5-5. SUBSEQUENT — HUD Section 8 Renewal Policy Guidebook

A. Lite Contracts. A project that receives a rent reduction and is renewed as a Lite using the Basic Renewal Contract, may, at subsequent renewal (generally five years), be renewed at the owner’s request under any option that the project is eligible for at the time the contract expires.
B. Full Contracts (Full Mark-to-Market Renewal Contracts). When a Mark-To-Market debt restructuring is completed, an initial Full Mark-to-Market Renewal Contract is executed

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generally for a term of 20 years (the term may be 1 to 20 years), and is to be subsequently renewed under Option Three B up to the remaining term of the Use Agreement (which, by operation of section 514(e)(6) of MAHRA, must be at least 30 years). The term of the subsequent renewal (or sum of the subsequent renewals, if there is more than one), together with the term of the initial MTM contract, may not extend beyond the term of the Use Agreement. If the Use Agreement is in effect and the offer(s) for subsequent renewal from the Secretary does/do not exceed the remaining term of the Use Agreement, an owner is obligated to accept such offer(s) to renew the Full Mark-To-Market Renewal Contract during the term of the Use Agreement, if such offer(s) is/are on the same terms and conditions. Full Mark-To-Market Renewal Contracts must be subsequently renewed using the same Full Mark-to-Market Renewal Contract form (HUD-9642) used for the initial Full Mark-To-Market renewal. Note that Full Mark-to-Market Renewal Contracts permit only annual OCAF rent adjustments and the rents for renewal are set at the levels under the expiring contract.

Example 1: Project was restructured under Mark-to-Market and received a 20-year Full Mark-to-Market Contract at that time. After the expiration of this contract, HUD offered a 10 –year Full Mark-to-Market Renewal Contract (at the existing rents plus OCAF). The owner is required to accept the Renewal Contract because the term of the Use Agreement has not expired and the Renewal Contract term does not exceed the remaining term of the Use Agreement). The Renewal Full Mark-to-Market Contract would only allow OCAF rent increases.

During the term of the Use Agreement: No RCS is allowed or required; no budget-based rent adjustments are permitted; and, under no circumstances, may a Full Mark-to-Market Contract be terminated prematurely to permit the owner to participate in any other renewal option, including Mark-up-to-Market. All renewals must utilize the Full Markto-Market Renewal Contract form (HUD-9642).

C. Early Contract Termination and Renewal: Non-Exception Rent (See Section D, below, for Exception Rents). To facilitate the refinancing of a debt-restructured project’s first mortgage loan and satisfy a typical lender condition for such refinancing, owners often request an extension of the term of the project’s Full Mark-to-Market Renewal Contract. [Note that a refinancing will generally trigger the due-on-sale or -refinance clause contained in all Mark-to-Market mortgages. Waivers of this clause are subject to separate HUD guidance, Notice H 2012-10 or its successor.] Extensions of the Full Mark-toMarket Renewal Contract are not permitted, but the contract may be terminated and then renewed.

HUD may grant such requests only if the owner agrees to an extension of the term of the Use Agreement, if necessary, to equal the term of the renewed Full Mark-to-Market Renewal Contract. Just as with the original Full Mark-to-Market Renewal Contract, rent adjustments would continue to be limited to OCAF only. In each instance that a Full Mark-to-Market Renewal Contract is terminated early and then immediately renewed again, the subsequent renewal must be perfected using the Full Mark-to-Market Renewal Contract form HUD- 9642 .

Example 2: Assume the facts of Example 1, above. Five years into the 10-year Full Mark-to-Market Renewal Contract, the owner now wishes to refinance the project and

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one of the lender conditions for refinancing is that the remaining term of the Full Markto-Market Renewal Contract be at least 10 years. The owner may request approval from HUD for a 5-year extension of the term of the Project’s Use Agreement (to 35 years) and early termination of the existing 10-year Renewal Contract. If HUD approves these requests, the owner would receive a third Renewal Contract which can now be 10 years (Original 20-year Full Mark-to-Market Renewal Contract, plus the second Renewal Contract which had run 5 years when terminated plus the 10-year term of the third Renewal Contract total 35 years, equal to the term of the extended Use Agreement). Rent increases would be limited to OCAF only for the entire 35 years.

The anniversary date of the Renewal Contract will be based on the starting date of that Renewal Contract. The annual OCAF rent adjustment date is therefore reset based on the new anniversary date. This example may have the effect of more than 12 months between OCAF adjustments between the last OCAF adjustment under the current Full Mark-toMarket Contract and the first OCAF adjustment under the Renewal Contract. HUD will agree to the early termination and renewal of a Full Mark-to-Market Renewal Contract only to the extent that the owner accepts the resulting effect (described above) on the otherwise annual rent adjustment scheme.

Example 3: A Full Mark-to-Market Contract has an anniversary date of January 1, and receives an OCAF rent adjustment on that date. At the owner’s request, the contract is terminated and renewed effective July 1 of that same year to accommodate new financing. The initial rents on the Renewal Contract are the same as the then-contract rents on the terminated contract. The new anniversary date of the contract is July 1, with the next OCAF rent adjustment one year later on July 1. It will therefore be 18 months between OCAF rent adjustments.

D. Early Contract Termination and Renewal: Exception Rents. In no event will a contract with MAHRA Section 514(g) “Exception Rents” be renewed with a term that extends beyond the original term of the Use Agreement; the term of the Use Agreement on such properties will not be extended beyond 30 years from the date of the Mark-to-Market restructuring. An early contract termination and subsequent renewal will be processed only if the combined terms of the contracts do not exceed 30 years.

Example 4: Assume the facts of Example 2 (the owner is 5 years into a 10-year Renewal Contract, year 25 post restructuring), but under this Example 4, the contract has Exception Rents and the owner requests a 10-year extension of its Renewal Contract with Exception Rents. The owner’s request would be rejected by HUD because the 10-year term of a third Renewal Contract, combined with the terms of the prior Mark-to-Market Contracts, would exceed 30 years.

E. Renewal After Expiration of the Use Agreement. Except for certain transactions with qualified nonprofits which are for more than 30 years, renewals for any period beyond 30 years from the date of the Mark-to-Market restructuring (if the Use Agreement has not been extended pursuant to Section 5-5 (C) will be under then-applicable statutes and regulations, using any renewal option for which the project is eligible at that time.