BILL ANALYSIS
AB 761
Page 1
ASSEMBLY THIRD READING
AB 761 (Charles Calderon)
As Amended May 28, 2009
Majority Vote
HOUSING 4-2
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|Ayes:|Anderson, Eng, Harkey, Ma |
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|Nays:|Torres, Saldana |
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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
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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;
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 mobilehome 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
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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
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)
FISCAL EFFECT : None
COMMENTS : 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 12 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
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another party, then it is exempt from rent control. The MRL
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 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 mobilehome 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
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last-charged rent in 2015, up to 85.71% over the last-charged
rent in 201, and up to 100% over the last 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.
Arguments in support: According to the author, "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)."
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
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 Parkowners 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."
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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
result in our primarily low- and moderate-income members losing
almost all of their investments in their mobilehomes, which they
simply cannot afford."
The League of California Cities argues that AB 761 "interferes
with 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."
Discussion: 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. This gives the mobilehome
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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.
This investment usually includes not only the value of the
mobilehome itself, but also improvements such as landscaping and
auxiliary structures (e.g., porches, sheds, garages, carports).
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.
AB 761 allows mobilehome park owners in rent control
jurisdictions to charge up to double the prior rent upon a new
tenancy starting in 2017. In jurisdictions that currently have
strict vacancy control or some form of limited vacancy
decontrol, this change will likely impact the ability of current
mobilehome owners to recoup the investments that they have made
in their homes, although it is unclear how many people will be
affected and to what extent. According to the opponents, AB 761
will cause a disastrous drop in equity for thousands of
homeowners. Supporters do not 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.
Analysis Prepared by : Anya Lawler / H. & C.D. / (916)
319-2085
FN: 0001434