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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 dc;fined in California Health and Safety Code §50079.5. (a) Non-Lower Income Residents. For the non-lower income Residents, the base rent maybe increased in equal annual increases over a four (4)-year period to mazket rent. Base rent is defined as that rent which is in effect prior to the Conversion Date. Mazket rent is established by an appraisal "conducted in accordance with nationally recognized professional appraisal standazds." The reason the rents aze alloweii to be raised to mazket over a four (4)-yeaz period is to allow the adjustment of rents, which under the Rent Stabilization Agreement has resulted in below mazket rents, to occur gradually. Tlris protection for non-lower income Resident Households also provides time for those household:; 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 Govenunent Code §66427.5. The lower income households receive a guazantee 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 aze 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) Aaolication Process. Fesidents must provide the same information and confirmation of the Resident's income as though that Resident were applying for a State of California, Mobilehome Pazk Resident Ownership Program ("MPROP") loan. In the event that program is no longer in existence, the lust application documents will become the permanent documents, and the qualifying income levels will 1>e those established by either the State of California Housing and Community Development Deapartment ("HCD") or the United States Housing and Community Development Department ("]3UD"), at the election of the owner of the space. (c) Effective Date of Maa 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:as/159181_4.DOC/051308/4640.001] 4