Note that this Chapter details the rent calculations used for Units rehabilitated prior to the creation of this current draft of the Mod Rehab Administrative Plan that are still operational, as well as the rent calculations to be used in the case of the rehabilitation of new SRO Units under 24 C.F.R. part 882, subpart H.
12.1 Calculating Initial Gross Rents
Gross Rent is the total monthly cost of housing an Eligible Family and is the sum of the Contract Rent and any utility allowance. See 24 C.F.R. § 882.102.
The initial Gross Rent for any Unit must not exceed the Mod Rehab FMR [12]applicable to the Unit on the date that the AHAP is executed. See 24 C.F.R. § 882.408(a). Note that the following exceptions apply:
(a) Exception Rents. With HUD Field Office approval, the BHA may approve initial Gro¬ss Rents which exceed the applicable Mod Rehab FMRs by up to 10% for all Units of a given size in specified areas where HUD has determined that the rents for standard Units suitable for the Existing Housing Program are more than 10% higher than the Existing Housing FMRs.[13]The BHA will submit documentation demonstrating the necessity for such exceptions rents in the area to the HUD Field Office. See 24 C.F.R. § 882.408(a) and (b).
(b) The BHA may approve changes in the Contract Rent subsequent to execution of the AHAP (see section 5.2) which result in an initial Gross Rent which exceeds the Mod Rehab FMR applicable to the Unit by up to 20%. See 24 C.F.R. § 882.408(a) and (d).
12.1.1 FMR for Structures Containing Four or Fewer SRO Units
If a structure contains four or fewer SRO Units, the FMR for that size structure (the FMR for a 1-, 2-, 3-, or 4-bedroom Unit, as applicable) must be used to determine the FMR limitation instead of using the separate FMR for each SRO Unit. To determine the FMR limitation for each SRO Unit, the FMR for the structure must be apportioned equally to each SRO Unit. See 24 C.F.R. § 882.805(d)(3).
12.1.2 FMR Limits for Efficiency Units
The gross rent for efficiency Units may be no higher than for SRO units (i.e., 75 % of the 0-bedroom Mod Rehab Fair Market Rent). See 24 C.F.R. § 882.805(d)(4).
12.2 Calculating Initial Contract Rents
The initial Contract Rent and Base Rent for each Unit will be computed in accordance with HUD requirements. See 24 C.F.R. § 882.408(c). The amounts may be determined in accordance with the following methods:
(a) Initial Contract Rent: The initial Contract Rent is equal to the base rent plus the monthly cost of a rehabilitation loan but not more than the maximum stated at the end of this section. See 24 C.F.R. § 882.408(c)(2).
(b) Base Rent: The base rent must be calculated using the rent charged for the Unit or the estimated costs to the Owner of owning, managing and maintaining the rehabilitated unit. See 24 C.F.R. § 882.408(c)(2).
(c) Monthly Cost of a Rehabilitation Loan: The monthly cost of a rehabilitation loan must be calculated using:
1. The actual interest rate on the portion of the rehabilitation costs borrowed by the Owner;
2. The HUD-FHA maximum interest rate for multifamily housing (or another rate prescribed by HUD) for rehabilitation costs paid by the Owner out of non-borrowed funds; and
3. At least a 15-year loan term, except that if the total amount of rehabilitation is less than $15,000, the actual loan term will be used for the portion of the rehabilitation costs borrowed by the Owner. (HUD Field Offices may authorize loan terms which differ from the above in accordance with HUD requirements).
If calculating the monthly cost of a rehabilitation loan for SRO Units, refer to section 12.3.1 of this Administrative Plan.
The initial Contract Rent may in no event exceed: the Mod Rehab FMR or exception rent applicable to the Unit on the date that the AHAP is executed, minus any applicable allowance for utilities and other services attributable to the Unit. See 24 C.F.R. §§ 882.408(a) and (c)(1).
Contract Rents for SRO Units will not include the costs of providing supportive services, transportation, furniture, or other non-housing costs, as determined by HUD. See 24 C.F.R. § 882.805(d)(4).
12.2.1 Calculating Monthly Cost of a Rehabilitation Loan for SRO Units
In determining the monthly cost of a rehabilitation loan for SRO Units, a loan term of at least 10 years (instead of 15 years) may be used. The exception for using the actual loan term if the total amount of the rehabilitation is less than $15,000 continues to apply. See 24 C.F.R. § 882.805(d)(1)(i).
In addition, the cost of the rehabilitation that may be included for the purpose of calculating the amount of the initial Contract Rent for any Unit must not exceed the lower of:
(a) The projected cost of rehabilitation; or
(b) The per unit cost limitation that is established by Federal Register notice, plus the cost of the fire and safety improvements required by 24 CFR § 882.605(b)(4).[14]
Note that HUD may, however, increase this latter per unit limitation by an amount it determines is reasonable and necessary to accommodate special local conditions, such as high construction costs or stringent fire or building codes. For further requirements see 24 C.F.R. §§ 882.805(d)(1)(i)(B) and (d)(1)(ii)
12.3 Changes in the Initial Contract Rents During Rehabilitation
In accordance with 24 C.F.R. § 882.408(d), the initial Contract Rent as calculated under section 12.2 will be the Contract Rents on the effective date of the Contract, except under the following circumstances:
(a) When, during rehabilitation, work items (including substantial and necessary design changes) which (A) could not reasonably have been anticipated or are necessitated by a change in local codes or ordinances, and (B) were not listed in the work write-up prepared or approved by the BHA, are subsequently required and approved by the BHA. See 24 C.F.R. § 882.408(d)(i).
(b) When the actual cost of the rehabilitation performed is less than that estimated in the calculation of Contract Rents for the AHAP or the actual certified costs are more than estimated due to unforeseen factors beyond the Owner’s control (e.g., strikes, weather delays or unexpected delays caused by local governments). See 24 C.F.R. § 882.408(d)(ii).
(c) When the BHA (or HUD) approves changes in financing. See 24 C.F.R. § 882.408(d)(iii).
(d) When the actual relocation payments made by the Owner to temporarily relocated Families varies from the cost estimated in the calculation of Contract Rents for the AHAP. See 24 C.F.R. § 882.408(d)(iv).
(e) When necessary to correct errors in computation of the base and Contract Rents to comply with the HUD requirements. See 24 C.F.R. § 882.408(d)(v).
Should such circumstances occur during rehabilitation (either an increase or decrease), the BHA will approve any necessary change in work and amendment of the work write-up and cost estimate, recalculate the initial Contract Rents, and amend the Contract or AHAP, as appropriate, to reflect the revised rents. See 24 C.F.R. § 882.408(d)(2).
In recalculating the initial Contract Rents, the BHA must determine that the resulting Gross Rents do not exceed the Mod Rehab FMR or the exception rent in effect at the time of execution of the AHAP. The FMR or exception rent, as appropriate, may only be exceeded when the BHA determines in accordance with the above circumstances that it will be necessary for the revised Gross Rent to exceed the Mod Rehab FMR or exception rent. Should this determination be made, the BHA will not execute a revised AHAP or Contract for Gross Rents exceeding the FMRs by more than 10 % until it receives HUD Field Office approval. The HUD Field Office may approve revised Gross Rents which exceed the FMRs by up to 20 percent for the circumstances listed above upon proper justification by the BHA of the necessity for the increase. See 24 C.F.R. § 882.408(d)(3).
12.3.1 Further Limits for SRO Units
In approving changes to initial Contract Rents during rehabilitation for SRO Units, the revised initial Contract Rents may not reflect an average per unit rehabilitation cost that exceeds the limitations specified in section 12.2.1 of this Administrative Plan. See 24 C.F.R. § 882.805(d)(2).
12.4 Contract Rents at End of Rehabilitation Loan Term
For a Contract in which the initial Contract Rent was based upon a loan term shorter than 10 years ,[15],the Contract will provide for reduction of the Contract Rent effective with the rent for the month following the end of the term of the rehabilitation loan. The amount of the reduction will be the monthly cost of amortization of the rehabilitation loan. This reduction should result in a new Contract Rent equal to the Base Rent plus all subsequent adjustments. See 24 C.F.R. § 882.807(e).
12.5 Rent Increases
12.5.1 AAF Limits to Annual Contract Rent Adjustments
The amount of any rent increase cannot exceed the amount established by multiplying HUD’s Annual Adjustment Factor (“AAF”) [16] by the Base Rents. See 24 C.F.R. § 882.410(a)(1).
If the amounts borrowed to finance the rehabilitation costs or to finance purchase of the property are subject to a variable rate or are otherwise renegotiable, Contract Rents may be adjusted in accordance with other procedures as prescribed by HUD, and specified in the Contract. However, any such adjusted Contract Rent may still not exceed the amount attained by multiplying the AAF by the Contract Rents. See 24 C.F.R. § 882.410(a)(1).
To receive an annual contract rent adjustment the Owner must request the rent increase in writing at least 75 days prior to the anniversary of the HAP contract. The next section describes cases in which further “special adjustments” may be made with HUD approval. See 24 C.F.R. § 882.410(a)(2).
12.5.2 Special Rent Adjustments Subject to HUD Approval
Special rent adjustments may be recommended by the BHA for approval by HUD in the following situations:
(a) Increased Ownership/Maintenance Costs - A special adjustment, to the extent determined by HUD to reflect increases in the actual and necessary expenses of owning and maintaining the Unit which have resulted from substantial general increases in real property taxes, assessments, utility rates, may be recommended by the BHA for approval by HUD. See 24 C.F.R. § 882.410(a)(2)(i).
(b) Drug-related Criminal Activity Prevalent - Subject to appropriations, a special adjustment may also be recommended by the BHA for approval by HUD when HUD determines that a project is located in a community where drug-related criminal activity is generally prevalent, and not specific to a particular project, and the project’s operating, maintenance, and capital repair expenses have substantially increased primarily as a result of the prevalence of such drug-related activity. HUD may, on a project-by-project basis, provide adjustments to the maximum monthly rents, to a level no greater than 120% of the current gross rents for each Unit size under a HAP contract, to cover the costs of maintenance, security, capital repairs and reserves required for the Owner to carry out a strategy acceptable to HUD for addressing the problem of drug-related criminal activity. Prior to approval of a special adjustment to cover the cost of physical improvements, HUD will perform an environmental review to the extent required by HUD’s environmental regulations at 24 C.F.R. § 50, including the applicable related authorities at 24 C.F.R. § 50.4. See 24 C.F.R. § 882.410(a)(2)(i).
The aforementioned special rent adjustments will only be approved if and to the extent the Owner clearly demonstrates that these general increases have caused increases in the Owner’s operating costs which are not adequately compensated for by annual adjustments. See 24 C.F.R. § 882.410(a)(2)(ii).
The Owner must submit financial information to the BHA which clearly supports the increase. For Contracts of more than twenty (20) units, the Owner must submit audited financial information. See 24. C.F.R. § 882.410(a)(2)(iii).
12.5.3 Further Overall Limitation to Rent Adjustments
Rent adjustments made may not result in material differences between the rents charged for assisted and comparable unassisted Units, as determined by the BHA (and approved by HUD, in the case of adjustments made pursuant to section 12.8.3). This further limitation will not prohibit differences in rents between assisted and comparable unassisted Units to the extent that differences existed with respect to the initial Contract Rents, unless the rents have been adjusted in accordance with 24 C.F.R. § 882.409 as discussed in section 12.5 of this Administrative Plan. See 24 C.F.R. § 882.410(b).
12.6 Tenant Share of Rent
12.6.1 Determination of Tenant Rent
Tenant Rent is the amount payable monthly by the Family to the Owner and is equal to the Total Tenant Payment minus any Utility Allowance. See 24 C.F.R. § 5.634(a).
12.6.2 Total Tenant Payment
In accordance with 24 C.F.R. § 5.628, the Total Tenant Payment will be the highest of the following amounts, rounded to the nearest dollar:
(1) 30 percent (30%) of the Family’s monthly adjusted income ;[17];
(2) 10 percent (10%) of the Family’s monthly income;
(3) If the Family is receiving payments for welfare assistance from a public agency and a part of those payments, adjusted in accordance with the Family’s actual housing costs, is specifically designated by such agency to meet the Family’s housing costs, the portion of those payments which is so designated;
12.6.3 Tenant Payment to Owner
See section 8.8.4 of the HCVP Administrative Plan.
12.6.4 Limit of BHA responsibility.
See section 8.8.5 of the HCVP Administrative Plan.
12.6.5 Utility Reimbursement
In accordance with 24 C.F.R. § 5.632(b)(1), the BHA will pay a Utility Reimbursement if the Utility Allowance (for tenant-paid utilities) exceeds the amount of the Total Tenant Payment.
The BHA shall pay the Utility Reimbursement directly to the Family.
12.7 Security Deposits
12.7.1 General
An Owner may collect a security deposit at the time of the initial execution of the Lease. If a Family vacates the Unit, the Owner, subject to Massachusetts and local law, may use the security deposit as reimbursement for any unpaid Tenant Rent or other amount owed for which the Family owes under the Lease (such as damages beyond normal wear and tear). See 24 C.F.R. § 882.414(a) and (b).
Security deposit limits and procedures used by the BHA are consistent with M.G.L. ch. 186, § 15(b)(i)(iii) and HUD memoranda.
The maximum amount of the deposit shall be the greater of one month’s TTP or $50. Furthermore, this amount shall not exceed the maximum amount allowable under Massachusetts or local law. For Units leased in place, security deposits collected prior to the execution of a Contract which are in excess of this maximum amount do not have to be refunded until the Family vacates the Unit subject to the Lease terms. The Family is expected to pay security deposits and utility deposits from its resources and/or other public or private sources. See 24 C.F.R. § 882.414(a).
12.7.2 Owner’s Obligation to Refund
If a Family vacates the Unit the Owner shall refund the security deposit if required to do so under Massachusetts law.
12.7.3 Interest Accrued on Security Deposits
The Owner shall comply with all Massachusetts and local laws regarding interest payments due Tenants on security deposits. Owners shall take any owed interest payments into consideration when calculating reimbursements for unpaid rent or refunds to Families. See 24 C.F.R. § 882.414(c).
[12] Under the Program, Fair Market Value (“FMR”) for a Unit is determined by consulting the FMR Schedule for Moderate Rehabilitation, which is 120% of the Existing Housing FMR Schedule promulgated under 24 C.F.R. part 888. Note that the FMR limitation applicable to SRO housing is 75% of the Moderate Rehabilitation FMR for a 0-bedroom Unit (i.e., 75% of 120% of the Existing Housing FMR).
[13] In areas where HUD has approved the use of exception rents for 0-bedroom Units, the SRO housing exception rent will be 75% of the exception rent applicable to Moderate Rehabilitation 0-bedroom Units. See 24 C.F.R. § 882.408(b).
[14] HUD will publish future cost limitation changes in the Federal Register in the Notice of Funding Availability issued each year. See 24 C.F.R. § 882.805(d)(1)(i)(B).
[15] Note that “less than 10 years” is required pursuant to 24 C.F.R. part 882, subpart H (the regulations for newer SRO projects). For Mod Rehab Units built prior to the enactment of subpart H, but still operational, this part of section 12.5 should read “less than 15 years” in accordance with 24 C.F.R. § 882.409.
[16] The AAF may be found online at www.gpoaccess.gov.
[17] See 24 C.F.R. § 5.611 for the precise calculations for adjusted income.
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