U.S. Department of Housing and Urban Development

H O U S I N G

Special Attention of: Notice H 97-11 (HUD)

All Housing Directors, Issued: February 24, 1997

All Multifamily Division Expires: February 28, 1998

Directors and

All Multifamily Asset Management

Branch Chiefs Cross References

Subject: Supplemental Guidance for Section 236 Projects with Expiring

Section 8 Contracts in Fiscal Year 1997

This Notice supplements the \"Clarification of Procedures for

Project-Based Section 8 Contracts Expiring in Fiscal Year 1997\"

memorandum dated November 1, 1996 and HUD Notice H96-89 \"FY97 HUD

Appropriations Act\" dated October 15, 1996 by providing additional

guidance regarding the renewal of Section 8 LMSA contracts for Section

236 projects.

Under the \"Clarification of Procedures for Project-Based Section 8

Contracts Expiring in Fiscal Year 1997\" memorandum dated November 1,

1996

A. FOR A SECTION 236 PROJECT, CAN THE RENTS BASED ON THE 120 PERCENT

CAP BE SET AT LESS THAN THE PROJECT\'S BASIC RENT - Question #8

No. Section 211(b) of the 1997 Appropriations Act

authorizes HUD to renew Section 8 contracts on a yearly basis at

rent levels not exceeding 120 percent of the Fair Market Rent

(FMR). Section 236(f)(1) of the National Housing Act provides

that in a Section 236 project the minimum rent is the Section 236

Basic Rent. To the extent that 120 percent of the FMR is below

the Basic Rent, some tenants may not be able to pay Basic Rent so

the Department, pursuant to the authority under Section 405(c) of

the January 1996 Continuing Resolution, will renew Section 8

contracts at the level of the Basic Rent in order to avoid tenant

displacement.

Renewals under Section 405(c) will only be provided where

120 percent of FMR is below the Basic Rent. Attachment 1 is a

Section 236 Renewal Contract which is to be used in cases where

Basic Rent exceeds 120 percent of FMR.

HM: Distribution:
W-3-1,R-1,R-2,R-3-1(H)(RC),R-3-2,R-3-3,R-6,R-6-2,R-7,R-8

This policy is effective immediately. For contracts

executed prior to the development of this new contract at rent

levels below Basic Rent, a Rental Schedule will be necessary to

adjust the rents shown on \"Exhibit A\" of the renewal contract in

Attachment 1. The adjusted rents are effective back to the

effective date of the contract.

B. HOW DO YOU PROCESS RENT INCREASES FOR SECTION 236 PROJECTS WITH

MULTIPLE LMSA CONTRACTS?

Section 236 projects with Section 8 HAP contracts not expiring

and renewed in FY 1996 or in FY 1997 pursuant to Section 211 of

the Appropriations Act continue to be eligible to receive rent

increases according to the terms of their contracts (just as they

have in the past). There is no change in policy or procedure.

For Section 8 units in a contract or a stage of a contract that

expired and was renewed in FY 1996 or expires in FY 1997 and

shall be renewed pursuant to Section 211 of the Appropriations

Act, owners may not receive and Field Offices may not process a

rent increase for those units renewed pursuant to a \"no rent

increase\" provision. However, where there are other units in the

project which have not expired (either under another contract or

another stage of a contract) or other units which are not

subsidized, rent increases may still be requested/approved, but

the rent increase must be prorated to ensure that only these

eligible units are covered.

The proration of the rent increase serves to deny rent increases

on units which have been renewed under a no rent increase

provision (in compliance with the law) without unduly penalizing

the project\'s rent increase with respect to units that are still

eligible (in order to minimize financial hardship).

The Department has developed the attached worksheet for

processing prorated rent increases where Section 8 units have

been renewed in FY 1996 or in FY 1997 pursuant to Section 211.

Attachment 2A and 2B provide a sample and blank worksheet to

determine the amount of rent increase to approve.

Under HUD Notice H96-89 \"FY97 HUD Appropriations Act\" dated October

15, 1996

A. SECTION 236 RENTS - Part C

Section 3 \"Exceptions\", subsection (b) discusses capital

grants under the Low Income Housing Preservation and Resident

Homeownership Act of 1990 (LIHPRHA) and the Emergency Low Income

Housing Preservation Act of 1087 (ELIHPA). Please note that the

language in this subsection pertains only to plans of action

approved and implemented for capital grants under LIHPRHA and

ELIHPA.

Also, in this same paragraph, there is a reference to the

ceiling rent, described as the lower of (1) the fair market rent,

or (2) the actual rent paid for a comparable unit in comparable

unassisted housing. Please note that here, the \"fair market

rent\" should be understood to mean the Section 236 Market Rent,

rather than the Section 8 FMR.

Please address any questions or concerns regarding this Notice to

the Program Management Division at (202) 708-3944.

Assistant Secretary for Housing-

Federal Housing Commissioner

Attachments

Attachment 1

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Housing, Federal Housing Commissioner

HOUSING ASSISTANCE PAYMENTS

RENEWAL CONTRACT FOR

SECTION 236 PROJECTS

SECTION 8 PROJECT NUMBER:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

SECTION 8 PROJECT NUMBER OF EXPIRING CONTRACT

(if different):
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

FHA PROJECT NUMBER: (if applicable)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

This HOUSING ASSISTANCE PAYMENTS CONTRACT (\"Contract\") is entered into

between the U.S. Department of Housing and Urban Development (\"HUD\")

and
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(\"Owner\") pursuant to the United States Housing Act of 1937, 42 U.S.C.

1437 , et seq. and section 405(c) of the Balanced Budget Downpayment

Act, I (Pub. L. 104-99, approved January 26, 1996). The purpose of

this Contract is to provide housing assistance payments on behalf of

Eligible Families (\"Families\") leasing decent, safe and sanitary units

from the Owner.

Previously, HUD and the Owner entered into a Housing Assistance

Payments Contract (\"Expiring Contract\") to provide section 8

assistance to the Owner for eligible families living in

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(\"Project\").

This Expiring Contract expires on
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 199\_.

HUD and the Owner desire to renew for the term specified below the

Expiring Contract EXCEPT for the Contract Rent and Rent Adjustment

Provisions.

THEREFORE, HUD and the Owner hereby agree as follows:

1\. This Contract provides Housing Assistance Payments to the Owner

for the term specified (see #4 & #5 below) at the contract rent

levels listed in Exhibit A.

2\. All terms of the Expiring Contract are renewed except for those

provision relating to contract rents and rent adjustments.

3\. There will be no rent adjustments during the term of this

Contract.

4\. The effective date of this Contract is
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

(The date inserted must be the date that the Expiring Contract

expires. For example, if the Expiring Contract expires on

February 21, 1997, the date inserted must be February 21, 1997.)

2

5\. This Contract terminates on
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

6\. The maximum amount of the commitment for housing assistance

payments under this Contract is \$\_\_\_\_\_\_\_\_\_\_.

7\. The Owner warrants that it has the legal right to execute this

Contract and to lease dwelling units covered by this Contract.

8\. The Owner warrants that the rental units to be leased under the

terms of this Contract are in good and tenantable condition and

meet HUD\'s Housing Quality Standards.

This Contract is hereby executed with respect to the contract units

described in Exhibit A.

United States of America

Secretary of Housing and

Urban Development OWNER

By: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ By:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Official Title) (Official Title)

Date: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Date:
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

3

EXHIBIT A

IDENTIFICATION OF UNITS (\"CONTRACT UNITS\")

BY SIZE AND APPLICABLE CONTRACT RENTS

Number Number Contract

of Units of Bedrooms Rent

ATTACHMENT 2A - SAMPLE WORKSHEET

BUDGED BASED PRO-RATED RENT INCREASE WORKSHEET FOR SECTION 236

PROJECTS WITH MULTIPLE LMSA CONTRACTS RENEWED UNDER SECTION 211

Under the terms of Section 211, there are no rent increase

provisions. Therefore, the only units that can receive rent increases

are Section 8 units not renewed in FY97 pursuant to Section 211 and

non-Section 8 units.

Line 1 TOTAL NUMBER OF UNITS IN THE PROJECT 100

minus

Line 2 TOTAL NUMBER OF INELIGIBLE UNITS 30

(SECTION 8 UNITS RENEWED IN FY97 UNDER

SECTION 211 RENEWAL PROVISION)

equals

Line 3 TOTAL NUMBER OF UNITS ELIGIBLE FOR THE RENT 70

INCREASE (SECTION 8 UNITS NOT BEING RENEWED

IN FY97 UNDER SECTION 211 & NON-SECTION 8

UNITS)

Line 4 ANNUAL RENT INCREASE TO COVER EXPENSES \$12,000

divided by

Line 5 MONTHS IN A YEAR 12

equals

Line 6 GROSS RENT INCREASE PER MONTH \$1,000

Line 7 GROSS RENT INCREASE PER MONTH (See Line 6) \$1,000

divided by

Line 8 TOTAL NUMBER OF UNITS IN THE PROJECT (See

Line 1) 100

equals

Line 9 GROSS PER UNIT PER MONTH (PUPM) RENT \$10

INCREASE

Line 10 GROSS PER UNIT PER MONTH (PUPM) RENT \$10

INCREASE (See Line 9)

multiplied by

Line 11 TOTAL NUMBER OF ELIGIBLE UNITS (See

Line 3) 70

equals

Line 12 TOTAL PRO-RATED SECTION 236 RENT \$700

INCREASE PER MONTH

3

ATTACHMENT 2B - BLANK WORKSHEET

BUDGET BASED PRO-RATED RENT INCREASE WORKSHEET FOR SECTION 236

PROJECTS WITH MULTIPLE LMSA CONTRACTS RENEWED UNDER SECTION 211

Under the terms of Section 211, there are no rent increase

provisions. Therefore, the only units that can receive rent increases

are Section 8 units not renewed in FY97 pursuant to Section 211 and

non-Section 8 units.

Line 1 TOTAL NUMBER OF UNITS IN THE PROJECT

minus

Line 2 TOTAL NUMBER OF INELIGIBLE UNITS

(SECTION 8 UNITS RENEWED IN FY97 UNDER

SECTION 211 RENEWAL PROVISION)

equals

Line 3 TOTAL NUMBER OF UNITS ELIGIBLE FOR THE RENT

INCREASE (SECTION 8 UNITS NOT BEING RENEWED

IN FY97 UNDER SECTION 211 & NON-SECTION 8

UNITS)

Line 4 ANNUAL RENT INCREASE TO COVER EXPENSES \$

divided by

Line 5 MONTHS IN A YEAR 12

equals

Line 6 GROSS RENT INCREASE PER MONTH \$

Line 7 GROSS RENT INCREASE PER MONTH (See Line 6) \$

divided by

Line 8 TOTAL NUMBER OF UNITS IN THE PROJECT (See

Line 1)

equals

Line 9 GROSS PER UNIT PER MONTH (PUPM) RENT \$

INCREASE

Line 10 GROSS PER UNIT PER MONTH (PUPM) RENT \$

INCREASE (See Line 9)

multiplied by

Line 11 TOTAL NUMBER OF ELIGIBLE UNITS (See

Line 3)

equals

Line 12 TOTAL PRO-RATED SECTION 236 RENT \$

INCREASE PER MONTH