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HomeMy WebLinkAboutAgenda Packet - May 3, 1993 - CC gillAKINI 0 OF AZUSA 77e&Ceriujavaty PUBLIC WORKS I PAIZ7PILNV AGENDA ITEM TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS ales FROM: LOUIE H. PEDROZA JR. , SUPERINTENDENT OF PUBLIC WORKS VIA: HENRY GARCIA, CITY ADMINISTRAT ' ' . A . DATE: MAY 3, 1993 SUBJECT: NAMING OF DEDICATED LAND FOR PARR USAGE On February 1, 1993 Council approved the 1.49+ acres of land donated to the City of Azusa from Johnny E. Johnson for Park usage. The Public Works Department is currently in the process of developing a plan derived from the conceptual form. In order to develop a drawing, a name must be given to the Park. Two years ago the City acquired land in the area which was to be declared Canyon Park. The project was cancelled due to the resale of the land. This land currently in question is located at the entrance to the Canyon, in light of the surroundings "CANYON PARR" would still be appropriate. Development is pending approval within the 1993-1994 fiscal year and funding is available through the Quimby Fund. RECOMMENDATION: Staff recommends Council's approval to declare the Park at Sierra Madre and San Gabriel Canyon Road as "Canyon Park. " LHPJ/rm ■■ 213 East Foothill Blvd., P.O. Box 1395, Azusa, California 91702-1395 (818) 334-5125 P/1 41103 AGENDA ITEM CITY OF AZUSA Azusa, California TO: HONORABLE MAYOR AND CITY COUNCIL FROM: ROY E. BRUCKNE I' CTOR OF COMMUNITY DEVELOPMENT VIA: GEOFF CRAIG, ACTING CITY ADMINISTRATO DATE: MAY 3, 1993 SUBJECT: RECONSIDERATION OF A PROPOSED AMENDMENT TO THE MOBILEHOME RENT STABILIZATION ORDINANCE, ENACTING LIIVHTED VACANCY CONTROL BACKGROUND CHAMP (Citizens Helping Azusa's Mobilehome Parks) has requested that the City Council reconsider enacting limited vacancy control in Azusa's Mobilehome Rent Stabilization Ordinance. Due to a deadlocked vote on December 7, 1992, the City Council took no action on this matter. SUMMARY: The City Council adopted a mobilehome rent stabilization ordinance, which became effective on February 6, 1992. The product of a joint negotiation effort between the Tenants and Park Owners, the Ordinance also contained a vacancy control provision, which the Ordinance suspended, pending the outcome of the court case Yee v. City of Escondido. Since that case has been decided, CHAMP has requested that the suspension be lifted, and limited vacancy control be instituted. Vacancy control is the act of controlling the rent on a mobilehome space when the space or unit becomes vacant. CHAMP feels that without such control they would have difficulty selling their coaches due to the specter of higher space rents. The Park Owners' position has been that they should be able to charge market-rate rents. The new tenants would not be hurt by the starting rent, because if the rent is too high, the new tenants simply would not rent. ,r 00) •-y 3) Y Page 1 of 2 5 CITY COUNCIL REPORT PAGE 2OF2 The argument in Yee v. City of Escondido explored whether the operation of State Law combined with local rent control ordinances resulted in "physical occupation" of mobilehome parks, requiring local jurisdictions who impose rent control, to compensate the park owners for the loss in value. The U.S. Supreme Court in recently deciding Yee, rejected that theory. Even though the park owners in Yee have the ability to claim a "regulatory taking" in a new suit, CHAMP has requested that the suspension of vacancy control be lifted. In pursuit of that objective, CHAMP has met with Park Owners in an attempt to reach mutually acceptable new language in the Ordinance. Due to a great willingness to compromise and extraordinary efforts on the part of Mrs. Barbara Knaus of CHAMP and Mr. Kendall, owner of Caravan and Azusa Mobilehome Park, the Tenants and Park Owners have agreed on an ordinance amendment proposal, which is presented in Exhibit B. This ordinance amendment would limit rent increases on vacant mobile homes to 8%. Coaches owned by Park Owners, however, would not have this limitation. One issue of concern on the part of the city is whether the City has any exposure to a future "takings" claim from the Park Owners by enacting the proposed limited vacancy control This is discussed in detail by the City Attorney, whose report is attached as Exhibit A. CONCLUSION With respect to the issue of the City's exposure to a challenge on vacancy control, the City Attorney has indicated that there would be some risk, but it would be difficult to determine whether the proposed ordinance amendment would effect a "taking", or to predict if any takings claim would be successful. The Park Owners have agreed to the Ordinance amendment. While it is not likely that the Owners would file suit in light of such agreement, there are no guarantees that future Owners would not hold the same view. This should be considered by the City Council in its deliberations. RECOM1VIENDATION: The City Council conduct an informal hearing to take testimony, then introduce the Ordinance for adoption, if deemed appropriate. REB/lmr Attachments - Exhibits A & B Page 2 of 2 . . laEnr:As . BARBOSA GARCIA 8 BARNES A PARTNERSHIP INCLUDING A PROFESSIONAL CORPORATION HENRY S. BARBOSA. P. C." ATTORNEYS AT LAN TELEPHONE BONIFACIO BONNY GARCIA SUITE 390 (213)889-6600 DOUGLAS D. BARNES 500 CITADEL DRIVE FACSIMILE PETER E. LANGSFELD PAUL S.JAJAN LOS ANGELES.CALIFORNIA 90040 (213) 889-6605 WILLIAM A.VALLEJOS JONATHAN B. STONE V/ 4, L, KENNETH T. FONG FRANCISCO LEAL AUGUSTIN R. JIMENEZ OF COUNSEL ;, ' M E M O RAN D U LA co,, '' NORMAN LIEBERMAN \ '.'+"9,. •A PROFESSIONAL CORPORATION TO: Roy E 1 Bruckner \' • ''; FROM: Douglas D. Barnes -i 4"r RE: Mobilehome Rent C trol DATE: October 21, 1992 FACTS • In January 1992 the City Council implemented mobilehome rent control by enacting Ordinance 92-04. The Ordinance includes a "vacancy control" provision which requires that a new tenant not pay a higher rent than that paid by the tenant's immediate predecessor. The Ordinance, however, suspends the vacancy control provision until it is activated by a subsequent vote of the City Council. Consequently, landlords, for the time being, are permitted freely to raise rents on vacated units. The "suspension" of the vacancy control provision was included in the Ordinance to safeguard the City against a certain type of takings claim which had been recognized by some courts. Specifically, these courts had concluded that the combined operation of California law and local vacancy controls effected a "physical occupation" of a mobilehome park, thereby requiring the local jurisdiction imposing the vacancy control to compensate the property owner for the resulting lost value. Although many felt that the physical occupation argument was highly artificial and wrong, it nonetheless posed a risk to cities interested in restricting rent increases on mobile home pads immediately following the departure of a tenant. The suspension in the Ordinance foreclosed such claims. However, recently, the United States Supreme Court rejected the physical occupation theory. Yee v. City of Escondido, 112 S.Ct. 1522 ( 1992) . Now that Yee has been decided, tenants in the City's parks have requested that the suspension be lifted and JBS\462.M 1 • that a modified form of vacancy control be approved by the City Council. A draft of such an ordinance has been prepared by tenant representatives and submitted to the City for consideration. The proposed ordinance permits landlords to charge higher rents to a new tenants than to an immediate predecessor, but caps any increase at 8%. 1 Such a cap applies to any lease executed on or after February, 6, 1992, and, accordingly, can require a rollback of rents allowed under an existing contract. Such a rollback, however, would only become operative on the effective date of the ordinance (30 days following its enactment) and no rebate of previously paidirents would be required. After a new tenant occupies a space, "post-occupancy" adjustments in rents are permitted in conformity with the current Ordinance. These adjustments include an annual increase in rent equal to the CPI-W (subject to certain caps and preconditions) . Greater or more frequent rent increases are possible following the approval of an application submitted pursuant to Sections 5.56 .067 and 5 . 56 .070. Although the Yee court rejected the physical occupation theory, landlords are still free to argue that a vacancy control provision deprives the owners of benefits associated with their property. Potentially, a landlord could argue that the vacancy control provisions (although not effecting a physical occupation of the mobile home park) effect a regulatory taking of the property requiring the City to compensate the owner for the loss. Apparently, past counsel expressed concern over such arguments. This memorandum addressees these concerns. 1 No increase is permitted concurrently with a transfer of ownership relating to a divorce, inheritance or other similar event. JBS\462.M 2 QUESTIONS PRESENTED Does the proposed vacancy control provision effect a "regulatory taking?" Does the proposed rollback impermissably interfere with a landlord's constitutionally protected contract rights? SUMMARY Now that the Supreme Court has rejected the physical occupation theory, it is unlikely that the proposed vacancy control ordinance effects a taking of the landlords' property. The remaining arguments are, in large part, weak. A landlord contending that the City's vacancy control is confiscatory will be successful only if the regulation deprives the owner of a fair return on his or her investment. Ultimately this argument, however, would need to be framed as an attack on the entire ordinance, not just the vacancy control. Moreover, to analyze whether the regulation deprives the owners of a fair return, it would be necessary (as a preliminary matter) to evaluate the cash flows, expenses and projected profits of the various parks. Unfortunately, such an analysis (which is financial rather than legal) is rendered even more difficult because the courts have not defined or specified what returns are reasonable. However, the number of rent control regulations presently in place when contrasted with the general invulnerability of these regulations against attack suggest that most regulations, (absent new developments or clarifications in the law) are valid and enforceable. ANALYSIS Introduction. A determination whether an ordinance effects a regulatory taking is an inexact calculus. A regulation which effects a "physical occupation" of property is per se a compensable taking, but the Supreme Court has determined that mobilehome vacancy controls are not physically confiscatory. An ordinance can also produce a regulatory taking without effecting a physical occupation, however, the Supreme Court has never articulated a definitive test. The potential for unpredictability in this area is acknowledged by the Court. The Supreme court has ruled that the area is not susceptible to exact rules because any takings analysis is largely dependant on the particular facts surrounding the individual claim. These factors would include the financial attributes of the regulated properties, the owners' investments in these properties, the associated costs of JBS\462.M 3 maintenance, the rents due on the properties and other factors. Inevitably, this analysis is a financial, rather than a legal endeavor. The financial character of this analysis and the scarcity of instructive authority makes it impossible to advise the City whether the Ordinance, as amended, would be immune against a successful taking claim. Nonetheless, the City can take' some comfort from the following: ( 1) ; few if any California cases have held that a rent control regulation effects a taking where the regulation allows for timely rental increases, as does the City's; (2) no California case has invalidated a vacancy control provision to date; and (3) a number of rent control ordinances adopted by cities (including Santa Monica, Berkley and others) impose stricter controls than does Azusa. Finally, even if a landlord were inclined to challenge the rent control ordinance as a taking, the landlord would first be required to request that he or she receive special rent increases pursuant to the ordinance. Only if there increases were denied, would the landlord be properly positioned to bring a claim. In addition, the City, upon receiving such a request for special rent increases, could, if it desired, further evaluate its exposure to a takings claim at that time. The remainder of this memorandum analyzes the relevant legal issues with more particularity. Does the Vacancy Control Advance a Legitimate Governmental Interest? Repeatedly the court has stressed that if a regulation fails to advance a legitimate state interest at the expense of a property owner, the regulation is confiscatory. Aqins v. Tiburon ( 1980) 447 U.S. 255, 100 S.Ct. 2138 .2 Conversely, a regulation which promotes a legitimate governmental interest is not confiscatory just because it also diminishes the value of one or more properties. Pennsylvania Cole v. Mahon ( 1922) 260 U.S. 293, 43 S.Ct. 158. With respect to the vacancy control, a number of legitimate governmental purposes are seemingly promoted, thus immunizing the provision from this type of challenge. Vacancy controls are often important because a vacating tenant who owns his or her coach typically leaves the investment behind (because mobilehomes are far from mobile) . Rather than transporting the coach, the vacating tenant sells the coach to a prospective tenant who after purchasing the coach starts to rent the underlining pad (provided the new tenant is creditworthy) . Allowing the landlord to freely raise the pad rent can cause the value of the coach to drop, and consequently the vacating tenant's 2 Failure to satisfy this standard also produces a violation of the Due Process Clause of the Fifth and Fourteenth Amendments. FCC v. Florida Power Corporation (1987) 480 U.S. 245, 107 S.Ct. 1107. JBS\462.M 4 investment to be lost. Limiting rent these transition increases to 8% will, to some degree (but not entirely) , protect the prior tenant's investment. Vacancy controls which apply when a new tenant rents a pad and perhaps a coach from the landlord (but does not purchase the predecessor's coach) are also justifiable. In these instances, there is no investment to be protected. Instead, such regulations promote the well--recognized governmental objective of preserving the City's affordable stock of rental units, in this case mobilehome pads. Pennel v. City of San Jose ( 1988) 485 U.S. 1, 108 S.Ct. 849 . Does the Property Remain Economically Viable? If a regulation denies an owner economically viable use of his or her land, the regulation is confiscatory. Agins v. Tiburon ( 1980 ) 447 U.S. 255 100 S.Ct. 2138 . It is difficult to define when a property has no viable economical use, but at minimum, a regulation which causes a property to become valueless results in a regulatory taking. Lucas v. South Carolina Coastal Commission ( 1992) 112 S.Ct. 2886 . Generally a regulation is not confiscatory, even if it substantially decreases the value of a property. Netcow v. Cambridge 277 U.S. 183, 48 S.Ct. 447; Euclid v. Amber Realty 272 U.S. 365, 47 S.Ct. 115 (reduction in property values by between 50% and 90% are not confiscatory) . So long as the (cash flows associated with the rent allowed under the ordinance exceed reasonable expenses, it is likely that a viable use remains. Does the Regulation Allow for a Fair Return on the Property? In addition to the viable use standard employed by the federal courts, California courts have required that any rent control ordinance allow the owner a fair return on the owner's investment. Birkenfeld v. City of Berkley ( 1976) 17 Cal. 3d 129, 130 Cal.Rptr. 465; Fisher v. City of Berkley ( 1984) 37 Ca1. 3d 572, 209 Cal.Rptr. 681, Baker v. City of Santa Monica ( 186) 181 Cal.App.3d 972, 226 Cal.Rptr. 755, Coati Alliance v. Coati ( 1983) 148 Cal.App. 3d 293, 195 Cal.Rptr. 825. Courts have generally failed to detail the fair return standard in a comprehensible manner, but the regulation should allow "an efficient landlord. . . [to] . . .recover all reasonable expenses actually incurred and, in addition, receive a fair profit or return an investment. " Coati Alliance for Better Housing v. City of Coati ( 1983) 148 Cal.App. 3d 280, 293, 195 Cal.Rptr. 825, 833 . Ultimately, this analysis (as a starting point) would require a review of the expenses, and revenues associated with the property, as well as projected revenues and expenses. The courts have not addressed whether the regulation must permit profitability during each year of an investment, or over the life of an investment. However, few, if any, California courts have held rent controls to be confiscatory where periodic and timely rent adjustments are permitted. It appears that the rent adjustments JBS\462.M 5 allowed under the ordinance are and could be effected in a timely fashion. Is the Adjustment Procedure Excessively Burdensome? A rent control ordinance which controls periodic rent increases can nonetheless be confiscatory if the process by which rents are increased is so burdensome or difficult that, in effect, a landlord is unable to obtain approval to increase rents in a timely fashion. Birkenfeld v. City of Berkley ( 1976 ) 17 Ca1. 3d 129, 130 Cal.Rptr. 465; Fisher v. City of Berkley (1984) 37 Ca1.3d 572, 209 Cal.Rptr. 681. The ord}i.nance allows timely adjustments by generally permitting an automatic 8% increase upon the transition of tenants. Moreover, subsequent increases are permitted in accordance with the CPI-W and still greater increases are permitted in the event that a special application is approved. Does the Regulation Destroy a Fundamental Right? If a regulation destroys a fundamental right associated with property (e.g. the right to sell property or a similarly important right) , the regulation can potentially effect a taking. Kaiser Aetna v. United States (1979) 444 U.S. 164, 100 S.Ct. 383 . It is highly doubtful, however, that a court would categorize the ability to raise rents in excess of an 8% cap as a fundamental property right. See also, San Marcus Mobilehome Park Owners' Association v. City of San Marcus ( 1987) 192 Cal.App.3d 1492, 238 Cal.Rptr. 290. Does the Regulation Excessively Interfere with Investment-Backed Expectations? If a regulation interferes excessively with investment-backed expectations it can produce a taking. Goldbladt v. Hempstead 369 U.S. at 594, 82 S.Ct. at 990 . It is doubtful that a vacancy control provision which allows for an 8% rent increase upon the vacation of a mobilehome pad significantly interferes with investment-backed expectations because similar controls have been a part of the mobilehome business landscape for many years. Moreover, rent control has been a significant feature of the legal environment for both mobilehome and apartment housing for many years, and accordingly, an investor cannot reasonably expect to be free of such regulation. Interference with Contracts. Potentially a landlord can argue that the proposed amendment, which can require a temporary rollback of rents (despite rental contract allowing higher rents) , unconstitutionally interferes with the landlord's contractual rights.3 However, impacting a contract or altering the terms of a contract by an ordinance does not always result in an 3 Both the federal and California constitutions prohibit the impairment of contracts (U.S. Const. art. I, Sec. 10 [ "No State shall . . .pass any. . .Law impairing the Obligation of Contracts. . . " ) ; Cal. Const. art 1, Sec. 9 [ "A. . .law impairing the obligation of contracts may not be passed. " ] JBS\462.M 6 unconstitutional impairment. The Supreme Court has articulated a three part test to determine whether a law impacting a contract unconstitutionally impairs that contract: ( 1) does the law operate as a substantial impairment to the contractual relationship; (2) if it is a substantial impairment, is the law justified by a significant and legitimate public purpose; and (3 ) if the law is so justified, is the adjustment of the rights and duties of the contracting parties based upon reasonable conditions and is it of a character app±opriate to the underlying public purpose. Eneray Reserves Group, Inc. v. Kansas Power & Light Co. ( 1983 ) 103 S.Ct 697, 705 . It i doubtful that a rollback of a small portion of rents for a relatively short period of time would violate these strictures. The mere fact that a rent control ordinance effectively discharges a renter's liability under a lease by creating a ceiling or a rollback does not render the ordinance invalid. Birkenfeld v. City of Berkley ( 1976) 17 cal. 3d 129, 143, 130 Cal.rptr. 465 , 475. Also see, Berman v. Downing (1986) 184 Cal.App. 3d Supp.5, 229 Cal.Rptr. 660, 661. The City's ordinance should be entitled to the same favorable presumption by a reviewing court. CONCLUSION It is impossible to determine whether the Ordinance, as amended, would effect a taking. The Courts which have addressed this general subject have provided the most skeletal of guidelines, which cannot provide a definitive answer in this case. Nonetheless, few if any courts have declared a rent control ordinance to be confiscatory where, as in the Azusa Ordinance, timely rent adjustments are allowed. Moreover, many cities have more stringent rent controls than does Azusa. So long as Azusa permits a landlord to obtain a fair and reasonable return the Azusa ordinance will comport with constitutional requirements. JBS\462.M 7 ORDINANCE NO. AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF AZUSA AMENDING THE AZUSA MUNICIPAL CODE TO AMEND SECTIONS 5. 56.050 AND 5. 56.090 RELATING TO MOBILEHOME PARK VACANCY CONTROL. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AZUSA DOES HEREBY ORDAIN AS FOLLOWS: SECTION 1. The City Council of the City of Azusa does hereby find, determine that: A. Mobilehome park tenants are in a poor bargaining position with park owners because of substantial investments in their mobilehomes, the high cost of relocation and a lack of alternative sites within Azusa and the region for their mobilehomes. B. Unregulated mobilehome park rents are a hardship on vulnerable portions of the City's population, including the elderly, the disabled, and those of low income, forcing these persons to leave the City or divert a disproportionate amount of income to housing. C. ;The ability of mobilehome park residents to transfer their mobilehomes is severely limited, if not entirely abrogated, unless some protection is given to protect the availability of mobilehome park space and transfer rights to mobilehome coaches. SECTIQN 2 . Section 5. 56.090 of Chapter 5. 56 of Title 5 of the Azusa Municipal Code is hereby amended in its entirety to read as follows: "5. 56. 090 VACANCIES. (a) Regulation of rents charged to purchasers of mobilehomes is necessary to protect the investment of existing residents in their mobilehomes and their ability to sell their homes. (b) When a coach on a regulated mobilehome space is sold by a vacating tenant to a new tenant and the new tenant enters into a rental agreement for a mobilehome space, any increase in rent must be limited to eight percent (8%) of the immediately preceding rent, or, in the case of the Azusa Mobilehome Park, to fourteen and two hundred seventy five thousandths percent (14 . 275%) , due to the recent unusual expenditures associated with the later Park. A rent increase above 8% on a space in the Azusa Mobilehome Park is permitted only on the execution of the first rental agreement on such space after February 5, 1992. (c) When a coach is owned by the park owner and the coach is sold, the base rent to the buyer shall be calculated using the average of the current space rent charged for similar spaces in the park. (d) Notwithstanding subsection (b) , no rental increase shall be permitted under this section for: (1) Transfers to a conservator of the person and/or the estate of a tenant and/or the individual heir of a tenant; DDB14193.0 (2) Transfers which take effect upon the death of a spouse; (3) Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of marriage or legal separation; or (4) The creation, transfer or termination solely between spouses of interest in the mobilehome space. (e) This section 5.56.090 shall apply to Ifan rental agreements executed on or after February 6, 1992 . agreement subject to this section is executed prior to the effective date of this section, the rents pursuant to such agreement, commencing on the effective date of this section, shall be reduced to conform with this section. No rebate of previously collected rents shall be required or due. ,SPCTION 3. Section 5. 56.050(c) of Chapter 5.56 of Title 5 of the Azusa Municipal Code is hereby amended to read as follows: " (c) No owner shall demand or accept or retain rent for any space exceeding the initial base rent unless an increase has been authorized under Sections 5. 56.063 , 5. 56.067, 5.56.070, 5.56.085 or 5.56.090. ,SECTLON 4 . This Ordinance shall become effective 30 days from the date of its adoption. The City Clerk shall certify to the passage and adoption of this Ordinance and shall cause the same to be published or posted as prescribed by law. PASSED AND APPROVED this day of 1992 . MAYOR I HEREBY CERTIFY that the foregoing Ordinance No. was regularly introduced and placed upon Its first reading at a regular meeting of the City Council of the City of Azusa on the day of 1992 . That thereafter, said Ordinance was duly adopted and passed at a regular meeting on the City Council on the day of 1992, by the following vote, to wit: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: CITY CLERK DDDNI9S.O