1264. Maintenance of Net Operating Income (Fair Return)

(A) The landlord is entitled to a fair return. Ordinarily, a fair return will be measured by maintaining the net operating income produced by the property in the base year, adjusted by 65% of the percentage increase in the Consumer Price Index (CPI), All Urban Consumers, for the San Francisco-Oakland-San Jose metropolitan area, less its shelter component, as reported by the U.S. Bureau of Labor Statistics, since June 1979, if 1979 is the base year, or since June of any alternative base year. Rent ceilings shall be adjusted prospectively, subject to the limitations set forth in Section 1274, upon a showing that the net operating income in the comparison year is not equal to the base year net operating income adjusted by 65% of the percentage increase in the CPI since June 1979, if 1979 is the base year, or since June of any alternative base year.

Notwithstanding the foregoing, if the comparison year is 1994 or earlier, the base year net operating income shall be adjusted by 75%, and if the comparison year is 1995, the base year net operating income shall be adjusted by 70% of the percentage increase in the CPI since June of 1979, if 1979 is the base year, of since June of any alternative base year.

(B) The percentage increase in the CPI shall be determined by comparing the monthly CPI for All Urban Consumers for the San Francisco-Oakland-San Jose metropolitan area, less its shelter component, as reported by the U.S. Bureau of Labor Statistics, for June of the comparison year to the monthly CPI for June 1979 (i.e., 73.2), or the monthly CPI for June of any alternative base year, whichever is later.

(C) Any individual adjustment established pursuant to this section shall take into account annual general adjustments for which the landlord is entitled up to and including the adjustment for the comparison year, and shall also take into account in the comparison year rent increases allowed under the 1991 Inflation Adjustment Order (Regulation 1113). The comparison year shall be the most recent calendar or fiscal year, unless another period is found by the hearing examiner to be more appropriate.

(D) If a landlord claims professional fees as reasonable operating expenses in determining comparison year NOI and it is determined that the professional fees are not likely to recur annually, any portion of a rent adjustment granted pursuant to this section that is attributable to such fees shall be treated as a temporary rent adjustment which shall terminate when the amortization period established pursuant Regulation 1248(A) expires.

[Amended regulation effective November 25, 1995]