The Low-Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA) provides certain incentives to owners of affordable housing in exchange for a long-term use agreement and plan of action.
The Fixing America’s Surface Transportation Act of 2015 (FAST Act) revised LIHPRHA to allow certain projects subject to a LIHPRHA Use Agreement to seek a budget-based rent increase that includes new debt service.
This draft notice provides guidelines for preparing, submitting, and reviewing a budget-based rent increase subject to the FAST Act amendments to LIHPRHA.
This draft notice has completed HUD’s internal Departmental Clearance process. HUD is seeking feedback from stakeholders regarding the proposed process and guidelines for seeking a budget-based rent increase where new debt service is included in the budget.
In the draft notice, HUD says that it may approve a rent increase in excess of that needed to cover project operating expenses if HUD determines such an increase is necessary.
Project rent adjustments shall be calculated based on an annual adjustment factor established by HUD and applied to the portion of rent attributable to project operating expenses. The Owner may apply for a rent adjustment on an annual basis on the anniversary date of approval of a LIHPRHA Plan of Action. If the Owner believes that the rent adjustment approved by HUD is not adequate, the Owner may appeal HUD’s determination within 30 days of receiving notice of HUD’s decision. HUD may approve a rent increase in excess of that needed to cover project operating expenses only if HUD determines such an increase is necessary to reflect extraordinary and necessary expenses of owning and maintaining the Project.
Purpose and applicability
The purpose of this notice is to provide guidance for owners subject to a LIHPRHA Use Agreement who wish to take on a limited amount of new debt for the purpose of recapitalizing and preserving their property on a long-term basis, to clarify the process for reviewing and approving a budget-based rent increase that includes such new debt service, and to provide guidance for HUD asset management staff who will evaluate such requests.
The notice applies to all properties with a Section 8 PBRA HAP contract subject to a LIHPRHA Use Agreement or Plan of Action that authorizes a budget-based rent increase in the event an Operating Cost Adjustment Factor adjustment is insufficient to address project needs. Once an owner determines that rents more than the OCAF are necessary to reflect extraordinary and necessary expenses of owning and maintaining the housing (and if those expenses include new debt service), the owner must follow the procedures outline in the Notice when requesting a budget-based rent increase.
Seeking feedback
HUD is looking for feedback to address the inconsistent processing and approval of budget-based rent increases pursuant to the FAST Act language allowing for refinancing of such projects and including new debt service in the budget.
Industry stakeholders can provide comments until Thursday, January 11, 2023.
