9-6. METHOD TWO: COMPARING PROPOSED SECTION 8 RENTS WITH RENTS FOR UNASSISTED UNITS IN…

• A. Unassisted Units. Under this method, rents paid by families residing in unassisted units in the project serve as the comparable market rent conclusion. An unassisted unit is one for which a family who receives neither project-based nor tenant-based rental assistance of any kind pays the full rent due to the Owner.

• B. Eligibility. The following criteria must be met to qualify for Method Two:

  1. The contract must be eligible for renewal under Option One or Option Two, or currently subject to an Option One or Option Two renewal contract which is due for a fifth-year comparability adjustment.

  2. At least 25 percent of each unit type being renewed must be occupied by unassisted tenants.

  3. For each unit type in the contract, the proposed Section 8 contract rent must be no greater than the average rent paid by unassisted tenants who reside in the same type of unit. Such tenants must have been paying (without assistance and for 3 or more months) at least the rent levels used in computing the average. These tenants must have no business or family relationship with the project’s Ownership or management. If units are occupied pursuant to a lease providing for rent concessions, the rents used to calculate the average must take all such concessions into account.

  4. The Section 8 units and the units occupied by unassisted tenants must be nearly identical (i.e., no adjustments would be required if the units occupied by unassisted tenants were used as comparables in an RCS). “Nearly identical” means the two sets of units must have the same number of bedrooms and baths; be similar in condition, layout, and size; and have the same amenities and utilities included in the rent.

  5. Occupancy rates in the units available for occupancy by unassisted tenants must not be significantly lower than occupancy rates for the same unit types in the overall market area. A lower occupancy rate could imply that rents for such units are above market. For example, if occupancy rates in the overall market area exceed 90 percent, while the subject’s units available for occupancy by unassisted tenants are 20 percent vacant, then the occupancy rate for such units is considered to be significantly lower than that of the overall market area.

3. Owner’s Request. To request renewal or fifth-year comparability adjustment using this method, an Owner must submit the following no later than 120 days before the expiration of the Section 8 contract or fifth-year comparability adjustment effective date:

   1. Request to Renew Using Non-Section 8 Units in the Section 8 Project as a Market Rent Ceiling .

   2. Rent Table. A rent table comparing current and proposed Section 8 rents with the rents paid by unassisted tenants.

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Chapter Nine – Published March 2023

3. Cover Sheet . In addition to indicating which contract is being renewed or which is undergoing a fifth-year comparability adjustment, the Owner must identify all contracts at the project.

4. If renewing under Option Two, either Budget Worksheet: Income and Expense Projections , if seeking a budget-based rent adjustment; or Steps 1 and 2 of the OCAF Worksheet , if seeking an OCAF-driven adjustment.

• C. HUD processing. The AE will review the Request to Renew Using Non-Section 8 Units in the Section 8 Project as a Market Rent Ceiling , as completed by the Owner, to determine whether the use of rents paid by unassisted tenants is appropriate and will render a decision within 20 calendar days of receiving the request, documenting the decision on the form and in iREMS.

  1. Due Diligence. The AE who processes the request must be familiar with the project’s condition and amenities and must seek a state-certified appraiser’s input as to prevailing rent levels in the subject’s market area. In addition to verifying that the project meets the eligibility conditions, the AE must:

     • a. Use iREMS/Tenant Rental Assistance Certification System (TRACS) to check the data reported in the rent table attached to the Owner’s request.

     • b. Use the Owner’s rent table to assess compliance with the occupancy criterion noted above.

  2. Approval/Denial. The AE must deny the request if the AE concludes that the rents paid by unassisted tenants in the project are significantly higher than rents in the surrounding area or that the eligibility conditions listed above are not met.

     • a. If HUD denies the Owner’s request, HUD may, upon the Owner’s request, issue a short-term renewal contract to allow the Owner a reasonable period of time to obtain an RCS prepared in accordance with Sections 9-9 through 9-13 of this Chapter. Chapter Two explains how to set rent levels for shortterm renewal contracts.

     • b. An Owner may not appeal HUD’s denial of their request to use rents paid by unassisted tenants in lieu of submitting an RCS.

     • c. If HUD approves the Owner’s request, the rent conclusions in the Request to Renew Using Non-Section 8 Units in the Section 8 Project as a Market Rent Ceiling shall be used in the same manner as an RCS would. For Option One projects, these rents become the new contract rents at renewal. For Option Two, these rents become the rent ceiling for the budget-based rent increase.