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The Map Act Rents are based upon two (2) formulas: one formula for non -lower income Residents and one formula for lower income Residents, as defined in California Health and Safety Code §50079.5. (a) Non -Lower Income Residents. For the non -lower income Residents, the base rent may be increased in equal annual increases over a four (4) -year period to market rent. Base rent is defined as that rent which is in effect prior to the Conversion Date. Market rent is established by an appraisal "conducted in accordance with nationally recognized professional appraisal standards." The reason the rents are allowed to be raised to market over a four (4) -year period is to allow the adjustment of rents, which under the Rent Stabilization Agreement has resulted in below market rents, to occur gradually. This protection for non -lower income Resident Households also provides time for those households to plan for the rental adjustment to market. (b) Lower Income Residents. The State of California has emphasized its goal of mitigating economic displacement of lower income persons under California Government Code §66427.5. The lower income households receive a guarantee of reduced rental increases beyond that which any local jurisdiction can enact under the current rent control cases and laws of California. Lower income is defined in California Government Code 66427.5 by referencing California Health and Safety Code §50079.5, which in turn defines lower income persons as persons and families whose income does not exceed the qualifying limits for lower income families as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937. Lower income Resident Households are protected for the entire term of their tenancy. (1) Rent Increase Formula. The base rental increase is the average increase for the previous four (4) years immediately preceding the conversion but shall not exceed the Consumer Price Index "CPI average monthly percentage increase for the most recently reported period. (2) Application Process. Residents must provide the same information and confirmation of the Resident's income as though that Resident were applying for a State of California, Mobilehome Park Resident Ownership Program "MPROP loan. In the event that program is no longer in existence, the last application documents will become the permanent documents, and the qualifying income levels will be those established by either the State of California Housing and Community Development Department "HCD or the United States Housing and Community Development Department "HUD at the election of the owner of the space. (c) Effective Date of Map Act Rents. The effective date of the Map Act Rents shall be the Conversion Date (as defined in Section 4.3 herein). As part of the distribution of the Final Public Report issued by the DRE, the Leases and qualifying information shall be simultaneously distributed. The Resident Households shall have ninety (90) days within which to make their election to purchase or to continue to rent their space(s). DMM: az /159181_4.DOC/051308/4640.001] 4