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In evaluating a space rent increase imposed by an owner to maintain the owner’s net operating income from the park, the following definitions and provisions shall apply:

A. “Net operating income” of mobile home park means the gross income of the park less the operating expenses of the park.

B. “Gross income” means the sum of the following:

1. Gross space rents, computed as gross space rental income at 100 percent occupancy; plus

2. Other income generated as a result of the operation of the park, including, but not limited to, fees for services actually rendered; plus

3. Revenue received by the park owner from the sale of gas and electricity to park residents where such utilities are billed individually to the park residents by the park owner. This revenue shall equal the total cost of the utilities to the residents minus the amount paid by the park owner for such utilities to the utility provider; minus

4. Uncollected space rents due to vacancy and bad debts to the extent that the same are beyond the park owner’s control. Uncollected space rents in excess of three percent of gross space rent shall be presumed to be unreasonable unless established otherwise and shall not be included in computing gross income. Where uncollected space rents must be estimated, the average of the preceding three years’ experience shall be used.

C. “Operating expenses” means:

1. Real property taxes and assessments.

2. Utility costs to the extent that they are included in space rent.

3. Management expenses including the compensation of administrative personnel, including the value of any mobile home space offered as part of compensation for such services, reasonable and necessary advertising to ensure occupancy only, legal and accounting services as permitted herein, and other managerial expenses. Management expenses are presumed to be not more than five percent of gross income, unless established otherwise.

4. Normal repair and maintenance expenses for the grounds and common facilities including but not limited to landscaping, cleaning, and repair of equipment and facilities.

5. Owner-performed labor in operating or maintaining the park. In addition to the management expenses listed above, where the owner performs managerial or maintenance services which are uncompensated, the owner may include the reasonable value of such services. Owner-performed labor shall be limited to five percent of gross income unless the arbitrator finds that such a limitation would be substantially unfair in a given case. A park owner must devote substantially all of his or her time, that is, at least 40 hours per week, to performing such managerial or maintenance services in order to warrant the full five percent credit for his or her labor as an operating expense. No credit for such services shall be authorized unless a park owner documents the hours utilized in performing such services and the nature of the services provided.

6. Operating supplies such as janitorial supplies, gardening supplies, stationery, and so forth.

7. Insurance premiums prorated over the life of the policy.

8. Other taxes, fees, and permits, except as provided in SMC 9.28.170.

9. Reserves for replacement of long-term improvements or facilities; provided, that accumulated reserves shall not exceed five percent of gross income.

10. Necessary capital improvement costs exceeding existing reserves for replacement. A park owner may include the cost of necessary capital improvement expenditures which would exceed existing reserves for replacement. A necessary capital improvement shall be an improvement required to maintain the common facilities and areas of the park in a decent, safe, and sanitary condition or to maintain the existing level of park amenities and services. Expenditures for necessary capital improvements to upgrade existing facilities shall be an allowable operating expense only if the park owner has:

a. Consulted with the park residents prior to initiating construction of the improvements regarding the nature and purpose of the improvements and the estimated cost of the improvements.

b. Obtained the prior written consent of at least one adult resident from a majority of the mobile home spaces to include the cost of the improvements as an operating expense. Evidence of such consent must be presented at the time of filing the application seeking to include such a capital improvement as an operating expense.

c. Any capital improvement expenses shall be amortized over the reasonable life of the improvement or such other period as may be deemed reasonable by the arbitrator under the circumstances. In the event that the capital improvement expenditure is necessitated as a result of an accident, disaster, or other event for which the park owner received insurance benefits, only those capital improvement costs otherwise allowable exceeding the insurance benefits may be calculated as operating expenses.

11. Involuntary refinancing of mortgage or debt principal. A park owner may, under the provisions of this subsection, be able to include certain debt service costs as an operating expense. Such costs are limited to increases in interest payments from those interest payments made during 1986 or the first year such payments were made if the owner acquired the park after 1986 which result from one of the following situations or the equivalent thereof:

a. Refinancing of the outstanding principal owed for the acquisition of a park where such refinancing is mandated by the terms of a financing transaction entered into prior to January 1, 1987, for instance, termination of a loan with a balloon payment; or

b. Increased interest costs incurred as a result of a variable interest rate loan used to finance the acquisition of the park and entered into prior to January 1, 1987.

In refinancing, increased interest shall be permitted to be considered as an operating expense only where the park owner can show that the terms of the refinancing were reasonable and consistent with prudent business practices under the circumstances.

D. Operating expenses shall not include the following:

1. Debt service expenses, except as provided in subsection (C)(11) of this section.

2. Depreciation.

3. Any expense for which the park owner is reimbursed.

4. Attorneys’ fees and costs, except printing costs and documentation as required by SMC 9.28.060, incurred in proceedings before an arbitrator or in connection with legal proceedings challenging the decision of an arbitrator or the validity or applicability of this chapter.

E. All operating expenses must be reasonable. Whenever a particular expense exceeds the normal industry or other comparable standard, the park owner shall bear the burden of providing the reasonableness of the expense. To the extent that an arbitrator finds any such expense to be unreasonable, the arbitrator shall adjust the expense to reflect the normal industry or other comparable standard.