ALJDEC

02F-L002011(4)-BFS · Department of Building and Fire Safety - LTA · 2002-04-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 1, 2002. APPEARANCES: Don Mitchell, Petitioner; Douglas N. Nelson, Respondent’s attorney; Mark Keith, Respondent’s witness; Trent Flanagan, Respondent’s witness; and 47 co-Petitioners and observers registered in the record. ADMINISTRATIVE LAW JUDGE: Dorinda M. Lang. _____________________________________________________________________ Petitioners in the above matter established that the Respondent, Cal- Am Properties, violated A.R.S. § 33-1432(F) and the terms of their lease when it increased its monthly service charge for utilities without giving proper notice and without financial justification. Petitioners did not meet their burden of proof with regard to the other Respondents. Having heard the evidence and testimony in the matter, the undersigned Administrative Law Judge hereby makes the follow findings of fact and conclusions of law and issues the following Order through the Arizona Department of Building and Fire Safety. FINDINGS OF FACT 1. The Petitioners in the above matter reside at Mesa Village Mobile Home Park, owned since February 2001 by Cal-Am Properties. Many of the residents of the park are winter residents who leave for the entire summer. In the summer of 2001, Cal-Am Properties began charging a minimum monthly service charge on all utilities regardless of use. 2. Several of the tenants filed a petition with the Department of Building and Fire Safety Office of Manufactured Housing against Cal-Am Properties, Mesa Village Mobile Home Park, Mesa Village Associates, LLC, and Tom and Pat Munger. Cal-Am Properties was the only Respondent that appeared at hearing. It was not disputed that Cal-Am Properties acts as the current landlord. The petition opposes the imposition of an increased monthly service charge for utilities assessed against all of the tenants without advance notice. 3. Previously, monthly service charges were posted to give notice to the tenants of the amounts. The last notice prior to the new charges stated as follows:

The following service charges will be reflected on the June 1, 1999 billing for April utilities and will be in effect for the calendar year: Electric...12.70 (winter) 2.70 (summer) Gas... 7.60 Water 7.80 *Sewer...5.80 These monthly charges are only when any utilities are used. *Sewer charge is only made when over 1000 gallons of water is used during the month.

You might note the Sewer Charge is less than you have been paying each month.

Please note there is no charge for refuse/ trash collection. The City of Mesa currently charges $15.75 per home.

If adjustments need to be made in subsequent years, the resident will be notified. In no event will these charges exceed the City of Mesa single family residential rates, in accordance with the Arizona Landlord and Tenant Act and the Arizona Corporation Commission. 4. No notice was given to the residents when Cal-Am Properties began charging the $32.98 monthly service charge. The utility charges on the residents' monthly bills did not disclose any additional costs incurred by Cal-Am Properties in providing the utilities. The lease between the parties that governed their respective duties and liabilities did not change at any time relevant to this case. 5. The lease governing the residents and the park states, in pertinent part, "The Tenant shall pay to the Landlord any and all utility charges incurred in providing to Tenant electricity, gas, water and any other utility used by the Tenant in connection with the mobile home space described herein. These charges shall be due and payable upon presentation of a bill by the Landlord, and the amount thereof shall be deemed additional rent. It is also understood by the parties as follows:... Tenant shall pay in connection with the cost of utilities provided by Landlord, any and all costs incurred for basic metering, billing and maintenance charges which sums shall be included in each monthly bill..." (Emphasis added.) 6. Under the same lease, the previous landlord did not charge any service charges when a home did not use its utilities in a particular month. The current landlord, Cal-Am Properties, charges a higher minimum service charge every month, and it is imposed regardless of usage. Aside from the service charge, utilities are billed based on amount of usage according to the meters outside of each home. Cal-Am Properties is responsible for maintenance and metering from its main lines to the meters. It pays the commercial rate for the utilities used by the entire park and then charges the residential rate to the park residents. The residential rates on all utilities are generally a great deal higher than the commercial rates charged to Cal-Am Properties. The utility companies do not charge Cal-Am Properties a minimum monthly service charge that applies when the winter residents are gone. 7. Recently, the residents have been afforded the option, by notice dated February 19, 2002, to have the property manager turn off the utilities and turn them back on when they return. A charge is levied to reconnect the utilities in the amounts of $25.00 for electricity, $1.95 for tax, and $18.33 for gas and water, but no monthly service charge is imposed while they are off. The notice posted on the bulletin board informing the residents of the option of having the landlord disconnect the utilities was entitled, "Utility Charge Changes". 8. At hearing, Douglas Nelson, attorney for Cal-Am Properties, argued that the billing procedures existing prior to the purchase in February 2001 by Cal-Am Properties was irrelevant. He also argued that Cal- Am Properties is not charging in excess of the residential rates, which is prohibited by State law. Because residential rates include a minimum monthly service charge, he argued, the Respondent Landlord was entitled to charge a minimum monthly service charge as well. He argued that no advance notice was required because the utility charges vary from month to month and it would be unreasonable to require the landlord to give notice every month that rent amounts were changing. He also argued that since Cal-Am Properties has to pay for maintenance even when the residents are gone, it should be allowed to charge a minimum fee. He asked that the Director find in favor of Cal-Am Properties and award them their costs and attorney's fees. CONCLUSIONS OF LAW 1. Pursuant to A.R.S. § 41-2198.02(A), the Administrative Law Judge may issue an order requiring the parties to abide by the statute or contract provision at issue. The Administrative Law Judge may not hear cases regarding rent increases at the expiration of a lease or impose civil penalties for violations of A.R.S. § 33-1401 et seq. (the Arizona Mobile Home Parks Residential Landlord and Tenant Act (“the Act”)). She may, however, ensure compliance with the Act in adjudicating complaints regarding its violation. A.R.S. § 41-2198. 2. State law prohibits mobile home park landlords from increasing rent on an unexpired lease without first giving 90 days notice of the event. A.R.S. § 33-1432(F). It also provides that the landlord must “post in a conspicuous place a copy of the current utility rates unless the tenant is charged directly by the utility company”. A.R.S. § 33-1432(E). Although A.R.S. § 33-1432(E) was not specifically mentioned in the Notice of Hearing, the facts complained of in the petition clearly refer to the Respondent’s failure to notify tenants of a change in the way utilities are charged as part of the rent. Since Respondent is not subject to civil penalties in this forum and Petitioner is not entitled to further damages due to the additional violation, the issue is practically moot. It is mentioned herein, however, to advise Respondent of its ongoing duties under the Act. 3. In this case, the lease governing Cal-Am Properties and all of the park residents states that the utilities will be considered part of the rent. It also states that utilities and additional costs for billing and metering that are incurred by the landlord, will be charged to the tenants. It does not provide for the landlord to tack on additional fees or services charges unless they are actually incurred. It also does not provide for an increase in the rent (and the cost of utilities is deemed by the lease to be part of the rent) without notice. A notice was posted prior to June 1999 setting forth the monthly service charges for each utility, stipulating that no service charge would be levied if the utilities were not used, and stating that another notice would be posted if the service charges were to change. Clearly, prior to Cal-Am Properties' purchase of the park, landlord and tenants had an understanding as to what the lease required by way of notice of the monthly service charges, and those charges had already been posted at a particular rate. Their interpretation of the lease was reasonable in light of the terms used therein and the law requiring notice of any changes in rent. 4. The lease provides that the landlord may pass on its costs in providing utilities to the residents. It does not provide for the landlord to make a profit from those utilities. Therefore, any increase in the monthly service charge would have to be supported by costs that were incurred by the landlord or the lease has been breached. Although Cal-Am Properties testified that it incurs costs in maintaining the utility lines, this obligation has not changed during the course of the lease, and there was insufficient evidence to establish that the costs had increased sufficiently to justify the additional amount that was being charged in the Respondent’s new service charge. The total summer service charge in place at the time Cal-Am Properties purchased the park was $22.90 for those residents using the utilities if the sewer charge was to go into effect. Cal-Am Properties charges a minimum of $32.98. There was no evidence as to additional costs to the landlord that would justify an increase of the summer service charges by $10.08 monthly from each tenant. There was also no cost-based evidence to justify charging residents who were not using their utilities during the summer other than the general maintenance responsibility that the landlord already had since the beginning of the lease. If the service charge is to be considered rent because the lease designates it as such, the change in service charges constitutes an increase in rent that must comply with notice requirements. Additionally, utilities are charged in the lease as a pass-through of the landlord's costs, not an item of income. Therefore, the increased charge is a breach of the lease in that no correlating increase in costs appears to justify the increase. 5. Cal-Am Properties argued that utility rates change with usage, so posting changes is impractical, if not impossible, and is, therefore, not required. The service charge in question in this case, however, is not variable or based on usage, and notice could easily have been given to the tenants. Further, while tenants may keep track of the amount of utilities they are using or look at their own meters and thus exercise a degree of control over their finances, they did not have that choice with regard to the imposition of the monthly service charge, especially if it went into effect while many of them were gone for the summer. Nothing prevented Cal- Am Properties from complying with the law in this case. 6. Cal-Am Properties argued that it did not violate a State law that prohibits charging more than the residential rate for utilities. The point is irrelevant. Compliance with one law does not free the landlord to violate other laws or to breach its lease. The issue is whether the landlord gave proper notice of an increase in rent when it imposed a higher monthly service charge regardless of whether the tenants used their utilities and regardless of whether this reflected its actual costs. The facts of the case clearly establish that Cal-Am Properties increased the Petitioners’ rent without giving 90 days notice, as required by statute, and that it has not shown a valid cost basis for the increase, as required by the lease. Therefore, Cal-Am Properties is in violation of the above- named statute and the lease. 7. No evidence was presented to show any violation by the Respondents other than Cal-Am Properties. Therefore, the petitions against them shall be dismissed. ORDER In consideration of the above, the undersigned Administrative Law Judge hereby orders the Respondent, Cal-Am Properties, to reimburse each and every tenant, regardless of whether named as a Petitioner, any service charges levied over and above $22.90 for the summer (to be defined as May through October in accordance with the prior landlord’s summer service charge) of 2001, as complained of in the petition. Further, in accordance with the Administrative Law Judge’s duty to ensure compliance with the Act under A.R.S. § 41-2198, it is ordered that the Respondent, Cal-Am Properties, shall reimburse each and every tenant, regardless of whether named as a Petitioner, any utility service charges levied over and above the rates in effect in June 1999 from February 2001 to the present date. All such reimbursement shall be made on or before the effective date of this Order. It is further ordered that, on or before the effective date of this Order, Respondent shall reimburse the Petitioners for any and all filing fees paid pursuant to A.R.S. § 41-2198.01. Pursuant to A.R.S. § 41-2198.01(A), the Administrative Law Judge may order any party to abide by the statute or contract provision at issue. Therefore, it is further ordered that the Respondent may not charge any further monthly service charges beyond the rate established in June 1999 to any park resident unless and until proper notice is given. It is further ordered that Petitioners’ waiver of the issue of whether Respondent is entitled under the lease to charge residential utility rates when it is paying commercial rates shall not bar them from filing a petition on that issue in the future. Pursuant to A.R.S. § 41-2198.02(B), this Order is enforceable through contempt of court proceedings. Although Respondents Mesa Village Associates, Tom and Pat Munger, and Mesa Village Mobile Home Park were not present at hearing, the evidence presented did not support a violation by them. Therefore, it is ordered that the petition shall be denied and dismissed against all Respondents other than Cal-Am Properties. Done this day, April 11, 2002. OFFICE OF ADMINISTRATIVE HEARINGS

______________________________________ Dorinda M. Lang Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2002, to:

Department of Building and Fire Safety - LTA N. Eric Borg Attn.: S. Gail Hinkley East Virginia, Suite 100 Phoenix, AZ 85004

By ___________________________

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826