15.04.150 Operating expenses.

(A) For purposes of calculating NOI pursuant to Section 15.04.130, "operating expenses" may include:

(1) Real property taxes and assessments;

(2) Utility costs to the extent that they represent costs to the park owner which are not passed through to residents of the mobilehome park;

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

(4) In addition to the management expenses listed above, if the park owner performs managerial or maintenance services which are uncompensated, the park owner may include the reasonable value of such services or operating expenses. Park 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 mobilehome park owner must devote substantially all of the park owner's time, that is, at least forty hours per week, to performing such managerial or maintenance services in order to warrant the full five percent credit 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;

(5) Normal repair and maintenance expenses for the grounds and common facilities including, but not limited to, landscaping, cleaning and repair of equipment and facilities;

(6) Operating supplies such as janitorial supplies, gardening supplies and stationery;

(7) Insurance premiums prorated over the life of the policy;

(8) Other taxes, fees, and permits, except as provided in Section 15.04.200;

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

(10) Costs of necessary capital improvements or substantial rehabilitation which exceeds existing reserves for replacement. A necessary capital improvement shall be an improvement required to maintain the common facilities and areas of the mobilehome park in a decent, safe and sanitary condition or to maintain the existing level of mobilehome park amenities and services. In the event that the capital improvement or substantial rehabilitation expenditure is necessitated as the result of an accident, disaster, or other event for which the park owner received insurance or other benefits, only those costs otherwise allowable and exceeding such benefits may be calculated as operating expenses.

Expenditures for necessary capital improvements to upgrade existing facilities, together with a reasonable return upon the capital improvement investment made by the park owner, shall be an allowable operating expense only if the park owner has:

(a) Consulted with the affected residents prior to initiating construction or implementation of the capital improvement regarding the nature, purpose and estimated cost of the improvement, and

(b) Established by written verification or other competent evidence to the satisfaction of the arbitrator that the costs of the necessary capital improvements are factually correct as claimed, and

(c) Cost-factored and amortized the costs of the improvement over the good faith estimate of the remaining life of the improvement, but in no event for a period of less than sixty months, and

(d) Allocated the increase among affected residents on a per space basis and separately itemized such increase on the rent bill. Such increases shall not be considered included in the base rent for purposes of the annual permissible rent increases pursuant to Section 15.04.070(A);

(11) Increases in interest payments 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 July 1, 2010, 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 July 1, 2010.

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.

(B) "Operating expenses" shall not include the following:

(1) Debt service expenses, except as provided in subsection (A)(11) of this section and as permitted in connection with the computation of costs of a capital improvement or substantial rehabilitation;

(2) Depreciation;

(3) Any expense for which the park owner is reimbursed;

(4) Arbitration fees; or

(5) Attorneys' fees and costs (except printing costs and documentation as required by Section 15.04.090) 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.

(C) 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 proving the reasonableness of the expense. To the extent that the arbitrator finds any such expense to be unreasonable, the arbitrator shall adjust the expense to reflect the normal industry or other comparable standard.