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HomeMy WebLinkAboutCA Contempo MarinAgenda Item No: 3 b. Meeting Date: September 19, 2011 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: City Attorney Prepared by: Robert Epstein, City Attorney City Manager Approval: Lisa A. Goldfien, Deputy City Attorney 11 Nancy Mackle &7119�1� /\CtOD On HeSO|uUOD of the City C0UOC| of the City Of San R@f88| G[8OUOg in Part and Denying in Part the Appeal Of the COOtempO MGhD Homeowners' Association from the Arbii[@dOD Awards on P8iib0DS Filed Between 2006 and 2010 byEquity Lifestyle Properties, |nc..for Rent Increases at Contempo Marin Mobilehome Park, and Modifying the Awards of the Arbitrators. Adopt attached Resolution ft �11 ew, 9111,M91 On September 6, the City COUDCi| held 8 hearing to consider the combined appeals Of Equity LifeSh/|8 PrOp8[U9S, Inc. ("ELS"), owner Ofthe COnt9OlpO Marin MObi|ShO09 Park, and the CODi80pO K08riD Homeowners' Association ("[}PNHC)4"). [8p[eS8DUOg the Park tenants, from @rbifn8UOn decisions on five [8Oi iDC[e3Se p8UbOnS h|8d by ELS from 2006 through 2010 purSU8OL to San Rafael K4UOiCip8| Code Title 20. the City's MObi|RhODl8 Rent Stabilization Ordinance ("Ordinance"). The primary iSGU8 in the appeals was whether 8 request for 8 F8Oi increase for "capital i[Op[OVeDl8nt8" or "capital replacements", as defined by the Drdin8OCe, nOU3i be [8vi8vvSd under the "standards 0freasonableness" set forth iOSection 20.12.110tOdetermine whether the rent inCne8S8 is OeD8SSGry for the nlObi|8hO[ne park OvvOe[ to obtain 8 fair P8fu[D OO its inveS\[O8DL In 3 p[8viOUS COD0B8lpO K48hO rent increase appeal heard in 2006, the City Council had not required ELS b]make @ showing under Section 2O.12.11O� In 3ddUdOO to this |8g8| iSSUS. the @pp98|S raised OUm8n]us factual issues regarding the arbitrators' categorization of certain disbursements by ELS as capital expenditures. Prior to the FOR CITY CLERK ONLY File No.: �; Council Meeting: q1t-1112c I,, Disposition: ItIL 12�� SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 nl88dDg. ECS advised staff that it was not going to pU[SU8 the iSSU8S it had [8iS8d in its 8pp88|3. and 0nC8 the h88hDg b8g8O. the CK8HOAwithd[ew its Ch8UCDg8 to one Ofthe factual |SSU8S it had raised OO appeal, leaving five factual issues to be COOSiden8d by the Council. The C0UDCi| pn0D88d8d to hear arguments from the attorneys for ELS and the CK8H{}A. and then deliberated, considering each issue separately. Amajority of the Council was able to reach a consensus on the issues as follows: 1� The COUOCi| determined that the arbitrator had erred in determining that an expenditure Of $24.721.80 for work performed OD the S8vveF SySt80 in 2008 was @ capital replacement, therefore the Council granted the CMHOA'Sappeal @SiOthat issue. 2. The COUOCi| denied the CyWH{)A'S appeals as to the other four factual iSSUeS' upholding the arbitrator's det8[DliO8tiOOS that individual 8Xp8DditU[8S of $2,007.25 to replace the hot tub heater in 2000; $4.800 to iOSt3|| new sewer check valves in 2008; $1,456.71 for new sewer lift station CODtrO|S in 2808; and $4.2S5for pool heater replacements in20O9.were all properly deemed tObe"capital replacements" because each was part 0fGlarger project VG|Ued oiover $5.00O. 3. The COUOCi| affirmed the iOt8[p[8tah0D Of the Ordinance [D@d8 by the City COUDCi| in 2006. that 8 park OvvDe['S expenditures for "capital i0p[OV8m8niS" or "Copi[8| n8p|8C8rn8DiS." as defined by the {)PdiO8DCe, may be p8SS8d through to the park tenants vvithOUi 8 3hOYviOg under the "Si8Od@PdS Ofreasonableness" set forth in S8CdOD 20.12.110 that the rent iDC[88S8 is necessary for the 00bi|8hO0e park ovVO9r to obtain 3 t3i[ return OO its iOv8Sirn8DL. Staff was directed to prepare @ [eSO|Utk)O rD8DlO[ia|iziDg the findings and CODdUSiOnS of the Council 0nthe appeals. The attached F8SO|Ud0D sets forth the Council's findings and C0OdUSiOOS 88k}the issues on 8pp88|. with [efe[eOC9S as 8ppn3ph8h3 to evidence in the record before the COVD{i| at its September 0 hearing, and the required specific n0OdiDC8UODS to the 8DlOUOt of the arbitrators' 3vvGroS. The COUD[j| 3hOU|d note that as part 0fher arbitration awards for the 2007. 2008' 2009. and 2010 petitions, 3d]iir8tO[ Betsy 8i[8US8 granted ELS'S request for "interest on unsecured borrowing." Based upon evidence pF8S8Di8d at the 8rbit[UUOO hearings, the arbitrator awarded interest at 6.2% OO the 2007 p8[idOD^ 4.9% on the 2008 p8b[iOD. 1.496 OD the 2009 petition, and 1.4% OD the 2010 petition. The 8[bii[3tOr'S decision on each petition awarded a specific rent increase which included an amount equivalent to one year's interest, at the stated [8t8. On the 8||Ow8d capital expenditures. (See. 8/0/11 City Council Agenda RepOrt, Attachment 4, Statement OfDecision dated DC1Ob8[ 15, 2010. at p. 14: lines 14-27; Attachment 5, Statement 0fDecision dated May 14, 2011, at p. 12: |iO8S 5-10.) Because neither party appealed these specific awards of interest or raised them at the S8p18rnbm[ 8 hearing, and beC@UG8` 88 discussed in the September O agenda report, the appeal proceedings On the petitions were stayed by 8gr88rneOL of the p8rd8S pending 3 th8| court decision OD EL8'S federal court |8vvSu|t Ch@UeOg|Og the {}rdin8nD8, it is Staff's recommendation that DO additional interest should be granted to ELS for its COBtS of capital during the period between the arbitrator's decisions and the Council's final decision upholding SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 the @rbb[8tOrS 8vv8ndS OO appeal. Staff does n3CO0nleDd 8 d8Cre8S8 in the interest awarded on the 20O0sewer expenditure disallowed bvthe Council ODappeal. Accordingly, the proposed neSO|utiOD deducts iOLe[8St in the 8mOUDt Of 1496 ($24,721.80) Or $346 from the 8diUSt8d arbitrator's award on the 2009 petition. Pursuant k}the Council's decision ODthe appeals, the total approved rent increase for the 2000 through 2010 petitions has been [RdUC8d to 8 total of $244,541.00, or $617.52 per Sp8Qe. payable over 34months 8tthe rate Of$25.73per month per space. FISCAL IMPACT: None. OPTIONS: 1. Adopt the Resolution 8Sdrafted. 2. Amend and adopt the Resolution 8Samended. 3. Refer the R8SO|UUOO back to Staff for further [8viSiOOS in accordance with Council direction. Adopt the attached Resolution. ATTACHMENTS: Resolution RESOLUTION NO. 13236 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL GRANTING IN PART AND DENYING IN PART THE APPEAL OF THE CONTEMPO MARIN HOMEOWNERS' ASSOCIATION FROM THE ARBITRATION AWARDS ON PETITIONS FILED BETWEEN 2006 AND 2010 BY EQUITY LIFESTYLE PROPERTIES, INC., FOR RENT INCREASES AT CONTEMPO MARIN MOBILEHOME PARK, AND MODIFYING THE AWARDS OF THE ARBITRATORS WHEREAS, Equity Lifestyle Properties, Inc. ("ELS") is the owner and operator of the Contempo Marin Mobilehome Park ("Park") in San Rafael; and WHEREAS, San Rafael Municipal Code Title 20, known as the Mobilehome Rent Stabilization Ordinance ("Ordinance"), regulates the rents charged to tenants at the Park; and WHEREAS, pursuant to San Rafael Municipal Code section 20.12.050, ELS filed petitions in 2006, 2007, 2008, 2009, and 2010, each of which requested approval of a one-time rent increase to pass through to the Park tenants costs claimed to have been incurred by ELS in making "capital improvements" and "capital replacements," as defined by the Ordinance, at the Park; and WHEREAS, the Ordinance provides that rent increase petitions shall be subject to hearing by a neutral arbitrator, who may consider evidence presented by both the owner and the tenants of the mobilehome park; and WHEREAS, arbitration hearings were conducted as to each of ELS's petitions as follows: Petition Date Arbitrator Arbitration Date October 9, 2006 Lynda Millspaugh February 16, 2007 October 4, 2007 Betsy Strauss June 24-25, 2010 October 3, 2008 Betsy Strauss June 24-25, 2010 October 9, 2009 Betsy Strauss June 24-25, 2010 October 8, 2010 Betsy Strauss March 11, 2011 Decision Date April 4, 2007 October 15, 2010 October 15, 2010 October 15, 2010 May 14, 2011 WHEREAS, the arbitrators awarded rent increases on ELS's respective petitions as follows: Year of Total Requested Arbitrator Awarded Petition Rent Increase Rent Increase 2006 $90,04733 $68,965.12 2007 $35,000.00 $37,170.00 (inc. interest) 2008 $89,440.65 $55,684.81 (inc. interest) 2009 $89,314.82 $81,120.84 (inc. interest) 2010 $30,791.58 $26,669.14 (inc. interest) Arbitrator Awarded Increase per Space $174.15 = $14.51 x 12 mos. $ 93.86 = $ 7.82 x 12 mos. $140.61 = $11.72 x 12 mos. $204.85 = $17.07 x 12 mos. $ 67.35 = $ 5.61 x 12 mos. WHEREAS, both ELS and the Contempo Marin Homeowners' Association ("CMHOA"), representing the Park tenants, appealed the April 4, 2007, the October 15, 2010 and the May 14, 2011 arbitration decisions to the City Council; and WHEREAS, on September 6, 2011, the City Council held a hearing on the combined appeals of ELS and the CMHOA concerning the 2006-2010 rent increase petitions; and WHEREAS, prior to the City Council's hearing, the attorneys for ELS advised the City that ELS would not be pursuing the issues raised in ELS's appeals, and those appeals are therefore moot; and WHEREAS, during argument at the September 6, 2011 hearing, the attorney for the CMHOA represented to the Council that the CMHOA was withdrawing its challenge to the arbitrator's award of $13,295 requested in the 2006 petition as a pass-through of costs for sidewalk work that the arbitrator determined qualified as a capital replacement; and WHEREAS, the Council has considered the record of proceedings before the respective arbitrators, and has received and considered written and oral arguments presented by the attorneys for ELS and the CMHOA; and WHEREAS, the City Council makes the following findings as to the remaining factual issues on appeal, based upon the evidence set forth in the record of proceedings herein: 1. The arbitrator erred in determining on the 2009 petition that the expenditure of $24,721.80 by ELS for sewer system improvements and/or repairs performed by Pump Repair Service Co. should be treated as a "capital replacement" expenditure merely on the basis of the amount of the expenditure, since the finding was not supported by the arbitrator's analysis of the evidence presented at the arbitration. Specifically: A. The Council finds that the arbitrator, describing this work as "repair of sewer pump, replacement of a defective flanged flap valve," determined that this work appeared to constitute "maintenance and operation costs" under the Ordinance; (See, 916!11 City Council Agenda Report, Attachment 3, Statement of Decision dated October 15, 2010, at p. 13.) but that 2 the arbitrator nevertheless found that this expenditure should be allowed as a "capital replacement," on the ground that: the City Council has taken into consideration the amount of the invoice when determining whether to treat an expenditure as "capital replacement" or "maintenance and operation" (Resolution No. 12014). (See, 9/6/11 City Council Agenda Report, Attachment 3, Statement of Decision, dated October 15, 2010, at p. 14.) B. The Council finds that the finding in Resolution No. 12014 referred to by the arbitrator was made in the context of analysis of a specific factual issue in a prior and unrelated rent increase petition appeal for the Park heard and decided in 2006; and that such finding was not intended by the Council to be applied indiscriminately in unrelated rent increase petition appeals unless it was determined to be appropriate after consideration of the specific facts of that appeal. C. The Council finds that there is substantial evidence in the record to support the arbitrator's determination that the work could appropriately be described as "maintenance and operation costs," defined in the Ordinance as including "maintenance" of facilities and "refuse removal" (See, 9/6/11 City Council Agenda Report, Attachment 1, Section 20.04.020(G); Admin. Record, Vol. 3 of 4, Petitioner's Exhibit L [Invoice description of work to "remove, repair, reinstall ... pump,...replace bowl, repair spare ... motor, dive team to remove debris from sump"]); and that although there was evidence that ELS treated the expenditure as a capital expenditure, it is apparent that the arbitrator would not have concluded that this expenditure was a "capital replacement" but for her erroneous belief that she was bound by the Council's factual finding in Resolution No. 12014. Therefore, the Council finds that the arbitrator erred in concluding that this expenditure qualified as a "capital replacement" when she was persuaded to the contrary by the evidence. 2. The arbitrator did not err in determining on the 2006 petition that the expenditure of $2,807.25 by ELS for replacement of a hot tub heater was a "capital replacement" expenditure, as there was substantial evidence in the record to support that finding. Specifically: A. The record shows that the arbitrator considered this expenditure to have been made as part of a single larger project to replace the pool and hot tub heaters at the Park Clubhouse. (See, 9/6/11 City Council Agenda Report, Attachment 3, Statement of Decision dated August 4, 2007, at p. 6: lines 22-24, p. 8: lines 24-26.) B. The Council finds that the replacement of the hot tub heater occurred in February 2006, and that the replacement of the pool heater occurred in early May 2006 (See, CMHOA Brief on Appeal, Exhibits C and D), and that it was reasonable for the arbitrator to determine that these two services were part of a larger project to prepare the pool and spa complex for the summer swim season. Therefore, the Council finds that the arbitrator did not err in finding that this expenditure qualified as a "capital replacement." 3 3. The arbitrator did not err in determining on the 2008 petition that the expenditure of $4,800 by ELS for the installation of new check valves for sewer system pumps located at the tennis court and at spaces 15 and 97, and $1,456.71 for the installation of new sewer lift station controls for the pumps at spaces 15 and 97 were "capital replacement" expenditures, as there was substantial evidence in the record to support that finding. Specifically: A. The record shows that the arbitrator considered these expenditures, along with the upgrading of four lift station autodialers, to have been made as part of a single larger project to upgrade or install new components of the Park's sewer pump stations. (See, 9/6/11 City Council Agenda Report, Attachment 3, Statement of Decision dated October 15, 2010, at p. 12: lines 6-14.). B. The Council finds that there is substantial evidence in the record that all of the specified replacements were components essential to the operation of the Park's three sewer pump and lift stations (plus an additional autodialer for the Park lagoon), which themselves are integral parts of the Park's sewer system. (See, CMHOA Brief on Appeal, Exhibits E, F, G; ELS Opening Brief on Appeal, Exhibit B, Reporter's Transcript of June 24, 2010 hearing, at pp. 38- 49.), and that this evidence supports the arbitrator's finding that these expenditures were part of one project. Therefore, the Council finds that the arbitrator did not err in concluding that these expenditures qualified as a "capital replacement." 4. The arbitrator did not err in determining on the 2009 petition that the expenditure of $4,295 by ELS to Herb's Pool Service for removal and replacement of the pool heater's leaking heater exchanger and installation of new hot surface igniter and related parts, was a "capital replacement" expenditure, as there was substantial evidence in the record to support that finding. Specifically: A. The record shows that the arbitrator considered this expenditure to have been made as part of a single larger project to make necessary pool improvements. (See, 9/6/11 City Council Agenda Report, Attachment 3, Statement of Decision dated October 15, 2010, at p. 13: lines 24-25, p. 14: lines 5-7.) B. Although it is not clear from the record when the Burketts Pool Plastering and Herb's Pool Service improvements were actually installed, the record shows that Burketts Pool Plastering, Inc. submitted an estimate of $5,100 on February 27, 2009 for installation of new pool and spa drain covers to comply with the Virginia Graham Baker Act, and Herb's Pool Service submitted an estimate of $4,295 on April 14, 2009 for removal of the pool heater's leaking heater exchanger and installation of a new exchanger, new exchanger gaskets, and a new hot surface igniter. (See, Admin. Record Vol. 3, Petitioner's Exhibit H.) The Council finds that it was reasonable for the arbitrator to determine based upon this evidence that the replacement of the pool's heater exchanger and the installation of drain covers were both part of a larger project to ensure that the pool and spa continued to be legally and functionally sufficient for use by the Park tenants during the summer swim season. Therefore, the Council finds that the arbitrator did not err in finding that the expenditure to Herb's Pool Service qualified as a "capital replacement." 4 WHEREAS, the Council has considered the request of the CMHOA to review and reject the 2006 City Council's interpretation of the Ordinance as allowing a pass-through to Park tenants of expenditures found to qualify as "capital improvements" or "capital replacements" under the Ordinance, without requiring that ELS prove that the pass-through is reasonable and necessary to obtain a fair and reasonable return under the reasonableness standards of Section 20.12.110 of the Ordinance; and the Council declines to discard that interpretation, for the following reasons: 1. The Council finds that the requirement in Section 20.04.020(M) of the Ordinance to distinguish rent increases for capital improvements and capital replacements from ordinary rent increases, indicates an intention to review such rent increases under differing standards. The Council finds that counsel for ELS correctly stated that there would be no reason to require capital rent increases to be separately stated by the Park owner if the intention of the Ordinance was to require a fair -return hearing for any and all rent increases, therefore the Council also agrees with the interpretation of the 2006 City Council that the Ordinance does not require that the Park owner meet the fair and reasonable return test under the reasonableness standards in Section 20.12.110 of the Ordinance. 2. The Council finds that, as so interpreted, the Ordinance advances its primary purpose, which is to protect mobilehome park tenants from arbitrary, capricious or unreasonable rent increases while insuring that the park owner obtains a fair and reasonable return on its investment, since: A. As so interpreted, the Ordinance encourages a mobilehome park owner to maintain the quality and standards of the infrastructure of the park, which provides an immediate and material benefit to the park tenants. B. The definition of "capital improvements" in Section 20.04.020(B) contains its own standard of reasonableness, in that it requires a showing that the expenditures "directly and primarily benefit and serve the existing mobilehome park homeowners by materially adding to the value of the mobilehome park;" and the definition of "capital replacement" in Section 20.04.020(C) contains its own standard of reasonableness, in that it requires a showing that the expenditure "materially benefits and adds value to the mobilehome park." These definitions provide protections to the tenants from unreasonable expenditures on capital improvements or capital replacements that do not primarily benefit the tenants or materially increase the value and useful life of the park. WHEREAS, the City Council finds that in keeping with the Ordinance's purpose to protect mobilehome park tenants from unreasonable rent increases, and in view of the fact that the present appeals cover improvements made over five years, it is appropriate to require that the allowed rent increases on ELS's 2006 through 2010 petitions be assessed over a period of 24 months. NOW THEREFORE, BE IT RESOLVED by the Council of the City of San Rafael that the combined appeals of the CMHOA from the arbitration decisions on ELS's rent increase petitions filed in 2006, 2007, 2008, 2009, and 2010 are hereby granted in part and denied in part, and the arbitrators' awards are modified as follows: 9 The CMHOA appeals from the arbitrators' awards as to the 2006 and 2008 petitions are hereby denied, and the arbitrators' awards as to those petitions are hereby confirmed. 2. The CMHOA appeal from the arbitrator's award as to the 2009 petition is hereby granted as to the expenditure of $24,721.80 for sewer pump repairs and debris removal, and is hereby denied as to the arbitrator's award of $4,295.00 for work on the pool heater. As adjusted for the above rulings, ELS is hereby authorized to pass through to the Park tenants 100% of the costs of all expenditures found to be capital improvements or capital replacements, including interest on unsecured borrowing for one year as awarded by the arbitrator and not appealed by the parties, in a modified total amount of $244,542.00, or $617.53 per space, detailed as follows: ■ Amount awarded by arbitrator on 2006 rent increase petition: $ 68,965.12/396 sp.= $174.15 per sp. ■ Amount awarded by arbitrator on 2007 rent increase petition, including one year interest of 6.2% on unsecured borrowing: $ 37,170.00 / 396 sp = $ 93.86 per sp. ■ Amount awarded by arbitrator on 2008 rent increase petition, including one year interest of 4.9% on unsecured borrowing: $ 55,684.81 / 396 sp.= $140.62 per sp. ■ Amount awarded by arbitrator on 2009 rent increase petition, including one year interest of 1.4% on unsecured borrowing: Less cost of sewer pump repair: Less one year interest of 1.4% on Sewer pump repair: $ 81,120.84 -$ 24,721.80 -$ 346.11 $ 56,052.93 / 396 sp. = $141.55 per sp. ■ Amount awarded by arbitrator on 2010 rent increase petition, including one year interest of 1.4% on unsecured borrowing: $ 26,669.14 / 396 sp.= $ 67.35 per sp. BE IT FURTHER RESOLVED that the arbitrators' decisions to award the increased rents over a 12 -month period, to ensure that the Park tenants will not suffer an unreasonable hardship, are hereby modified to require that the total combined adjusted rent increases shall be assessed over 24 months, at the rate of $25.73 per month per space. BE IT FURTHER RESOLVED that because the adjusted arbitration award is less than 80% of the rent increase requested, ELS shall not be permitted to pass through the costs of the arbitrations herein to the Park tenants pursuant to Section 20.12.100. rel BE IT FURTHER RESOLVED that, pursuant to section 20.08.010 of the Ordinance, the rent increases awarded herein shall not be included in the base rent or in the calculation of annual CPI rent adjustments. BE IT FURTHER RESOLVED that this decision is final upon the Council's adoption of this Resolution and that the time within which to seek judicial review of this decision is governed by the provisions of California Code of Civil Procedure section 1094.6. 1, ESTHER BEIRNE, Clerk of the City of San Rafael, hereby certify that the foregoing Resolution was duly and regularly introduced and adopted at a regular meeting of the Council of said City on September 19, 2011, by the following vote, to wit: AYES: COUNCILMEMBERS: Brockbank, Connolly, Heller, Levine & Mayor Boro NOES: COUNCILMEMBERS: None ABSENT: COUNCILMEMBERS: None 7 ESTHER BEIRNE, City Clerk ROUTING SLIP FOR APPROVAL OF CONTRACTS / AGREEMENTS / ORDINANCES / RESOLUTIONS INSTRUCTIONS: USE THIS FORM WITH EACH SUBMITTAL OF ORIGINAL CONTRACT / AGREEMENT / ORDINANCE / RESOLUTION BEFORE APPROVAL BY COUNCIL / AGENCY. SRRA / SRCC AGENDA ITEM NO: DATE OF MEETING: September 19, 2011 FROM: Lisa A. Goldfien, Deputy City Attorney 113111 - DATE: September 14, 2011 ORIGINATING DEPARTMENT: City Attorney, --p mii )d al I TITLE OF DOCUMENT: C11 - 1i". -11111FORNEY ACTION ON RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL GRANTING IN PART AND DENYING IN PART THE APPEAL OF THE CONTEMPO MARIN HOMEOWNERS' ASSOCIATION FROM THE ARBITRATION AWARDS ON PETITIONS FILED BETWEEN 2006 AND 2010 BY EQUITY LIFESTYLE PROPERTIES, INC., FOR RENT INCREASES AT CONTEMPO MARIN MOBILEHOME PARK, AND MODIFYING THE AWARDS OF THE ARBITRATORS. Robert F. Epstein City Attorney (LOWER HALF OF FORM FOR APPROVALS ONLY) Reviewed by City Manager / Executive Director AP ROVED AS TO FORM: A- Lz_ Approved as C6unci I f Agency Agenda Item City Attorney (Sign ure) 0 NOT APPROVED REMARKS: