Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of San Bernardino County No. SCVSS138959, Bob N. Krug, Judge. (Retired judge of the San Bdno. Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)
Richards, Watson & Gershon, Marguerite P. Battersby, Rochelle Browne and Michael Estrada for Defendants and Appellants.
Hart, King & Coldren, Robert S. Coldren, C. William Dahlin and Mark D. Alpert for Plaintiffs and Respondents.
OPINION
Gaut J.
Defendants City of Yucaipa and City of Yucaipa Rent Review Commission (Commission) appeal judgment entered in favor of plaintiffs Arthur Emerson and Marie Emerson (the Emersons). This appeal arises out of the Emersons applying for a discretionary rent increase for their mobilehome park pursuant to the Yucaipa Mobilehome Park Rent Stabilization Program codified in the Yucaipa Municipal Code and referred to in this opinion as “the Ordinance.” (Yucaipa Mun. Code, tit. 20, ch. 15.20, §§ 15.20.010, et seq.) After the Commission and City Council denied the Emersons’ application for a rent increase, the trial court granted the Emersons’ petition for writ of administrative mandamus ordering the City Commission and City Council (collectively, the City) to vacate their decisions and the Commission to rehear the matter. The court also granted judgment in favor of the Emersons on their declaratory relief claim.
Unless otherwise noted, use of the word “section” shall refer to the Ordinance in the Yucaipa Municipal Code.
The City contends the Commission and City Council properly denied the Emersons’ application for a discretionary rent increase on the ground the Emersons’ application was incomplete. The City argues it properly relied on expert opinion that 1996 was the appropriate base year for determining whether the Emersons were entitled to a rent increase. In addition, the City asserts the Emersons were barred from claiming a 1987 base year adjustment since they previously raised and settled the same claim in 1999. The City also complains that the trial court erred in entering judgment on the declaratory relief claim when only the writ petition was heard.
We conclude the rent application was not incomplete for purposes of hearing and deciding the matter, and even if there was insufficient documentation to determine if the Emersons were entitled to a rent increase, the matter must be remanded because the City erred in relying on 1996, rather than 1987, as the base year. We further conclude the Emersons were not barred by the 1999 settlement from requesting in the Emersons’ 2005 application a rent adjustment to the 1987 base year. The 1999 settlement concerned a rent increase application for 1996 and did not preclude the Emersons from subsequent applications for rent increases or from using the methodology specified in the Ordinance for determining entitlement to discretionary rent increases.
We thus conclude that under the Ordinance, the City is to use 1987 as the base year and consider whether a base year adjustment is appropriate when determining whether the Emersons are entitled to a discretionary rent increase. We also conclude the trial court did not commit reversible error by entering judgment on the Emersons’ declaratory relief claim. The judgment is affirmed.
1. Factual and Procedural Background
The Emersons own and operate in Yucaipa an 87-space mobilehome park known as Valley Breeze Mobile Home Park (Park). In 1991, Yucaipa enacted a mobilehome park rent control ordinance (the Ordinance, as previously identified) establishing a comprehensive scheme for regulation of space rents in mobilehome parks in Yucaipa. The Ordinance limits the rent increases that park owners can charge.
A. The Ordinance
The Ordinance permits mobilehome park owners a fair and reasonable return while protecting mobilehome park residents against excessive rent increases. (§ 15.20.010, subds. (A) & (E); § 15.20.100.) The Ordinance operates on the rebuttable presumption that mobilehome park net operating income (NOI) provides owners with a fair return in the base year. The Ordinance specifies 1987, which was prior to enactment of rent control, as the base year for calculating rent increases. (§ 15.20.100, subd. (D).) A base year preceding implementation of rent control is often used because it is presumed the owner was earning a fair return before rent control was implemented. The Ordinance defines fair return as the amount needed to maintain base year NOI, as adjusted for inflation. (§ 15.20.100, subd. (D).)
The Ordinance provides for automatic annual rent adjustments for inflation by allowing the park owner annually to increase the park’s 1987 NOI by 66.67 percent of the increase in the Consumer Price Index (CPI) during the period of December 31, 1987, to October 29, 1996; and 80 percent of the increase in the CPI from October 29, 1996, to the date of the application for an additional discretionary rent increase. (§ 15.20.100, subd. (D).)
The CPI “means the CPI published by the Bureau of Labor Statistics for the Los Angeles Anaheim-Riverside Metropolitan Area, All Urban Consumers.” (§ 15.20.020.)
The base year NOI is calculated by subtracting actual operating expenses from gross income for the year. (§ 15.20.100.) The park owner may rebut the presumption that the 1987 base year NOI provided a just and reasonable return in 1987 by presenting evidence to the contrary, such as evidence showing that the park’s rent or operating expenses in 1987 were unusually high or low. (§ 15.20.100, subd. (E).) For instance, the owner must show that base year rents were below market, that is, they were disproportionately low compared to rents charged for comparable mobilehome park spaces in the City and surrounding areas. (§ 15.20.100, subd. (E).) If the park owner rebuts the presumption, the 1987 NOI and base rent should be adjusted accordingly to allow for a just and reasonable return. (§ 15.20.100, subd. (E).)
This formula for determining whether a park owner is entitled to a discretionary rent increase is commonly referred to as the Maintenance of Net Operating Income methodology (MNOI). (§15.20.100, subd. (E).) In essence, it assures that the park owner will earn and maintain over the years a “target” NOI, which is presumed to provide the park owner a fair return. The target NOI is established by determining the NOI at the time of the base year, which under the Ordinance in this case is 1987.
Under the Ordinance in the instant case, the park owners may apply for extraordinary rent increases, beyond those allowed without review, by submitting an application for a discretionary rent increase to the Commission. (§§ 15.20.060, subd. (A), 15.20.100, subd. (F).) The park owner bears the burden of establishing entitlement to a discretionary rent increase by proving that the park is not earning a just and reasonable return. (§ 15.20.100, subd. (F).)
B. First Application for Discretionary Rent Increase
The Emersons owned the Park continuously since 1960, before rent control. Upon enactment of rent control, the Emersons charged the permitted annual rent increase each year.
In 1997, the Emersons submitted their first application for a discretionary rent increase. The Emersons requested a 1987 base year NOI adjustment of $84 and a permanent rent increase of $125. The Commission granted a $60 a month per space increase, which the Emersons challenged by filing a complaint in the trial court in 1998 for writ relief. The matter was settled in 1999 (the 1999 settlement), and the settlement was entered by the court as the judgment in the case. Pursuant to the stipulated judgment, the parties agreed the Emersons would be granted a permanent $80 rent increase to be implemented over four years, with a $20 per month rent increase per space in each of four years.
During the dispute over the first application for a discretionary rent increase, the Emersons asserted that the 1987 base year NOI should be adjusted under section 15.20.100, subdivision (E) because the Park’s rents in 1987 were below market and therefore should be adjusted upward. In settling the 1998 lawsuit, the parties did not come to an agreement as to what the 1987 base year NOI should be. The parties merely agreed to an $80 rent increase.
C. Second Application for Discretionary Rent Increase
In 2005, the Emersons applied for a second discretionary rent increase. (§ 15.20.100, subd. (E).) By letter dated August 16, 2005, the City Clerk and rent administrator, Jennifer Shankland, informed the Emersons that their application was incomplete. Shankland requested the Emersons to provide additional documentation concerning various expenses.
By letter dated August 22, 2005, the Emersons, through their attorney, responded to Shankland’s letter by asserting the application was complete and objecting to the untimeliness of the City’s request for additional information. Nevertheless, the Emersons provided some of the information and documentation requested by the City. The Emersons objected to Shankland’s demand for invoices and receipts for the legal and accounting costs, repairs and utilities for the current period, as extremely burdensome. The Emersons asserted that Shankland’s demand for a breakdown of the legal, accounting, license, repairs and utilities expenses for 2001, 2002, and 2003, was burdensome and irrelevant since the target year was 2004.
The City and the Emersons exchanged additional correspondence concerning the Emersons providing additional documentation. The Emersons requested the City to limit their requests to specific items rather than demanding overly broad categories of documents. The City claimed it was authorized under the City Administrative Rules, rule 1.0029(b)(8) and City Resolution No. 2003-40, to request the information demanded. On November 1, 2005, the Emersons produced approximately 200 pages of additional documents for operating expenses in 2004.
Unless otherwise noted, the City Administrative Rules will be referred to as “Administrative rules.” We will refer to the City Commission Rules and Procedures for Conduct of Mobile Home Rent Public Hearings as “Hearing Rules.”
The City continued to maintain the application was incomplete but nevertheless eventually set a hearing on the application, conditional upon the Emersons signing an agreement acknowledging that the failure to provide information might prejudice the application and result in the exclusion of claimed expenses.
The Commission conducted public hearings on November 14 and December 13, 2005, on the Emersons’ rent increase application. The on-site manager for the mobilehome park, Mitchell Emerson, testified at the hearing. The City’s expert, Kenneth Baar, Ph.D., also testified. He concluded that 1996 should be used as the base year, rather than 1987, based in part on the City attorney’s opinion that pursuant to the 1999 settlement and stipulated judgment, the Emersons were barred from claiming a 1987 base year adjustment.
The Commission denied the Emersons’ rent increase application on the ground it was incomplete because the Emersons had not provided all of the documentation requested and therefore the Commission was unable to make the necessary factual findings required in determining whether the Emersons were entitled to a rent increase. The Commission further stated in its written decision, Resolution 2006-1, that the 1999 settlement foreclosed the Emersons from asserting that the 1987 base year rents were below market. The settlement thus had the effect of creating a new base year, that of 1996, the target year for the 1997 application.
In February 2006, the Emersons filed an administrative appeal with the City Council. The Emersons included with the appeal legal bills and documents, in which they had removed most of the redactions contained in the previously submitted bills. The City rejected and returned the attached documents on the ground they contained new information that had not previously been considered by the Commission.
The City Council heard the Emersons’ appeal, and on April 10, 2006, affirmed and adopted by Resolution 2006-08 the findings and conclusions contained in the Commission’s decision, Resolution 2006-1.
In June 2006, the Emersons filed in the trial court a complaint for declaratory relief and petition for writ of administrative mandamus (Code Civ. Proc., § 1094.5). The Emersons requested in their declaratory relief claim (1) a determination that the 1999 settlement agreement did not preclude the Emersons from submitting subsequent applications for discretionary rent increases relying on 1987 as the base year, adjusted for below market rents; (2) the City was precluded from relying on the 1999 settlement agreement as a basis for using a base year other than 1987, such as 1996; and (3) the City’s reliance on the 1999 settlement agreement as a basis for making certain findings in conjunction with the Emersons’ 2005 rent increase application constituted a breach of the settlement agreement.
As to the Emersons’ petition for writ relief, the Emersons requested an order that the Commission vacate its decision deeming the Emersons’ rent increase application incomplete; reconsider the application on the merits; use 1987 as the base year; allow an adjustment of the 1987 base year NOI; and grant the Emersons a rent increase that would provide the Emersons with a just and reasonable return.
After the parties submitted briefs, and the court heard testimony and argument, the trial court ruled in favor of the Emersons.
On March 22, 2007, the court entered an amended peremptory writ of administrative mandamus and amended judgment granting peremptory writ of mandamus and declaratory relief. The court ordered the Commission and City Council to vacate their decisions on the Emersons’ 2005 rent increase application, and remanded the matter to the Commission for reconsideration and for rehearing the matter. The trial court found that the 1999 settlement agreement had no effect on the base year to be used in the Emersons’ current rent increase application; 1987 was to be used as the base year, not 1996; and the Commission was permitted to request and consider additional new evidence needed to decide the matter, in accordance with Administrative rule 1.0029, subdivision (B)(8).
The City appeals the amended judgment granting peremptory writ of mandamus and for declaratory relief, entered on March 22, 2007.
2. Completeness of Application
The City argues it did not abuse its discretion in denying the Emersons’ rent increase application since it was incomplete.
We review the Commission’s factual determinations for substantial evidence and independently review the Commission’s interpretation of the Ordinance, according that interpretation due deference. (MHC Operating Limited Partnership v. City of San Jose (2003) 106 Cal.App.4th 204, 220 (MHC); Carson Harbor Village, Ltd. v. City of Carson Mobilehome Park Rental Review Bd. (1999) 70 Cal.App.4th 281, 287 (Carson).)
Administrative rule 4.0002 and section 15.20.100, subdivision (G) require that a request for a mobilehome park rent increase must be submitted to the City on a form application provided by the City’s “rent administrator,” Jennifer Shankland. The application face sheet stated that the application must be accompanied by supporting documentation, including documents establishing gross income and operating expenses for 1987, the base year, and for the “current period,” which in the instant case was the calendar year of 2004 (the “target year”).. Proper notice of the application for a rent increase and payment of specified fees was also required. The rent administrator had 30 days in which to declare the application complete. (§ 15.20.100, subd. (G)(4)(a).) A hearing by the Commission was to be held within 60 days from the date the application was determined complete. (§ 15.20.100, subd. (G)(4)(a).)
On July 6, 2005, the Emersons submitted their rent increase application on the appropriate City form and attached supporting documents. Using 1987 as the base year, the Emersons provided documentation showing that the Park’s rents in 1987 were between $81 and $85, below fair market rent. The Emersons requested a rent increase of $157.79, based on the MNOI formula, using a 1987 base year NOI of approximately $84 a month and adjusting the base year NOI for inflation pursuant to the Ordinance.
By letter dated July 18, 2005, Shankland confirmed the City had received the Emersons’ application and application fee but notified the Emersons that in order to complete the application, they were required to post notice of their rent increase application, provide a $1,500 deposit for auditing and other services, and provide the names, resumes, and reports of the Emersons’ experts.
After the Emersons complied with these requirements on July 26, 2005, by letter dated August 16, 2005, the City informed the Emersons that their application had been accepted but that it was still incomplete because the City needed 14 categories of information and documentation relating to the Park’s utility, water, trash, management, and license expenses. The City also requested information and documentation concerning the Emersons’ claimed “other” expenses, “other rent amount,” and attorneys fees and costs. In addition, the City requested invoices and receipts and tax bills, and a breakdown of the expenses for the years 2001, 2002, 2003, and 2004.
The Emersons responded to this and subsequent City requests by providing additional documentation, while objecting to the burdensomeness and relevancy of some of the requests and redacting from the legal services invoices the descriptions of the legal services provided. The Emersons also claimed the City’s demand for additional documents was too late because it was made after the 30-day cutoff to deem the application complete. The City claimed its request was timely because the application was not accepted until July 26, 2005, when the Emersons paid the $1,500 deposit and completed giving notice of their application.
The City argues the application was incomplete primarily because the Emersons failed to provide requested documentation (1) regarding management expenses that “seemed to have increased in an unusually large amount”; (2) invoices and receipts for legal services and accounting expenses in 2004, which were necessary “so that the reasonableness of claimed expenses could be determined”; (3) invoices and receipts for legal, accounting and repair expenses in 2001, 2002 and 2003 “to determine whether the 2004 expenses were representative or should be averaged pursuant to [Administrative] Rule 4.003 (E)(5); and (4) information about claimed attorney’s fees . . . because only certain fees are allowable, e.g., fees incurred in operating the park and seek[ing] rent increases.”
We conclude the City’s request for additional information and documentation was timely since the Emersons did not complete notice and pay all of the required fees until July 26, 2005, and the City’s initial request for additional documents was within 30 days thereafter. Administrative rule 1.0029 allows any commissioner or staff member to request an applicant to produce documents at any time after an application has been filed, including during the course of the hearing. (Admin. rule 1.0029, subd. (B)(8).) Rule 1.0029 further states that “If any evidence requested by a Commissioner or staff member is not available at the time of the hearing or other proceeding before the Commission, the hearing or other proceeding may be continued pursuant to Section 1.0029 (c) to allow time for the production of evidence or witnesses sought.” (Admin. rule 1.0029, subd. (B)(8); see also Hearing Rules, pp. 6-8.)
Based on our review of the record, we further conclude the Emersons’ application was complete for purposes of hearing and deciding the matter, even if additional information and documentation may have been necessary in order for the Emersons to meet their burden of proof. Upon the Emersons completing notice of their application on July 26, 2005, and depositing $1,500 with the City, the Emersons had fully complied with the application requirements. The basic information requested in the form application was provided. A declaration under penalty of perjury, certifying the information in the application was true, was provided. Notice was provided. The required fees were paid. Supporting information and documentation was provided, and upon the City’s request, numerous additional documents were provided.
Any claimed deficiency in the supporting documentation may have been grounds for the City claiming the Emersons had not met their burden of proving entitlement to a rent increase (Admin. rule 1.0029, subd. (D), § 15.20.100, subd. (F)), but was not a valid basis for declaring the application incomplete before it was heard, delaying hearing the matter, and ultimately denying the application on that ground alone. There was sufficient documentation upon which to hear and decide the matter, even if the Emersons did not provide all the documentation that the City requested and the City’s expert, Kenneth Baar, Ph.D. believed necessary to make a complete analysis.
Baar noted in his report that his report was “subject to the qualification that it has been limited by an absence of some information that has been requested of the applicant, but has not been supplied by the applicant” and that “[t]he applicant’s failure to provide such information effectively undercuts the possibility that the commission can determine whether or not to make expense adjustments.” Baar further stated that “the applicant has not produced income and expense information that it is critical for a complete analysis.”
The Emersons might not have met their burden of proof but their failure to produce all requested documents did not render their application incomplete. In certain instances, as was the case in MHC, supra, 106 Cal.App.4th 204, documentation may no longer be available or it may be unduly burdensome for the applicant to provide all documentation needed for analyzing whether a rent increase is warranted. Under such circumstances, a determination must be made as to whether the applicant acted in good faith in providing the necessary documents, and if unable in good faith to produce documents, whether the applicant has provided sufficient evidence to support a reasonable estimate.
In MHC, supra, 106 Cal.App.4th 204, MHC, the owner of a mobilehome park, attempted to use a base year other than the base year 1985, designated in the city rent control ordinance because the owner was unable to calculate the 1985 NOI due to missing financial records. The city denied MHC’s rent increase application on the ground MHC had not provided sufficient evidence to calculate the 1985 base year NOI. The trial court granted MHC’s writ petition and ordered the city to reconsider MHC’s application. In response, the city changed its ordinance to allow an estimate of the 1985 base year NOI, and then reheard and ultimately denied MHC’s application. (Id. at p. 210.) After complying with the trial court’s order, the city nevertheless appealed the order, and on appeal the MHC court held the city’s appeal was moot. (Id. at pp. 210, 216.)
Here, the Emersons’ application was not incomplete, even if they did not provide all the documents requested by the City. The Emersons complied with the requisites for submitting an application. It therefore was incumbent upon the City to determine whether the Emersons met their burden of proof and not deny the rent increase simply on the ground the application was incomplete.
We note the City’s request for additional documents benefited the Emersons in advising them of what the City believed it needed to determine the matter, and thus the Emersons were given an opportunity to meet their burden of proof by providing additional documents. If the requested documents were irrelevant, unavailable or too burdensome to obtain, that would be a matter to be determined at the hearing.
We further reject the City’s contention it properly denied the Emersons’ rent increase application because it was incomplete, since the City and Baar incorrectly assumed that 1996, rather than 1987, was to be used as the base year. Baar used 1996 as the base year, based in part on the City attorney’s incorrect conclusion that the 1999 settlement agreement precluded using 1987 as the base year. As a consequence, Baar’s conclusions and findings must be disregarded. Baar acknowledged during the hearing that if the City attorney’s opinion was incorrect as to the effect of the settlement, Baar would have done the analysis differently. Baar stated that his analysis and results were premised on the conclusion that under the 1999 settlement agreement, 1987 could not be used as the base year. Baar stated that if this was not true, he would have to redo his analysis.
Since we conclude, as discussed below, the 1999 settlement has no force or effect on the Emersons’ 2005 rent increase application, Baar must redo his analysis. Regardless of Baar’s determination that there was insufficient evidence to decide fully the Emersons’ application, since Baar relied on the incorrect base year, the matter must be reconsidered by the City using 1987 as the base year. Different evidence will be required than that relied on by Baar in assuming 1996 was the base year.
It therefore is necessary to remand the matter back to the Commission for reconsideration using 1987 as the base year. Under such circumstances, additional production of relevant documentation should be permitted and any further requests for documents should be narrowly tailored to the issues before the Commission. (Code Civ. Proc., § 1094.5, subd. (e).)
We emphasize that the Emersons are required to make a good faith effort to provide all documentation required to make a determination as to whether they are entitled to a rent increase. Baar’s report is relatively clear as to what information is required, with the exception he used the wrong base year. Some of the required documentation and information thus will differ, particularly as to the issue of whether the Emersons are entitled to a 1987 base year adjustment.
We further note that subsequent to the Commission’s decision in this matter, the Emersons provided unredacted legal costs records which can now be considered.
Since this matter must be returned to the Commission for rehearing, using 1987 as the base year, upon remand the City may request and the Emersons may produce additional documents, assuming this is done in accordance with the Ordinance, Administrative rules, and City Commission Hearing Rules.
We decline to address each of the City’s and the Emersons’ contentions as to the sufficiency of the evidence since this matter is being remanded for rehearing and because the City used the wrong base year.
Since the burden is ultimately on the Emersons to prove they are entitled to a rent increase, they must either provide the necessary information and documentation or establish they are unable to do so due to unavailability of the documents or because it is unduly burdensome to produce the documentation. If nonproduction of necessary evidence is justified, the Emersons bear the burden of establishing a reasonable method for estimating the base year and target NOI’s necessary for a determination as to whether a rent increase is warranted.
3. The 1999 Settlement Agreement
The City contends the 1999 settlement of the Emersons’ 1997 rent increase application barred the Emersons from claiming a 1987 base year adjustment when applying for subsequent rent increases. We disagree.
Interpretation of the 1999 settlement agreement is a question of law and subject to de novo analysis by this court. (Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 545, fn. 1, citing Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166.) In construing the stipulation we look to “the circumstances under which it was made, and the matter to which it relates.” (Civ. Code, § 1647; see also Code Civ. Proc., § 1860.)
In examining the 1999 settlement agreement, we find no language precluding the Emersons from using 1987 as the base year or from seeking readjustment of the 1987 base rents when applying in the future for subsequent rent increases. The 1999 settlement agreement does not expressly state or imply such intent. Furthermore, the circumstances leading to the 1999 settlement and entry of judgment reflect that the parties disagreed as to whether there should be a base year adjustment and as to the amount of the rent increase. Rather than clarifying as to whether the $80 increase was premised on a base year adjustment or specifying the amount apportioned to the adjustment and to the rent increase, the parties simply stipulated to the $80 increase in order to resolve the dispute without admitting to anything. The parties agreed in the settlement agreement that “The execution of this Agreement effects a settlement of claims which are contested and denied. There are no admissions of liability.”
The parties further stated in the 1999 settlement that the “Agreement is in compromise of the Action” and “is not to be treated as an admission of liability of any of the parties for any purpose other than as specifically set forth herein.” The settlement agreement also states that “nothing contained in this Agreement shall be construed as an admission against the interest of any party, . . .” In addition the agreement contains standard release language as to both parties.
The City attorney acknowledged in her email dated August 5, 2005, to Baar, in response to Baar’s inquiry concerning the 1999 settlement, that “The [1997] application sought both a base year rent increase and an NOI increase and the Commission resolution finds an entitlement to each kind of increase. However, the resolution clearly does not intend to adjust the base year rents as high as claimed by the applicant because it notes the applicant is not entitled to that much . . . but does not specify how the $60 phased rent increase . . . was apportioned between the base year rent adjustment and the NOI increase. Unfortunately, the settlement agreement, which would be controlling if it addressed this issue, does not address it and simply increased the $60 over 3 years to $80 over four years.”
We thus reject the City’s construction of the settlement as containing terms that were not stated or intended to be included in the settlement. There is no language in the settlement which states that 1987 cannot be used as the base year in future rent increase applications or that the Emersons are barred from claiming in future applications adjustment of the 1987 base year rent.
The City argues the 1999 settlement release provisions barred the Emersons from such claims. But the release is merely a general release which states in relevant part: “The Owners hereby release the City and Commission and its agents, representatives . . . from any and all obligations, liabilities, claims, costs, expenses, demands, debts, controversies, damages, and causes of action, which Owners have as of the date of this Agreement by reason of the Ordinance as applied prior to the date of this Agreement, and from all claims, causes of action or demands contained in, arising out of or in any way related to this Action.”
It is undisputed that this language did not preclude the Emersons from applying for subsequent rent increases, assuming such applications were not for the same target year as the settled claim, 1996, or for four years after imposing the four-year, incremental $20 per year increase agreed to in the 1999 settlement agreement. The release provisions in the 1999 settlement accordingly did not bar the Emersons’ 2005 rent increase application.
The City claims, however, the Emersons are barred in subsequent rent increase applications from using 1987 as a base year and requesting a 1987 base year adjustment, because the Emersons did so in their 1997 application. We reject this proposition because it is an attempt to circumvent the methodology specified in the Ordinance for determining rent increases. Furthermore, the 1999 settlement contains no language expressly stating that this would be the effect of the settlement agreement. There is nothing indicating that at the time of the agreement this was the intent of the parties: “However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract.” (Civ. Code, § 1648.)
The nonbinding nature of the 1999 settlement on the Emersons’ subsequent applications for rent increase is also apparent from the 1999 judgment entered pursuant to the terms of the 1999 settlement agreement. The judgment decreed: “This Judgment is pursuant to Stipulation and shall not constitute an adjudication of the merits for any future rent increase applications of Plaintiffs to Defendants.” Accordingly, the Emersons were not precluded from using the methodology provided for in the Ordinance in requesting future rent increases. Under the Ordinance, 1987 is to be used as the base year and an applicant may obtain a base year adjustment in calculating fair and reasonable rent increases.
Since the 1999 settlement does not resolve the Emersons’ request for a 1987 base year adjustment and does not expressly preclude the Emersons from seeking such an adjustment in future rent increase applications, the release provisions contained in the 1999 settlement did not bar the Emersons in future applications from using 1987 as the base year and requesting a base year adjustment in accordance with the methodology specified in the Ordinance.
4. Construing the Ordinance
Having concluded the 1999 settlement agreement does not preclude the Emersons from using 1987 as the base year and requesting a 1987 base year adjustment, we turn to the Ordinance in determining whether the City was required to use 1987 as the base year, as opposed to the 1996 base year recommended by Baar.
Baar acknowledged that the Ordinance provides that 1987 is to be used as the base year normally and that an applicant may request an adjustment of the base year rents if the park’s rents were under market in 1987. Baar concludes, and the City argues that, nevertheless, under the circumstances of the instant case, 1996 should be used as the base year because the City and the Emersons stipulated in 1999 that, as to the 1996 target year, the Emersons were entitled to a permanent $80 rent increase.
Baar therefore recommended using 1996 as the base year because it could be presumed that the 1999 settlement provided a fair and reasonable return for the 1996 target year by providing for an $80 rent increase. If the Emersons believe that, even with the $80 increase, a base rent adjustment to the 1996 rent is required, the Emersons could provide evidence in the instant case establishing that an adjustment is required.
While Baar’s rationale for selecting 1996 as a base year is reasonable in general, we reject his approach in the instant case because the Ordinance provides that 1987 shall be used as the base year and this also allows for a fair and reasonable return. We are not persuaded by the City’s argument that, since the instant case concerns a second application for a rent increase, a base year other than 1987 should be used. We do not agree that, under the Ordinance, whenever there has already been one rent application, the Ordinance provisions specifying the base year of 1987 need no longer be followed and the City can select an another base year.
A. Standard of Review
This court must construe the Ordinance as applied to the facts and thus, “To the extent that the administrative decision rests on the hearing officer’s interpretation or application of the Ordinance, a question of law is presented for our independent review. [Citation.] The interpretation of statutes and ordinances ‘is ultimately a judicial function.’ [Citation.] Even so, the hearing officer’s interpretation of the Ordinance is entitled to deference. . . . “The standard for judicial review of agency interpretation of law is the independent judgment of the court, giving deference to the determination of the agency appropriate to the circumstances of the agency action.” [Citation.] . . . In the particular context of rent control ordinances, ‘[t]he [commission’s] interpretation of an ordinance’s implementation guidelines is given considerable deference and must be upheld absent evidence the interpretation lacks a reasonable foundation. [Citation.] The burden is on the appellant to prove the board’s decision is neither reasonable nor lawful. [Citation.]’ (Carson Harbor Village, Ltd. v. City of Carson Mobilehome Park Rental Review Bd., supra, 70 Cal.App.4th at p. 287.)” (MHC, supra, 106 Cal.App.4th at pp. 219-220.)
We thus independently review the Commission’s interpretation of the Ordinance, according that interpretation due deference. (MHC, supra, 106 Cal.App.4th at p. 220; Carson, supra, 70 Cal.App.4th at p. 287.)
B. Analysis
The Ordinance in the instant case employs the MNOI formula to determine whether an applicant is entitled to a rent increase. The MNOI formula “operates on the presumption that net operating income in the base year provided a just and reasonable return. (§ 17.22.480.)” (MHC, supra, 106 Cal.App.4that pp. 221-222.) The parties in this case dispute whether, when there has already been at least one previous rent increase application, under the Ordinance 1987 is to be used as the base year.
We begin our analysis by noting that, “While a fair return is constitutionally required, ‘the state and federal Constitutions do not mandate a particular administrative formula for measuring fair return . . . .’ [Citations.] Thus, ‘rent control laws incorporate any of a variety of formulas for calculating rent ceilings.’ [Citations.] ‘Under broad constitutional tolerance, California cities may enact various forms of residential rent control measures to satisfy the just, fair and reasonable rent standard. [Citation.] Public administrative bodies, charged with implementing and enforcing rent control measures, are not obliged by either state or federal constitutional requirements to employ any prescribed formula or method to fix rents.’ (Carson Harbor Village, Ltd. v. City of Carson Mobilehome Park Rental Review Bd., supra, 70 Cal.App.4th at p. 289.)” (MHC, supra, 106 Cal.App.4that pp. 220-221.)
The City’s methodology for determining a fair return is set forth in the Ordinance. The dispute in the instant case arises from there being no specific provision for determining the base year when an applicant applies on more than one occasion for an additional rent increase. The City argues that there being no provision for such a circumstance, the City can rely on its expert to select an appropriate base year, that being the year of the most recent rent application decision.
We are unpersuaded. The Ordinance clearly states the base year is to be 1987 when applying for a rent increase. Since there is no provision to the contrary, we conclude that base year shall be used whenever there is a rent increase application, regardless of whether there has been a previous application. If the City wishes to apply a different methodology for successive applications, then it is incumbent upon the City to amend the Ordinance to state this alternative methodology in the Ordinance. Accordingly, the 1987 base year specified in the Ordinance is to be used in the instant case and, therefore, the City erred in deviating from the Ordinance by using 1996 as the base year.
The City’s reliance on Los Altos El Granada Investors v. City of Capitola (2006) 139 Cal.App.4th 629 (Los Altos), for the proposition that the City may use 1996 as the base year, is misplaced. In Los Altos, a mobilehome park owner applied for a discretionary rent increase. The city granted a rent increase but it was less than the amount the owner requested. The owner filed a complaint and writ petition. The owner complained on appeal that the court erred in relying on Baar’s expert opinion that 1987 should be the base year rather than a pre-rent control year. The court in Los Altos held the city rent review board had discretion to use the base year recommended by its city expert. (Id. at p. 655.)
Los Altos is distinguishable for several reasons: (1) The city rent control ordinance in Los Altos did not specify a base year to be used; (2) in Los Altos, Baar did not select a pre-rent control base year because there was no data available prior to enactment of rent control since the owner did not purchase the park until eight years after rent control was enacted; (3) the owner did not object to using 1987 as the base year in previous applications for rent increases or attempt to rebut the presumption the owner was receiving a fair rate of return in that year; and (4) it was presumed the rent at the time of the 1987 base year provided a fair market return since that was when the owner purchased the mobilehome park, “and presumably adjusted its purchase price to provide it with a fair return based on the rent levels in effect at the time.” (Los Altos, supra, 139 Cal.App.4th at p. 655.)
None of these circumstances exist in the instant case. In the instant case, the ordinance provides that 1987 should be used as the base year and it is to be presumed, unless proven otherwise, that the 1987 NOI provided a just and reasonable return. The ordinance provides detailed instructions on how to calculate a discretionary return, using 1987 as the base year.
While Baar provided an alternative method for calculating a discretionary return by selecting a different base year, we construe the Ordinance as requiring calculation of a discretionary rent increase based on the 1987 base year. There are no provisions in the ordinance that lead us to construe the ordinance, as applied to the facts in this case, as allowing the use of any other base year, even if there has already been one or more discretionary rent increase. Each application requires using the 1987 base year pursuant to the Ordinance. This is not to say that relitigation of a base year adjustment is required every time an owner seeks a discretionary rent increase. If the base year adjustment has already been fully adjudicated, res judicata/collateral estoppel principles may bar subsequent readjudication of the issue.
In the instant case, the 1987 base year adjustment was raised and litigated in the Emersons’ 1997 application. But, as discussed above, since the issue remained undecided, there is no bar to raising and deciding the issue in this case.
5. Declaratory Relief Cause of Action
The City contends the trial court erred in granting judgment on the declaratory relief claim since the only matter heard by the trial court was the Emersons’ writ petition. We disagree.
While the declaratory relief cause of action was a separate claim, it was encompassed by the writ petition and disposed of when the trial court heard and granted the Emersons’ petition for writ of administrative mandamus. (Stardust Mobile Estates, LLC v. City of San Buenaventura (2007) 147 Cal.App.4th 1170, 1190.)
Furthermore, the City did not object to the Emersons’ proposed judgment stating judgment was entered as to the declaratory relief claim, as well as the writ petition. The City deleted language elaborating on the declaratory relief granted but retained the statement that judgment was entered on the second cause of action for declaratory relief claim.
In addition, the City submitted a judgment, which stated that “This Judgment disposes of the entire action.” The Emersons’ complaint contained both a cause of action for writ relief (the first cause of action) and a declaratory relief cause of action (the second cause of action). The City thus forfeited any objection to the trial court entering judgment on the entire action, including the declaratory relief cause of action.
6. Disposition
The judgment entered in favor of the Emersons on their complaint for declaratory relief and petition for writ of administrative mandamus is affirmed. In accordance with the trial court’s order granting the petition for writ of administrative mandamus, the Commission and City Council are required to vacate their decisions and the Commission shall rehear the matter, using 1987 as the base year. The Commission is also to determine whether a 1987 base year rent adjustment is appropriate. Upon remand, additional documents may be requested and produced in accordance with the Ordinance, Administrative rules, and City Commission Hearing Rules. The Emersons are awarded their costs on appeal.
We concur: Hollenhorst Acting P. J. Richli J.