  
          our industries' mobilehome mortgage portfolios, very likely  
          making it impossible for our industry to continue to offer  
          affordable mobilehome mortgages in California.  It will also  








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          result in our primarily low- and moderate-income members losing  
          almost all of their investments in their mobilehomes, which they  
          simply cannot afford."  Bay Federal further argues that AB 761  
          will have a devastating impact on affordable housing and  
          financing in California, creating a deeper economic crisis for  
          the state.  The committee additionally received hundreds of  
          letters from individual mobilehome owners expressing concern for  
          their own financial stability should AB 761 become law.

          The League of California Cities argues that once a mobilehome is  
          placed on a space within a park, the homeowner is at an unfair  
          bargaining position because the coach cannot be moved easily if  
          rents are increased.  As a result, local agencies have adopted  
          regulations to control rents during and between transfers of  
          ownership between coach owners.  This bill interferes with these  
          locally adopted solutions.  With one act, this bill sets aside  
          local regulations that have been developed over decades to  
          address issues within the community and balance the  
          affordability of pad rentals with the overall profitability of  
          the park itself.  The point of transfer is an important element  
          of these regulations, and should not be erased unilaterally."

           Staff Comments  :

          The committee may wish to consider that the landlord-tenant  
          relationship in a mobilehome park is very different than in an  
          apartment situation.  Mobilehome owners are a captive audience  
          in that their home is fixed to the space and cannot reasonably  
          be moved.  Whereas an apartment tenant has a choice of all other  
          similar apartments on the market, a mobilehome owner effectively  
          has one choice of space-the one the home is already on.  Absent  
          regulation, this gives the park owner extraordinary bargaining  
          power over residents.  If the rents rise beyond their ability to  
          pay, mobilehome owners' only option is to sell the home.  If  
          rents are so high that mobilehome owners cannot find buyers,  
          they effectively are forced to abandon their homes, losing their  
          entire investment.  The Legislature recognized the differences  
          between mobilehome tenancies and apartment tenancies when it  
          passed the Costa-Hawkins Act, which required vacancy decontrol  
          for apartments but not for mobilehome parks.  The special  
          situation at play in mobilehome parks is further evidenced by  
          the fact that over 100 jurisdictions in California have passed  
          mobilehome rent control ordinances, yet only about a dozen have  
          rent control for apartments.  









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          When it was introduced, AB 761 imposed full vacancy decontrol,  
          allowing park owners to set the space rent without limit upon a  
          new tenancy.  The bill has since been amended to allow park  
          owners in rent control jurisdictions to charge either market  
          rate or up to double the prior rent upon a new tenancy,  
          whichever is less, starting in 2017.  The committee may wish to  
          consider how potentially doubled space rents upon sale will  
          affect the ability of current mobilehome owners to recoup the  
          investments they have made in their homes.  According to the  
          opponents, AB 761 will immediately cause a disastrous drop in  
          equity for thousands of homeowners.  Supporters do not  
          necessarily dispute that there will be some level of equity  
          loss, but argue that vacancy control has created false value for  
          these homes and that the equity is artificial paper value that  
          is not related to the true value of the home.  

          Although it is unclear to committee staff how many mobilehome  
          owners will be affected by AB 761 and to what extent, it is  
          clear that in jurisdictions that currently have strict vacancy  
          control or some form of limited vacancy decontrol, there will be  
          a financial impact.  Given the current state of the housing  
          market and the economy in general, the committee may wish to  
          consider whether Legislative action that would place an unknown  
          number of people in a negative financial situation is  
          appropriate at this time.

          The committee may wish to consider if it is better to leave  
          decisions about mobilehome rent control to local officials, who  
          are best equipped to assess what is happening in the mobilehome  
          parks in their community and determine what controls need to be  
          in place to ensure that park owners are able to profit from  
          their business while also ensuring that the investment of  
          homeowners is protected.

          In background provided to the committee, the author states, "It  
          is beyond question that rent controls in general, particularly  
          the risk that stringent rent control could be enacted at any  
          time on any park, has resulted in virtually no investment in new  
          parks in years."  A number of the support letters received by  
          the committee make a similar argument-that rent control prevents  
          investment in new parks.  Given that state law expressly  
          prohibits rent control on any mobilehome space constructed after  
          1989, and that only about 20% of jurisdictions have mobilehome  
          space rent control, it is unclear how rent control poses a  
          barrier to the development of new parks statewide. 








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           Prior legislation
           
          AB 1309 (Calderon, 2007) would have allowed mobilehome park  
          owners to set the initial rental rate at market levels for a new  
          tenancy (i.e., full vacancy decontrol) starting in 2011.  AB  
          1309 passed out of this committee on May 9, 2007, with a vote of  
          4-2.  The bill was never heard on the Assembly floor.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Western Manufactured Housing Communities Association (sponsor)
          Apartment Association of Greater Los Angeles
          California Association of Realtors 
          California Chamber of Commerce
          California Mobilehome Parkowners Alliance
          Santa Barbara Rental Property Association
          7 Individual letters 

           Opposition 
           
          AARP California
          Bay Federal Credit Union
          California Alliance for Retired Americans
          Californians for Resident Ownership
          California Rural Legal Assistance Foundation
          City of Oceanside
          City of San Juan Capistrano
          City of Santa Rosa
          Coalition of Mobilehome Owners-California
          County of Ventura
          Golden State Manufactured-Home Owners League
          League of California Cities 
          Santa Monicans for Renters' Rights
          Senior Action Network
          Western Center on Law and Poverty
          Alimur Park Homeowners Association, Soquel
          Besaro Mobile Home Park Homeowners' Association, Fremont
          Blue & Gold Star Mobilehome Park Homeowners' Association, Santa  
          Cruz
          Blue Pacific Mobile Home Park Homeowners' Association, Aptos
          Cabrillo Mobilehome Estates Homeowners Association, Capitola
          California Hawaiian Mobile Home Park Homeowners Association, San  








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          Jose
          Capitola Mobile Home Owners Association, Capitola
          Carriage Acres Homeowners' Association, Soquel
          Chateau La Salle Mobile Home Park Homeowners' Association, San  
          Jose
          Chatsworth Mobile Home Park Homeowners' Association
          Contempo Marin Homeowners Association, San Rafael
          Country Mobile Home Homeowners' Association, Santa Rosa
          Cypress Square Mobilehome Park Homeowners' Association, Marina
          El Nido Mobile Home Park Homeowners' Association, San Juan  
          Capistrano
          Galt Mobile Estates Homeowners Association, Galt
          Greenbrier Gardens Mobile Home Homeowners Association, Santee
          Hayward Mobilehome Owners Association, Hayward
          Heather Estates Mobilehome Park Homeowners' Association, Hemet
          Imperial Oxnard Mobilehome Park Homeowners' Association, Oxnard
          Lazy Wheel Mobile Home Park Homeowners' Association, Marina
          Le Sage Riviera Mobile Home Park Homeowners' Association, Grover  
          Beach
          Marina Del Mar Homeowners Association, Marina
          Marina Mobilehome Owners Coalition
          Monterey Vista Mobile Estates Homeowners' Association,  
          Watsonville
          Oaks Mobile Home Park Homeowners' Association, Oroville
          Olympia Glade Home Owners Association, Grass Valley
          Pacific Cove Mobile Home Park Homeowners Association, Capitola
          Pleasure Point Mobile Park Homeowners Association, Santa Cruz
          Preston Park Tenants Association, Marina
          Rancho Santa Paula Mobile Home Park Homeowners' Association,  
                                 Santa Paula
          Sandalwood Estates Mobile Home Park Homeowners' Association,  
          Petaluma
          San Lorenzo Mobile Home Park Homeowners' Association, Felton
          Santa Rosa Village Mobile Homeowners Association, Santa Rosa
          Sea Oaks Mobile Home Park Homeowners' Association, Los Osos
          Sequoia Mobile Home Park Homeowners' Association, Santa Rosa
          Seven Flags Homeowners Association, Sonoma
          Sierra Homeowners Association, Cotati
          Shoreline Estates Residents' Association, Santa Cruz
          Summit Mobilehome Park Homeowners' Association, West Hills
          Sun Valley Estates Mobile Home Park Homeowners' Association,  
          Livermore
          Surf and Sand Mobile Home Park Residents Association, Capitola
          Tahitian Terrace Mobile Home Park Homeowners' Association,  
          Pacific Palisades








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          Trailer Haven Mobile Home Homeowners' Association
          Vista Del Lago Homeowners' Association, Scotts Valley
          Westlake Village Mobile Home Park Homeowners' Association,  
          Visalia
          Whispering Pines Mobile Home Park Owners Association, Scotts  
          Valley
          Woodcrest Mobile Home Park Homeowners' Association, Santa Rosa
          454  Individual letters
           
          Analysis Prepared by  :    Anya Lawler / H. & C.D. / (916)  
          319-2085