Supreme Court Rules on MRL

Two provisions of the state MRL were also at issue. The first provision, ' 798.31, states: 'A homeowner shall not be charged a fee for other than rent, utilities, and incidental reasonable charges for services actually rendered.' Under the second provision, ' 798.49, subd. (a), which applies only in parks subject to local rent control laws, local agencies administering rent control laws are compelled to allow park owners to separately charge park residents for certain government-imposed fees, assessments, and other charges as pass-throughs. Section 798.49, subd. (d)(4), however, expressly provides that the pass-throughs described in ' 798.49, subd. (a) do not include property taxes.

Before attempting to raise monthly resident assessments by adding a pass-through fee for the increased property taxes, the Cachos sought the advice of Juan Arroyo, a senior official with the Housing Division of the Chula Vista Community Development Department. While he acknowledged that ' 798.49, 'contains language which could preclude the automatic pass-through of increased property taxes as a separately stated amount,' he also opined that 'where a City's rent control ordinance specifically allows the pass-through of increased property taxes, such pass-through does not violate the State Law.' Arroyo requested that it 'not be included in the space rent' and instead be 'billed as a separate item to avoid confusion and to ensure that such pass-through is not included in any calculation of the increase in the rent.' The Cachos increased their tenants' monthly bills by approximately $12, listing the amount on the rental invoices variously as 'rent tax,' 'rent adj,' 'adj,' 'other,' and 'CVMC9.50.030H.'

After some park residents brought suit, the Cachos brought an action in Superior Court seeking a declaration that their actions were lawful. That court granted summary judgment in favor of the residents and awarded damages of $10,067, civil penalties of $23,000, attorneys' fees of $87,321 and litigation costs of $9230. When the Cachos appealed, the Court of Appeal affirmed, finding that the Chula Vista ordinance in force at the time the Cachos began charging the extra fees, which permitted mobilehome park owners to pass through property taxes to park residents, conflicted directly with, and was preempted by, the state MRL.

Supreme Court Interpretation Finds No Conflict

The primary issue coming before the State Supreme Court was this: Did the applicable provisions of the state law's ' 798.31 and Chula Vista's rent control ordinance amount to an actual and irreconcilable conflict between state and local law, as the Court of Appeal concluded, or was it just an immaterial difference in terminology, as the Cachos argued? Basically, because real property taxes are not charges for utilities or 'services actually rendered,' a mobilehome park owner may only charge residents a fee for real property taxes if that charge constitutes 'rent' within the meaning of that term in ' 798.31. Because the state Mobile-home Residency Law does not define the term 'rent,' in the absence of a statutory definition the court assumed that the legislature intended that 'rent' would have its ordinary meaning: that it is compensation for the use of land and the means by which landlords make a profit.

For further guidance, the court next looked to the legislative history of ' 798.31 to see if the legislature intended to exclude property taxes as an item included in rent. It found that the intent of the section was to prevent unscrupulous landlords from drawing tenants in to their parks with purportedly low rents and then jacking up the tenants' monthly bills with spurious extra charges, such as charges for keeping pets or for having weekend guests. It was not intended to be a rent control statute and it never concerned itself with whether park owners structured space rent as a lump sum, broke it down into separate components, or passed property tax expenses on to park residents. Section 798.31 also does not prohibit local governments from imposing rent controls on mobilehome parks. Generally, such ordinances contain a list of factors for the regulator to consider in setting the maximum allowable rent, including typical business costs, which commonly include property taxes.

Under Chula Vista's rent control ordinance during the time at issue, however, real property taxes were an allowable separate charge, or pass-through, that was excluded from the ordinance's definition of 'space rent,' so the court needed to look at MRL ' 798.49, subdivisions (a) and (d), which deal with allowable pass-throughs.

Section 798.49 was enacted to keep local rent-control ordinances from placing unfair economic burdens on landlords when government fees and assessments are added or increased. It contains in its subdivision (a) a mandate that cities and counties administering rent-control ordinances permit landlords to pass through specified government fees and assessments to park residents. In the absence of a local rent control ordinance a park owner would be able to pass along costs of paying increased government fees by charging higher rents, but some local rent control agencies do not allow rent adjustments for this purpose, with the result that park owners were being forced to bear the extra burden. Section 798.49 forces local rent control agencies to allow park owners to separately bill and charge the tenants for the new or increased fees, exempting these costs from the restrictions on rent increases imposed by local law.

Subdivision (a), however, does not mention property taxes. To further complicate matters, subdivision (d) of section 798.49 specifically states that the section 'shall not apply' to property taxes. The Supreme Court interpreted these sections together as stating only that local rent control agencies are not required to allow park owners to separately charge park residents for property taxes; local rent control agencies are not prohibited from doing so.

The court determined that property taxes may be considered 'rent' within the meaning of ' 798.31 because nothing in ' 798.49 prohibits park owners from structuring their leases for park spaces to list the tax charge separately, although it is really a component of rent. The separate charge is, like all other aspects of rent, compensation for the use of the rented space and common areas of the park. Nothing other than the renting of the space is required to trigger the charge, so it is unlike the service charges for pets and short-term guests that the legislature expressly prohibited by passing ' 798.49. Moreover, the government fees and assessments passed through to the tenants are a category of business expense that owners of mobilehome parks and other rental property have traditionally recovered from their tenants through the amount charged as rent. A local rent control ordinance could legitimately structure mobilehome park space rent to allow pass-throughs for property taxes as charges separate from a base rent and not be in conflict with either MRL ' 798.49 or ' 798.31. Thus, the court concluded, Chula Vista's statute was not in conflict with the MRL, and the Cachos did nothing unlawful when they charged their tenants for the additional property taxes.

A Split Resolved

In making its determination in Cacho, California's Supreme Court gave its approval to two earlier Court of Appeal decisions in similar cases, and its disapproval to a contrary third holding. The disapproved decision was rendered in Karrin v. Ocean-Aire Mobile Home Estates (1991) 1 Cal.App.4^th 1066, when the Court of Appeal rejected the argument that an assessment for mobilehome park road improvements could be considered a form of rent. That court found that such an assessment violated ' 798.31 of the MRL as being a charge for other than 'rent, utilities, and incidental reasonable charges for services actually rendered.'

The two cases that got it right ' Dills v. Redwoods Associates Ltd. (1994) 28 Cal.App.4^th 888 and Robinson v. City of Yucaipa (1994) 28 Cal.App.4^th 1506 ' both held that landlords who charged tenants extra amounts for capital improvements to their parks' roads were simply charging additional rent to cover the landlords' costs of doing business, so those charges were not illegal under the MRL. The Dills court noted that if park owners were not allowed to pass through the costs of capital improvements by means of assessments they would be forced to guess at future capital costs over the course of a lease and would probably set the rents too high in order to cover any such possible expenses. This would ultimately injure tenants, who would be asked to pay inflated base rents to cover any contingencies.

Janice G. Inman, Esq., is Editor-In-Chief of this newsletter.

The Supreme Court of California determined in January that the state Mobilehome Residency Law (MRL), codified at Civ. Code, ' 798 et seq., does not preempt local rent control ordinances that allow mobilehome park owners to separately charge park residents for property taxes imposed on park land. Cacho v. Boudreau , 40 Cal.4th 341 (Cal.,1/11/2007) (Kennard, J.). The opinion clarified an apparent conflict between the MRL and the mobilehome rent control law then in force in the City of Chula Vista ' a local law similar to many rent control ordinances throughout the State. The decision also resolved a split among the Appellate Divisions as to which items may be considered components of 'rent' for which landlords may raise monthly rents without violating the anti-gouging provision of the MRL.

Tax Bill Shared with Renters

In Cacho, after the City of Chula Vista increased the property tax assessment on a mobilehome park owned by Luis J. Cacho and his family, the Cachos wanted to pass the tax increase on to the park's residents. Chula Vista had a rent control ordinance limiting rent increases for mobilehome 'space rent,' defined as 'the consideration ' demanded or received in connection with the use and occupancy of the mobilehome space ' exclusive of ' allowable pass-throughs.' (Chula Vista Mun.Code, tit. 9, ch. 9.50, former ' 9.50.030, subd. (A), italics added.) One of the pass-throughs that the ordinance then allowed, and excluded from the definition of 'space rent,' was 'governmental assessments such as real property taxes.' It also listed '[p]roperty or other taxes' as one component of the owner expense factor that the mobilehome rent review commission was to consider in fixing space rent through the hearing process.

Two provisions of the state MRL were also at issue. The first provision, ' 798.31, states: 'A homeowner shall not be charged a fee for other than rent, utilities, and incidental reasonable charges for services actually rendered.' Under the second provision, ' 798.49, subd. (a), which applies only in parks subject to local rent control laws, local agencies administering rent control laws are compelled to allow park owners to separately charge park residents for certain government-imposed fees, assessments, and other charges as pass-throughs. Section 798.49, subd. (d)(4), however, expressly provides that the pass-throughs described in ' 798.49, subd. (a) do not include property taxes.

Before attempting to raise monthly resident assessments by adding a pass-through fee for the increased property taxes, the Cachos sought the advice of Juan Arroyo, a senior official with the Housing Division of the Chula Vista Community Development Department. While he acknowledged that ' 798.49, 'contains language which could preclude the automatic pass-through of increased property taxes as a separately stated amount,' he also opined that 'where a City's rent control ordinance specifically allows the pass-through of increased property taxes, such pass-through does not violate the State Law.' Arroyo requested that it 'not be included in the space rent' and instead be 'billed as a separate item to avoid confusion and to ensure that such pass-through is not included in any calculation of the increase in the rent.' The Cachos increased their tenants' monthly bills by approximately $12, listing the amount on the rental invoices variously as 'rent tax,' 'rent adj,' 'adj,' 'other,' and 'CVMC9.50.030H.'

After some park residents brought suit, the Cachos brought an action in Superior Court seeking a declaration that their actions were lawful. That court granted summary judgment in favor of the residents and awarded damages of $10,067, civil penalties of $23,000, attorneys' fees of $87,321 and litigation costs of $9230. When the Cachos appealed, the Court of Appeal affirmed, finding that the Chula Vista ordinance in force at the time the Cachos began charging the extra fees, which permitted mobilehome park owners to pass through property taxes to park residents, conflicted directly with, and was preempted by, the state MRL.

Supreme Court Interpretation Finds No Conflict

The primary issue coming before the State Supreme Court was this: Did the applicable provisions of the state law's ' 798.31 and Chula Vista's rent control ordinance amount to an actual and irreconcilable conflict between state and local law, as the Court of Appeal concluded, or was it just an immaterial difference in terminology, as the Cachos argued? Basically, because real property taxes are not charges for utilities or 'services actually rendered,' a mobilehome park owner may only charge residents a fee for real property taxes if that charge constitutes 'rent' within the meaning of that term in ' 798.31. Because the state Mobile-home Residency Law does not define the term 'rent,' in the absence of a statutory definition the court assumed that the legislature intended that 'rent' would have its ordinary meaning: that it is compensation for the use of land and the means by which landlords make a profit.

For further guidance, the court next looked to the legislative history of ' 798.31 to see if the legislature intended to exclude property taxes as an item included in rent. It found that the intent of the section was to prevent unscrupulous landlords from drawing tenants in to their parks with purportedly low rents and then jacking up the tenants' monthly bills with spurious extra charges, such as charges for keeping pets or for having weekend guests. It was not intended to be a rent control statute and it never concerned itself with whether park owners structured space rent as a lump sum, broke it down into separate components, or passed property tax expenses on to park residents. Section 798.31 also does not prohibit local governments from imposing rent controls on mobilehome parks. Generally, such ordinances contain a list of factors for the regulator to consider in setting the maximum allowable rent, including typical business costs, which commonly include property taxes.

Under Chula Vista's rent control ordinance during the time at issue, however, real property taxes were an allowable separate charge, or pass-through, that was excluded from the ordinance's definition of 'space rent,' so the court needed to look at MRL ' 798.49, subdivisions (a) and (d), which deal with allowable pass-throughs.

Section 798.49 was enacted to keep local rent-control ordinances from placing unfair economic burdens on landlords when government fees and assessments are added or increased. It contains in its subdivision (a) a mandate that cities and counties administering rent-control ordinances permit landlords to pass through specified government fees and assessments to park residents. In the absence of a local rent control ordinance a park owner would be able to pass along costs of paying increased government fees by charging higher rents, but some local rent control agencies do not allow rent adjustments for this purpose, with the result that park owners were being forced to bear the extra burden. Section 798.49 forces local rent control agencies to allow park owners to separately bill and charge the tenants for the new or increased fees, exempting these costs from the restrictions on rent increases imposed by local law.

Subdivision (a), however, does not mention property taxes. To further complicate matters, subdivision (d) of section 798.49 specifically states that the section 'shall not apply' to property taxes. The Supreme Court interpreted these sections together as stating only that local rent control agencies are not required to allow park owners to separately charge park residents for property taxes; local rent control agencies are not prohibited from doing so.

The court determined that property taxes may be considered 'rent' within the meaning of ' 798.31 because nothing in ' 798.49 prohibits park owners from structuring their leases for park spaces to list the tax charge separately, although it is really a component of rent. The separate charge is, like all other aspects of rent, compensation for the use of the rented space and common areas of the park. Nothing other than the renting of the space is required to trigger the charge, so it is unlike the service charges for pets and short-term guests that the legislature expressly prohibited by passing ' 798.49. Moreover, the government fees and assessments passed through to the tenants are a category of business expense that owners of mobilehome parks and other rental property have traditionally recovered from their tenants through the amount charged as rent. A local rent control ordinance could legitimately structure mobilehome park space rent to allow pass-throughs for property taxes as charges separate from a base rent and not be in conflict with either MRL ' 798.49 or ' 798.31. Thus, the court concluded, Chula Vista's statute was not in conflict with the MRL, and the Cachos did nothing unlawful when they charged their tenants for the additional property taxes.

A Split Resolved

In making its determination in Cacho, California's Supreme Court gave its approval to two earlier Court of Appeal decisions in similar cases, and its disapproval to a contrary third holding. The disapproved decision was rendered in Karrin v. Ocean-Aire Mobile Home Estates (1991) 1 Cal.App.4^th 1066, when the Court of Appeal rejected the argument that an assessment for mobilehome park road improvements could be considered a form of rent. That court found that such an assessment violated ' 798.31 of the MRL as being a charge for other than 'rent, utilities, and incidental reasonable charges for services actually rendered.'

The two cases that got it right ' Dills v. Redwoods Associates Ltd. (1994) 28 Cal.App.4^th 888 and Robinson v. City of Yucaipa (1994) 28 Cal.App.4^th 1506 ' both held that landlords who charged tenants extra amounts for capital improvements to their parks' roads were simply charging additional rent to cover the landlords' costs of doing business, so those charges were not illegal under the MRL. The Dills court noted that if park owners were not allowed to pass through the costs of capital improvements by means of assessments they would be forced to guess at future capital costs over the course of a lease and would probably set the rents too high in order to cover any such possible expenses. This would ultimately injure tenants, who would be asked to pay inflated base rents to cover any contingencies.

Janice G. Inman, Esq., is Editor-In-Chief of this newsletter.