Option 1 is a good way to bring rents up to market, if you are eligible. Option 1 is divided into Option 1-A and Option 1-B.
Get started with the Option 1 Calculation Worksheet or read more about it in chapter 3 of the Section 8 Renewal Policy..
Third Party Rent Comparability Study
It is important to note that the owner’s Rent Comparability Study will undergo a test to ensure that they do not exceed 140 percent of the median “Gross Rent By Zip Code Tabulation Area” as published by the U.S. Bureau of the Census. If the owner’s RCS rent exceeds this amount, a third party RCS will be ordered from HUD. Therefore, it is important to review both Chapter Nine of the Section 8 Renewal Policy and your study to determine whether a 3rd party RCS will be ordered. There is no appeal process or negotiations allowed when there are differences between comparability studies. HUD’s median rent figures
The renewal contract will be the Mark-Up-To-Market renewal contract with a minimum of a five-year term.
General Eligibility Requirements for Option 1-A and 1-B
- Management’s most recent Management and Occupancy Review (MOR) rating is “Satisfactory” or above
- A physical inspection score from the Real Estate Assessment Center (REAC) of 60 or above with no unresolved Exigent Health and Safety (EHS) items
- All Financial assistance Subsystem (FASS) findings need to be closed or under a HUD-approved corrective action plan
- Project owner must be either a) a profit-motivated or limited distribution entity; b) A housing authority occupying the status of a “public body corporate and politic” under the state legislation under which it was created; c) A limited partnership with one or more nonprofit general partners or a sole general partner that is wholly owners and controlled by one or more nonprofit entities; d) a limited liability company with one or more nonprofit managers or nonprofit managing members or a sole manager or managing member that is wholly owned or controlled by one or more nonprofit entities; or e) Non-profit owned projects that meet one of the three criteria under Option 1-B can qualify for Mark-Up-To-Market. In the case of a proposed sale, this requirement must be met by the purchaser.
Option 1-A
Rents may be renewed at the lesser of comparable market rents or 150% of the Fair Market Rents (FMRs).
Specific Eligibility Requirements for 1-A (in addition to those listed above)
- Comparable Market Rents at or above 100% of the FMR potential
- The project does not have a low-and-moderate income use restriction that cannot be eliminated by unilateral action by the owner
- The project is not subject to a contract for moderate rehabilitation assistance under section 8(e)(2) of the United States Housing Act of 1937, as in effect before October 1, 1991
- The project is not one for which a public housing agency provided voucher assistance to one or more of the tenants after the Owner has provided notice of termination of the contract covering the tenant’s unit
Submission Requirements:
Option 1-B
To further preserve the affordable housing stock, HUD has the discretionary authority to mark rents up to market for projects that meet certain criteria but do not qualify under Option 1-A.
For owners who request participation in Option 1-B, and for owners of projects that request an increase in rents above the cap on comparable rents of 150% of FMR, HUD will consider these requests if the project meets at least one of the following three characteristics.
- Vulnerable Populations: The tenants of the property are a particularly vulnerable population, demonstrated by a high percentage of units rented to elderly families, disabled families, or large families.
- Vacancy Rates: The property is located in a low-vacancy market where there is a lack of affordable housing and where tenant-based vouchers would be difficult to use.
- Community Support: The property is a high priority for the local community as demonstrated by a contribution of state or local funds to the property. Evidence of community support may be in the form of tax credits, tax abatements, capital improvement funds, etc. that have been provided to the project within the last five years.
Requests for Option 1-B are processed and approved by the Program Center after recommendation from SHCC.
Submission Requirements:
HUD Guidance
Chapter Three of the Section 8 Renewal Policy has complete guidance regarding Options 1-A and 1-B.
Rent Adjustments with Multi-year Contracts
Annual rent adjustments will be limited to OCAF rent adjustments, with the exception of every 5th year (from the contract effective date); an RCS is required to adjust the rents to comparables.