HUD Discontinues Waiver of HUD-Contracted Third-Party RCS Requirement for HAP Contract Renewals
Effective January 1, 2014, the U.S. Department of Housing & Urban Development’s (“HUD”) Office of Housing Assistance and Grant Administration will no longer consider waivers of the Section 8 Renewal Policy Guidebook’s (“Guide”) requirement for a HUD-contracted third-party rent comparability study (“RCS”) in connection with Section 8 Housing Assistance Payment Contract (“HAP Contract”) renewals.
In the past, HUD has granted waivers to encourage the preservation of affordable housing both under Chapter 3 (Option 1 Mark-up-to-Market) and Chapter 15 (Nonprofit Section 8 Preservation Efforts) of the Guide. Specifically, these waivers were granted only when the applicable HUD Field Office could show good cause (e.g., the contracting process cannot timely produce a third-party RCS and the project is in imminent danger of losing its tax credits). However, HUD has determined that continued waiver of the HUD-contracted third-party RCS requirement creates a risk of unsubstantiated rent increases.
Owners and developers will still be required to provide an RCS as part of their request for a rent increase in connection with a HAP Contract renewal. When contemplating transactions in which a HAP Contract renewal and rent increase are sought, owners and developers should provide for sufficient additional time between request submission and closing for HUD to contract and purchase a third-party RCS. Additionally, these requests will be subject to departmental appropriations and funding availability, which may cause additional timing and processing delays. Owner and developers should be aware that it is within HUD’s authority both at the national and local levels to discontinue its practice of granting specific waivers at any time. It is important to always seek the advice of counsel prior to taking any action which may require a policy or regulatory waiver.