[Federal Register Volume 63, Number 83 (Thursday, April 30, 1998)]
[Rules and Regulations]
[Pages 23826-23873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10374]



[[Page 23825]]

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Part II





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Parts 5, 8, 882, 982, and 983



Section 8 Certificate and Voucher Programs Conforming Rule; Final Rule

  Federal Register / Vol. 63, No. 83 / Thursday, April 30, 1998 / Rules 
and Regulations  

[[Page 23826]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 8, 882, 982, and 983

[Docket No. FR-4054-F-02]
RIN 2577-AB63


Section 8 Certificate and Voucher Programs Conforming Rule

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule completes the process of combining and 
conforming the regulations for tenant-based rental assistance under the 
Section 8 certificate and voucher programs, by adding two subparts that 
had been reserved in the previous final rule establishing the single 
part governing tenant-based assistance. This rule also amends 
requirements for project-based assistance under the certificate 
program. In addition, this rule continues the Department's regulation 
streamlining efforts by revising various sections in the part 
previously created to cover the combined Section 8 certificate and 
voucher programs and by consolidating definitions now found in 
individual program regulations into the part that covers definitions 
that have broader applicability.

EFFECTIVE DATES: This rule shall be effective June 1, 1998, except 
Secs. 983.254(a)(1) and (2)(i); and 983.256(c)(2)(v) shall be effective 
November 27, 1998.

FOR FURTHER INFORMATION CONTACT: Gloria Cousar, Deputy Assistant 
Secretary for Public and Assisted Housing Delivery, Office of Public 
and Indian Housing, Room 4204. Her telephone numbers are (202) 708-2841 
(voice); (202) 708-0850 (TTY). (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The information collection requirements contained in Secs. 982.516, 
982.517, 983.254, 983.255, and 983.256 of this rule have been approved 
by the Office of Management and Budget (OMB) under the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520). The OMB approval number is 
2577-0169, which expires on April 30, 2001. An agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless the collection displays a valid control number. 

Discussion

Table of Contents

I. History and Scope of Rule
II. Types of Tenancy
III. Rent to Owner
    A. Rent reasonableness (comparability)
    1. Comparability requirement
    2. Comparability: comments
    a. Against comparability
    b. For comparability
    c. Comparability during term
    d. How HA determines comparability
    e. Rents charged by Section 8 owner
    f. Administration of comparability
    g. Comparability: Other issues
    3. Comparability: HUD response
    a. Use of comparability
    b. How HA determines comparability
    c. Factors considered in valuing unit
    d. Rent charged by owner
    B. Other limits on rent to owner
    1. New provisions
    2. Rent control
    3. HOME rents
    4. Other subsidies
IV. Maximum Subsidy
    A. Purpose and proposed changes
    B. FMR/exception rent limit: Comments
    1. Certificate program: Elimination of HA exception authority
    2. Over-FMR tenancy
    3. Exception rent: HUD approval
    4. Exception rent: New procedure
    C. FMR/exception rent limit: New rule
    1. Approval of exception rent
    a. New rule
    b. Area exception rent
    c. Regular tenancy: Accommodation for person with disabilities
    2. Exception rent: New rule--HUD response
V. Minimum Rent: Family Share of Rent
VI. Certificate Program: Over-FMR Tenancy
    A. New type of tenancy
    B. Over-FMR tenancy: Comments
    1. General effect of rule
    2. Objections to over-FMR tenancy
    C. Over-FMR tenancy: 10 percent limit
    1. Law
    2. Comments
    3. HUD response
    D. Over-FMR tenancy: Affordability of rent (maximum family 
share)
    1. Law and regulation
    2. Comments
    a. Objections to affordability
    b. Defining affordability
    c. Affordability: Other comments
    3. How HA determines affordability
    E. Over-FMR tenancy: Amount of subsidy
    1. Comments
    2. HUD response
    3. How subsidy is adjusted
    F. Over-FMR tenancy: Other comments
    1. HA discretion
    2. Administrative fee
VII. Voucher Tenancy: Payment Standard
    A. Voucher payment standard
    1. Setting payment standard
    2. Minimum and maximum payment standard: Comments
    3. Minimum and maximum payment standard: HUD response
    B. Shopping incentive
    1. Comments
    2. HUD response
VIII. Family Size: Effect on Amount of Subsidy
    A. General
    B. Space for live-in aide
IX. Over-FMR or Voucher Tenancy--Payment Standard: Changes in 
Subsidy During Tenancy
    A. How assistance is adjusted
    B. Protecting family against drop in subsidy
    C. When payment standard changes
    X. Regular Tenancy--Rent to Owner: Annual Rent Adjustment During 
Tenancy
    A. Comments
    B. New rule
XI. Regular Tenancy--Rent To Owner: Special Rent Adjustment During 
Tenancy
    A. General
    B. Purpose
    C. Comparability
    D. Required documentation
    E. HUD approval
    F. Term
XII. Fees and Charges To Family For Meals, Supportive Services or 
Other Items
XIII. Utility Allowance
    A. Objections to utility allowance
    1. Comments
    2. HUD response
    B. Administration of utility allowance
    1. Comments
    2. HUD response
    C. Services included in utility allowance
    1. Comments
    2. HUD response
    D. Determining utility allowance: Unit size and size of family
    1. Comments
    2. HUD response
    E. Reasonable accommodation
    F. Direct HA payment of tenant utility cost
    1. Comments
    2. HUD response
XIV. Reexamination of Family Income
    A. Comments
    B. HUD response
XV. Project-Based Certificate (PBC) Program: Rent To Owner
    A. PBC: Comparability procedures
    B. PBC: Approval of rent; HA certification that rent is 
reasonable
    C. PBC: Rent to owner: Annual adjustments
    1. Adjustment by published factor
    2. Adjustment comparability: Comparability studies
    3. When owner requests rent increase; HA comparability study
    4. Rent decrease at annual adjustment
    D. PBC: Rent to owner: Special adjustments
    E. PBC: Rent to owner: Correcting mistakes
    F. PBC: Rent to owner: HA-owned units
XVI. Special Housing Types
    A. General
    B. HA choice
    1. HA discretion to offer special housing type
    2. Person with disabilities: Reasonable accommodation
    3. Manufactured home
    C. Family choice
    D. Group homes for elderly or disabled
    E. Other changes
    1. Congregate housing
    2. Shared housing
XVII. Live-In Aide For Disabled Resident
XVIII. Streamlining of Part 982
XIX. Other Changes
XX. Findings and Certifications

[[Page 23827]]

    A. Impact on the environment
    B. Federalism impact
    C. Unfunded Mandates Reform Act
    D. Impact on small entities
    E. Regulatory review

I. History and Scope of Rule

    On February 24, 1993 (58 FR 11292), HUD published a comprehensive 
proposed rule to combine and conform the rules for tenant-based Section 
8 rental assistance under the certificate and voucher programs. The 
proposed rule also would have amended requirements for project-based 
assistance under the Section 8 certificate program. HUD received 
approximately 400 comments on the proposed rule, which generally 
approve the broad purpose of the rule. Comments recommend revision of 
particular features of the rule.
    On July 18, 1994, HUD published the first portion of the 
comprehensive final rule for the tenant-based program at 24 CFR part 
982. This publication contained the final rule on unified admission 
procedures for the program (59 FR 36662) (part 982, subpart E). On July 
3, 1995 (60 FR 34660), HUD published the second portion of the 
comprehensive final rule for the tenant-based programs at 24 CFR part 
982, as well as regulations for the project-based certificate program 
at 24 CFR part 983. This publication did not include provisions 
concerning:

-- Calculation of the rent and housing assistance payment for the 
tenant or project-based programs.
-- ``Special housing types'': program variants to meet special housing 
needs, such as congregate housing, shared housing, single room 
occupancy housing and group homes.

    Today's publication covers the subjects omitted in the July 1995 
final rule. In addition, the rule includes some streamlining and 
clarifying changes to parts 982 and 983.

II. Types of Tenancy

    The rule (Sec. 982.501) specifies that there are three types of 
tenancy in the Section 8 tenant-based programs:

-- A ``regular'' tenancy under the certificate program;
-- An ``over-FMR'' tenancy under the certificate program; and
-- A tenancy under the voucher program.

    In a regular certificate tenancy, the share of rent paid by an 
assisted family is defined by a statutory formula. Section 8 subsidy 
covers the balance of rent for the unit. The family may not agree to 
pay a bigger share of the rent. In an over-FMR tenancy, the family may 
agree to pay more. This rule adds authority for over-FMR tenancies. The 
term ``regular'' tenancy is added to designate and distinguish the 
original form of certificate tenancy.
    Comments propose that HUD should combine the certificate and 
voucher programs. Subsidy should be calculated by the same method. The 
programs should not use different FMRs and voucher payment standards. 
The certificate and voucher programs should use the same rent formula. 
The HA should assume responsibility to administer the program and 
stretch the dollars.
    In this rulemaking, HUD has fully unified the tenant-based 
certificate and voucher programs so far as allowed by current Federal 
law. Except for limited differences in calculation of subsidy and 
family contribution, the same regulations apply to the tenant-based 
certificate and voucher programs, and to a regular or over-FMR tenancy 
under the certificate program. For example, both programs are subject 
to the same requirements concerning finding and leasing a unit, housing 
quality standards and subsidy standards (maximum unit size), landlord 
responsibility and family obligations.
    The three forms of tenancy conform to specific statutory 
requirements affecting subsidy and family contribution. Within this 
framework, however, the rule is designed to minimize or eliminate 
unnecessary differences.
    For each tenancy, the same fair market rent or HUD approved 
exception rent (called the ``FMR/exception rent limit'') determines the 
maximum subsidy for a program family. Actual subsidy generally equals 
maximum subsidy minus 30 percent of a family's adjusted income. For a 
regular tenancy in the certificate program, the FMR/exception rent 
limit is the maximum initial rent. For a voucher or over-FMR tenancy, 
the FMR/exception rent limit is the maximum payment standard. The same 
area exception rents apply for a regular, voucher or over-FMR tenancy. 
For each type of tenancy, the rent to owner may not exceed comparable 
rent.

III. Rent to Owner

A. Rent Reasonableness (Comparability)

1. Comparability Requirement
    During a Section 8 tenancy, an owner's rent must be ``reasonable.'' 
The HA must determine whether the initial or adjusted rent for a 
Section 8 unit is reasonable in comparison with rent for units in the 
private unassisted market (Sec. 982.503(b) and Sec. 983.256(b)).
    The final rule (Sec. 982.503(b)) refines requirements on how the HA 
determines comparable rent. To determine comparability, the HA must 
consider:

-- Location, quality, size, unit type and age of the contract unit, and
-- Any amenities, housing services, maintenance and utilities to be 
provided by the owner in accordance with the lease.
2. Comparability: Comments
    a. Against comparability. Comments assert that HUD should not 
require that rents must be reasonable. Some comments suggest that HUD 
should eliminate rent reasonableness in both the certificate and 
voucher programs. In the certificate program, rents are controlled by 
the FMRs. In the voucher program, tenants choose to pay the rent.
    Other comments urge that the rent reasonableness requirement should 
be limited to the certificate program and should not apply to the 
voucher program. Rent reasonableness negates the designed purpose of 
the voucher program--allowing a participant to freely select a higher 
priced unit, reducing concentrations of low-income housing. Rent 
reasonableness curbs the ability to disperse low-income families.
    Comments state that participants in the voucher program like the 
flexibility to negotiate rent, and to choose a higher rent unit. Owners 
prefer the voucher program because they do not want to negotiate rents 
with the HA. If voucher rents are limited by comparability, owners may 
refuse to participate.
    Comments claim that comparability subjects a landlord to de facto 
rent control. Ongoing HA inspection of reasonableness reduces a 
landlord's incentive to offer assisted housing. Application of rent 
reasonableness creates undue owner uncertainty and confusion. Requiring 
initial and annual examination of rent is a burden on a landlord's 
property and privacy.
    b. For Comparability. Some comments support rent reasonableness 
requirements and extension of comparability to the voucher program. A 
cap on family rent payment in the voucher program is overdue. Rent 
reasonableness prevents owners charging excessive rents for marginal 
units. Owners charge different rents for different programs. In tight 
markets, a voucher tenant is forced to pay higher rent out-of-pocket. 
Under the new rule, an HA can establish a systematic method for 
establishing reasonable rent for the unit size.
    c. Comparability During Term. The rule (Sec. 982.503(a)(4)) 
provides that rent must be reasonable during the whole course of an 
assisted tenancy. This principle applies both to the certificate 
program and to the voucher program.

[[Page 23828]]

The rent must be reasonable at the beginning of the lease, and during 
the lease term.
    Comments state that rent reasonableness should only apply to new 
HAP contracts, not annually. Comparability should not be required 
unless rent increases. According to the comments, requiring 
reasonableness when rent does not increase during the lease term is an 
unnecessary administrative burden.
    Comments ask HUD to clarify what happens if the HA determines that 
a proposed rent increase is not reasonable.
    d. How HA Determines Comparability. Comments state that HUD should 
clarify how to determine the relevant ``market'', and should define 
``private unassisted market''. Does the unassisted market include types 
of assisted housing other than Section 8? Does assisted refer to all 
types of Federal, State or local subsidies, or only to housing assisted 
under Section 8?
    Comments state that reasonableness should not be applied on a 
building by building basis. Comparability should recognize market 
differences between units. An HA should not set single rents for a 
class of units in a particular property. Comparability should only 
assure that rent and rent increases for Section 8 and non-Section 8 
units are substantially the same. Rent reasonableness should take into 
account unit to unit value differences ordinarily recognized in the 
market. Comparability should not override an owner's rental 
determination in response to actual market dynamics.
    Comments recommend that HAs should emphasize quality, age and 
location of a Section 8 unit as compared with the other units. The 
comments claim that HAs consider any unit that passes HQS as comparable 
to an unassisted private market unit with an equal number of bedrooms. 
Substandard housing and apartments are rented for the same amount as 
standard and above standard rentals in the same neighborhood. Comments 
state that families should not pay equal or higher rent for 
``substandard'' units as for standard units rented on the unassisted 
private market.
    Comments assert that HUD has not given adequate guidance for 
determining rent reasonableness. By contrast, there are ``extensive 
regulations'' on setting and review of Fair Market Rents. Comments 
recommend that HUD should require:

--Determination by a qualified person;
--Information on procedures used by an HA;
--Opportunity for negotiation and correction, and a procedure for 
resolution of disputes;
--Review and correction of the HA determination of reasonable rent.

    Comments ask HUD to clarify whether rent for an over-FMR tenancy 
must meet rent reasonableness.
    e. Rents Charged by Section 8 Owner. The proposed rule would have 
provided that ``reasonable rent'' may not exceed rent charged by a 
Section 8 owner for a comparable ``assisted or unassisted'' unit in the 
same building. (This definition was issued as a final rule in the 
second phase of this rulemaking, published July 3, 1995.) The proposed 
rule also provided that an owner who accepts an assistance payment from 
the HA certifies that rent does not exceed rents charged by the owner 
for any comparable ``assisted or unassisted'' unit in the building.
    Comments argue that owner rents for assisted units should not be 
used to show market rent.
    f. Administration of Comparability. Comments remark that 
determination of comparability is an additional administrative burden 
for the HA, and wastes program administrative resources.
    Comments note that the comparability requirement is no longer 
limited to the certificate program. The new rule will require HAs to 
determine rent reasonableness in both the certificate and voucher 
programs. In the past, HUD justified lower fees for administration of 
the voucher program on the ground that an HA does not have to perform 
rent reasonableness. Under the new rule, HAs will now incur additional 
costs to perform comparability for the voucher program. Comments 
recommend that HUD should not reduce the administrative fee, or should 
increase the fee.
    Comments note that Section 8 rent setting is more complicated than 
in private transactions, because Section 8 rent is subject to HUD and 
HA regulation.
    Comments state that HUD should increase monitoring of rent 
reasonableness if there is more than one HA operating in a 
jurisdiction. HUD should prevent landlords from playing HAs against 
each other to increase the rent.
    Some comments state that an owner should certify that rent is no 
more than rent the owner charges for a comparable unit in the building 
or complex. Comments state that an HA should presume that the rent for 
a Section 8 unit is reasonable unless rent is higher than rent for a 
comparable non-Section 8 unit in the building.
    Comments state that non-profit owners charge a lower rent for 
families who do not receive Section 8 subsidies. These owners want to 
charge a neighborhood comparable rent to Section 8 participants. The 
comment recommends that an owner should be allowed to charge a higher 
rent for Section 8 tenants than for market rate tenants if comparable 
rents are charged in the neighborhood.
    g. Comparability: Other Issues. Comments express concern on how 
implementation of rent reasonableness may affect existing tenancies. 
Comments ask HUD to clarify how rent reasonableness applies to existing 
voucher tenancies. Comments ask HUD to clarify when and how voucher 
landlords can raise the rent.
    By law, an HA may serve as contract administrator of units owned by 
the HA. Because of the evident conflict between the HA's proprietary 
interest and the responsibility for determining if the landlord's rent 
is reasonable, HUD determines whether rent of HA-owned units is 
reasonable. Comments state that comparability should be determined by 
the HUD field office economist rather than the Secretary.
    The proposed rule provides than an HA must ``assist'' the family in 
negotiating reasonable rent. Comments ask what assistance must be 
provided.
3. Comparability: HUD Response
    a. Use of Comparability. By law, rents for voucher units must be 
``reasonable in comparison with rents charged for comparable units in 
the private unassisted market'' (or for units assisted under the 
Section 8 certificate program) (42 U.S.C. 1437f(o)(10)(A)). The HA must 
review all initial rents or rent increases, and must determine whether 
the rent requested by an owner is reasonable.

    A public housing agency shall review all rents for [voucher] 
units * * * (and all rent increases for [voucher] units.* * *) to 
determine whether the rent (or rent increase) requested by an owner 
is reasonable. If the public housing agency determines that the rent 
(or rent increase) for a unit is not reasonable, the agency may 
disapprove a lease for such unit. (42 U.S.C. 1437f(o)(10)(A))

Under this law, the rent reasonableness requirement must be applied in 
the voucher program. Rent reasonableness may not be restricted to the 
certificate program as suggested by some public comment.
    In the certificate program, by law rent adjustment is subject to 
comparability. ``Adjustments'' may not result in ``material 
differences'' between rent for a Section 8 assisted unit and rent for

[[Page 23829]]

comparable unassisted units (42 U.S.C. 1437f(c)(2)(C)). The adjusted 
rent may not exceed ``the rent for a comparable unassisted unit of 
similar quality, type and age in the market area'' (42 U.S.C. 
1437f(c)(2)(A)). By this HUD regulation, comparability applies both to 
initial rent to owner and rent to owner as adjusted during the life of 
the assisted tenancy (Sec. 982.503(a)).
    Under this rule, comparability for a voucher or certificate tenancy 
limits the maximum ``rent to owner''--the amount of rent payable to the 
owner in accordance with the lease (Sec. 982.4). Rent to owner does not 
include any allowance for tenant-paid utilities. By contrast, the fair 
market rent limit (for a regular tenancy under the Section 8 
certificate program) is a limit on the initial ``gross rent''--the 
total amount of the rent to owner plus any allowance for tenant-paid 
utilities.
    In the regular certificate program, the initial rent is subject to 
both limits: initial rent to owner must be reasonable, and the total of 
the rent to owner plus any utility allowance may not exceed the fair 
market rent. In a voucher or over-FMR tenancy, the initial rent to 
owner must be reasonable. However, the fair market rent is not used as 
a restriction on the rent. Instead, the fair market rent is used as a 
limit on the ``payment standard''--the maximum subsidy for a family.
    Comparability review by the HA prevents owners from charging 
Section 8 families more than market rents charged for private market 
tenants. Experience in operation of the Section 8 programs shows that 
without this control, the availability of the Section 8 subsidy 
encourages and enables owners to charge more than a normal market rent.
    A Section 8 family may lack the motive, knowledge or leverage to 
negotiate a market rent. For a regular certificate tenancy, the 
participant has no economic motive to limit the amount of rent paid to 
an owner, since the amount of the rent paid to the owner does not 
affect the family's share of rent. A higher rent is covered by a higher 
Federal subsidy. In a voucher or over-FMR tenancy a higher rent 
increases the family's out of pocket payment. Nevertheless, without 
comparability, families may agree to excess rents since part of the 
rent--often the greatest part of the rent--is paid by the Section 8 
subsidy.
    The Section 8 program is designed to enable poor families to pay a 
fair rent for decent housing, not to subsidize excessive rents or 
profits. High rents waste Federal subsidy. By requiring reasonable 
rents for Section 8 families, this rule attempts to gain the maximum 
benefits from use of available program funds.
    Comments state that HUD should not require the HA to redetermine 
comparability unless the rent increases, and express concern with the 
administrative burden of the annual determination. In response to these 
concerns, the final rule (Sec. 982.503(a)(2)) only requires that the HA 
conduct a redetermination of reasonable rent in two cases:

--Before any increase of rent to owner, or
--If there is a five percent decrease in the published FMR (in effect 
60 days before the contract anniversary) as compared with the FMR in 
effect one year before the contract anniversary.

    In a regular certificate tenancy, rent may increase by application 
of the published factor at the annual anniversary, or by a HUD-approved 
special adjustment. In an over-FMR or voucher tenancy, rent may 
increase by terms of the lease between the owner and the tenant. For 
each type of tenancy, the HA must conduct a comparability analysis 
before an owner may increase the rent. An increased rent may not exceed 
the reasonable rent for unassisted units in the local market.
    Market rents may decline. Even absent a rent increase, the current 
rent to owner for a program unit--though reasonable at the time of the 
last HA comparability determination--may now exceed reasonable rent for 
comparable unassisted units rented in the local market. This excess is 
a windfall to the owner and results in excess subsidy payment by HUD or 
an excess payment by the family. To prevent excess rent in such cases, 
the rule will now require that the HA must conduct a comparability 
analysis if there is a five percent or greater decrease in the 
published FMR in effect 60 days before the contract anniversary as 
compared with the FMR rent in effect one year before the contract 
anniversary.
    The FMR is HUD's estimate of the fortieth percentile rent for 
standard units in the local market. A five percent decrease in the FMR 
indicates a substantial decrease in market rents, and justifies 
requiring the HA to undertake a comparability determination. 
Conversely, however, the rule does not require that the HA 
automatically and routinely conduct a comparability determination if 
the unit rent does not rise, and if there is no fall in the published 
FMR for the market. Even if there is substantial decline in local 
market rents, signalled by a fall in the FMR, rent for the particular 
assisted unit is not reduced unless the comparability analysis shows 
that current unit rent exceeds rent for comparable unassisted units.
    At any time, HUD may direct the HA to determine comparability for 
its program generally or for particular units, though there is no 
proposed increase in unit rent or decrease in market rents 
(Sec. 982.503(a)(2)(iii)). For example, HUD may exercise this authority 
because of concern that program rents are excessive because an HA has 
failed to carry out rent comparability in accordance with program 
requirements.
    The rule also provides that the HA may redetermine reasonable rent 
at any time (Sec. 982.503(a)(3)). The HA has discretion to conduct rent 
reasonableness analysis for any or all units, though not mandated in 
accordance with the rule.
    Comparability applies to existing program tenancies, as well as new 
tenancies. Application of reasonableness during the lease term is 
required by law, and is consistent with provisions of assistance 
contracts for existing certificate and voucher tenancies. In the 
certificate program, HAP contracts provide that rent adjustments must 
be reasonable. In the voucher program, current HAP contracts also 
provide that rent paid to the owner must be reasonable.
    The HA must keep records to document the basis for each HA 
determination, as required under the rule, that the initial and 
adjusted rent to owner is reasonable during the assisted tenancy 
(Sec. 982.158(f)(7) (for tenant-based programs) and Sec. 983.12(b)(2) 
(for PBC program)). In the tenant-based programs, a comparability 
determination must be kept for at least three years. In the PBC 
program, a comparability determination must be kept during the HAP 
contract term and for at least three years thereafter.
    b. How HA Determines Comparability. HUD has not adopted comments 
recommending that HUD issue extensive and detailed Federally-prescribed 
procedures for rental valuation and for resolution of valuation issues. 
Instead, the final rule (Sec. 982.503(b)) contains a brief and simple 
statement of the basic standards to be applied by an HA in determining 
reasonable rent of a unit with Section 8 tenant-based assistance.
    Each HA should use appropriate and practical procedures for 
determining rental values in the local market. The HA is responsible 
for designating qualified HA staff or outside analysts. HAs have 
extensive experience in determining rent reasonableness for the

[[Page 23830]]

Section 8 tenant-based programs, and can utilize available techniques 
and expertise. An HA is well able to gather and maintain data on rent 
values in its local market, or to retain qualified analysts for this 
purpose.
    An HA's day-to-day operation of a tenant-based program is a prime 
source of up-to-date information on private market rentals in the HA 
community. In the process of examining and approving rentals for 
program participants, the HA receives on-the-ground information on 
rents demanded and accepted by local landlords. HA's can maintain 
current rental data, and can designate staff or outside specialists 
with training and experience in rental valuation.
    The determination of rent reasonableness for Section 8 tenant-based 
assistance does not call for a special or unusual valuation in 
accordance with detailed procedures prescribed by HUD. The central 
purpose of comparability is merely to assure that federally subsidized 
rents do not exceed rental values in the private market. Each 
individual HA should value units so that the HA's determination of 
reasonable rent faithfully reflects the characteristics of the Section 
8 unit, and the valuation of comparable units in the private unassisted 
market.
    c. Factors Considered in Valuing Unit. To determine if rent is 
reasonable, the HA must compare characteristics of the contract unit 
with characteristics of comparable unassisted units. The rule provides 
(Sec. 982.503(b) and Sec. 983.256(b)) that an HA must consider:

--Location, quality, size, unit type and age of the contract unit.
--Amenities, housing services, maintenance and utilities to be provided 
by the owner of the contract unit in accordance with the assisted 
lease.

    The proposed rule would have provided that the HA must consider 
``any'' owner services. The final rule specifies that the HA may only 
consider ``housing'' services (Sec. 982.503(b)(2) and 
Sec. 983.256(b)(2)). Comparable rent does not include the value of any 
non-housing services provided by the owner to the assisted tenant (for 
example, the value of any food or medical services). In determining 
comparable rent, rent of any comparable with non-housing services must 
be adjusted down to indicate rent of an assisted unit without such 
services.
    Comments state that an HA should consider local regulations that 
affect rent of comparable units. HUD agrees that local laws or 
regulations may affect rent of a comparable or subject unit. However, 
such effects would be reflected in the comparable rents, and in the 
comparison between the comparable and subject. There is no need to add 
any special regulatory treatment concerning the effect of local laws or 
regulations.
    d. Rent Charged by Owner. The proposed rule would have provided 
that rent to owner may not exceed rent that the owner is charging for a 
comparable assisted or unassisted unit. Public comments state that 
comparability should not be based on owner rent for assisted units. On 
reconsideration, HUD agrees that the rent for assisted units is not a 
persuasive indicator of private market unassisted rents. In renting to 
certificate or voucher families, the owner may not be able to match 
reduced rents for subsidized units in the same building.
    Under the final rule (Sec. 982.503(b)), reasonable rent for a 
contract unit is determined by comparison with rents for other 
comparable ``unassisted'' units in the local market and the owner's 
premises. In the final rule (Sec. 982.4), the term ``reasonable rent'' 
means a rent that is not more than rent for comparable units in the 
private unassisted market, including rent charged by the owner for 
comparable unassisted units in the premises.
    The final rule does not provide, as proposed, that rent for a 
contract unit may not exceed rent charged by the owner for a comparable 
``assisted'' unit in the premises. The rule therefore deletes the 
requirement for owner certification of this fact. By accepting the HA's 
monthly Section 8 payment, an owner certifies that rent for a Section 8 
unit does not exceed rent charged by the owner for comparable 
unassisted units in the premises (Sec. 982.503(c); Sec. 983.256(d)).
    If requested, the owner must give the HA information on rents 
charged by the owner for other units in the premises or elsewhere 
(Sec. 982.503(c); Sec. 983.256(d)). Comments agree with HUD that the 
owner should be required to give the HA information on rents charged by 
owner.

B. Other Limits on Rent to Owner

1. New Provisions
    The final rule adds new provisions to confirm that owner rents for 
some units may be subject to limits in addition to rent reasonableness. 
These limits apply:

--To units subject to rent control under local law;
--To units subject to rent restrictions under rules for the HUD HOME 
program (HOME Investment Partnerships Program; see 24 CFR part 92);
--To project-based certificate (PBC) units, to ensure that an owner 
does not receive excessive subsidy by combining Section 8 assistance 
with tax credits or other subsidies.
--At the discretion of the HA, because of other governmental subsidies 
in addition to Section 8 assistance.
2. Rent Control
    Local rent control may force an owner to reduce the rent to owner 
below the HA-determined reasonable rent (or below the fair market rent 
for a regular tenancy in the Section 8 certificate program). The rule 
provides that the amount of rent to owner may be subject to rent 
control limits under State or local law (Sec. 982.511 and 
Sec. 983.258).
    The new rule confirms that the Section 8 program rule establishes 
the maximum rent to owner, but does not establish the minimum rent to 
owner. Therefore the rule does not pre-empt local rent control laws 
which may prohibit an owner from charging the full comparable rent 
otherwise allowed in accordance with requirements of the Federal 
program regulation.
3. HOME Rents
    Section 8 families may rent units in projects assisted under the 
HUD HOME program. Requirements of the HOME program determine the 
maximum rents for units in a HOME-assisted project. The Section 8 rule 
provides that rent for HOME-assisted units is subject to requirements 
of the HOME program (Sec. 982.512(b) and Sec. 983.257(a)).
    This rule thus confirms that participation in the Section 8 program 
does not relieve or replace rent limits required by the HOME program. 
The converse is also true. Participation in the HOME program does not 
relieve or replace rent limits required by the Section 8 program. 
Rather, for a unit that is assisted both under the HOME program and 
under the Section 8 program, the owner is subject both to the HOME and 
Section 8 limits on unit rents. As for other Section 8 units, rent for 
a HOME-assisted unit must not exceed rents charged by the owner for 
comparable unassisted units.
4. Other Subsidies
    The new rule provides that an HA may adopt policies requiring a 
reduction of the initial rent to owner because of other governmental 
subsidies (Sec. 982.512(c) and Sec. 983.257(c)). In some cases the 
owner or property may benefit from Governmental subsidies in addition 
to Section 8. Such subsidies may flow from the Federal government, or 
from a State or local government. The subsidy may take various forms: 
such as

[[Page 23831]]

tax concessions or credits, subsidized loans or grants to an owner.
    The HA may judge that the combination of Section 8 subsidy with 
other subsidies is an excess concentration of public resources, is more 
than necessary to induce the owner to provide the housing, or provides 
a windfall or excessive profit to the owner. The final rule explicitly 
grants the HA discretion to refuse Section 8 initial rents that the HA 
deems excessive after considering other available subsidies for the 
project, and to require an initial rent below the reasonable rent 
otherwise allowed under the program.
    Section 8 housing may benefit from federal tax credits allocated by 
State housing credit agencies. Section 102(d) of the HUD Reform Act of 
1979 (42 U.S.C. 3545 and 3545 note) requires HUD to take into account 
other government assistance in determining the amount of Section 8 or 
other HUD assistance for ``any housing project.'' Before the HA commits 
assistance under the project-based certificate program, HUD or a State 
housing credit agency must certify that the combination of Section 8 
and other governmental assistance for a project is not ``more than is 
necessary to provide affordable housing.''
    Departmental regulations provide that in making a certification 
under Section 102(d), HUD will consider the aggregate amount of 
assistance from the Department and other sources that is ``necessary to 
ensure the feasibility of the assisted activity'' (24 CFR 4.13(a)). If 
HUD determines that the aggregate amount of assistance is more than 
necessary for this purpose ``the Department will consider all options 
available to enable it to make the required certification, including 
reductions in the amount of Section 8 subsidies'' (24 CFR 4.13(b)). To 
implement the limitation of Federal assistance for a project, HUD has 
issued administrative guidelines on the ``layering'' of governmental 
subsidies (59 FR 9332, February 25, 1994).
    The proposed PBC rule would have provided that the initial rents to 
owner (contract rent) may not exceed the rents necessary to make the 
assisted activity feasible, after taking into account assistance from 
other government sources, and that the HA and owner must so certify. 
Comments object to the requirement for certification that this standard 
is met. The final PBC rule does not include this certification 
requirement.
    The final PBC rule provides, at Sec. 983.257(b), that:

    * * * the HA may only approve or assist a project in accordance 
with HUD regulations and guidelines designed to ensure that 
participants do not receive excessive compensation by combining HUD 
program assistance with assistance from other Federal, State or 
local agencies, or with low income housing tax credits.

    An owner may receive excessive benefit by combining Section 8 
benefits with tax credit or other governmental subsidies. Excess 
aggregate subsidy may be eliminated by reducing Section 8 rents or by 
reducing tax credits or other governmental subsidies. On the one hand, 
a State housing credit agency may reduce the allocation of Federal tax 
credits. Alternatively, the HA may exercise its regulatory discretion 
to reduce initial Section 8 rents because of tax credits or other 
subsidies for the project.

IV. Maximum Subsidy

A. Purpose and Proposed Changes

    HUD publishes the fair market rent (FMR) for each market area. The 
FMRs are estimates of the cost to rent standard existing housing. In 
the Section 8 certificate and voucher programs, the published FMR is 
generally the maximum subsidy for a family. However, HUD may approve an 
``exception rent'' to allow a higher subsidy. The ``FMR/exception rent 
limit'' is the fair market rent or any HUD-approved exception rent. 
(Sec. 982.504, and definition of FMR/exception rent limit in 
Sec. 982.4.) (In addition to the tenant-based programs, the exception 
rent requirements in Sec. 982.504 also apply to PBC (Sec. 983.252(b)).)
    For a regular tenancy in the certificate program, the FMR/exception 
rent limit is the maximum initial rent (Sec. 982.508(a); see also 
Sec. 982.504(a)(2)). The initial rent may not exceed the FMR/exception 
rent limit either for the actual size of the unit rented, or for the 
``family unit size''--the appropriate unit size for the family 
(Sec. 982.508(a)(2); Sec. 982.402(c)(1)). Family unit size is 
determined under the HA subsidy standards (Sec. 982.402).
    For a voucher or over-FMR tenancy, the FMR/exception rent limit 
determines the HA payment standard (maximum subsidy amount) 
(Sec. 982.505; see also Sec. 982.504(a)(2)). For the voucher program, 
the payment standard may not exceed the FMR/exception rent limit 
(Sec. 982.505(b)(1)). For an over-FMR tenancy, the payment standard is 
the FMR/exception rent limit (Sec. 982.505(c)(1)).
    Under the old certificate rule, an HA was permitted to approve 
exception rents up to 110 percent of published FMR for up to 20 percent 
of units in the HA certificate program. The HA did not need to ask HUD 
permission to approve such exception rents. In addition, HUD could 
approve certificate program exception rents for neighborhoods or 
special cases. In the voucher program, the HA could set a payment 
standard up to a HUD-approved exception rent for the whole HA 
jurisdiction. In this rulemaking, HUD proposed to eliminate the 
existing exception rent authorities, and to substitute a new uniform 
exception rent standard for the tenant-based programs.
    Under the proposed and final rule HUD may approve an exception rent 
limit for part of the area covered by a published FMR. In all cases, 
the approved exception rent limit may not exceed 120 percent of the 
published FMR (Sec. 982.504(b)(1)(ii) of final rule)--the statutory 
exception rent limit. Within this limit, the final rule allows two 
alternative procedures for determining the maximum exception rent.
    First, in accordance with prior practice and as provided in the 
proposed rule, the final rule provides that HUD may approve an 
exception rent that does not exceed the 40th percentile of rents to 
lease standard units in the exception rent area. Under this method, the 
40th percentile rent is determined by the same method as is used to 
establish the published FMR for the whole FMR area.
    Second, the final rule adds a new method for determining the 
maximum approvable exception rent. The final rule provides that HUD may 
approve an exception rent if the exception rent does not exceed the FMR 
times a fraction comprised of the median rent of the exception rent 
area divided by the median rent of the entire FMR area. For this 
purpose, HUD will use decennial census data and other available 
statistically valid information to determine the median rent for the 
exception rent area and FMR area (Sec. 982.504(b)(1)(ii)(B).)
    The final rule also provides that HUD will not approve an area 
exception rent unless HUD determines that an exception rent is needed 
for either of two specific program reasons (Sec. 982.504(b)(1)(iii)):

--To help families find housing outside area of high poverty, or
--Because a high percentage of certificate or voucher holders have 
trouble finding housing for lease under the tenant-based program within 
the term of the certificate or voucher.


[[Page 23832]]


    The total population of exception rent areas in an FMR area may not 
include more than 50 percent of the population of the fair market rent 
area (Sec. 982.504(b)(1)(iv)).
    A HUD-approved area exception rent applies to any family that rents 
a unit with tenant-based assistance in a HUD-approved exception rent 
area (Sec. 982.504(b)(1)(i)). The rule does not limit the number of 
exception rent tenancies in these areas.
    In addition, the final rule provides that for a regular certificate 
tenancy, the HA may approve an exception rent up to 120 percent of the 
published FMR, as a reasonable accommodation for a disabled family 
member (Sec. 982.504(b)(2)).

B. FMR/Exception Rent Limit: Comments

1. Certificate Program: Elimination of HA Exception Authority
    Some comments argue that HUD should not change the old exception 
rent regulation. Other comments state that the new exception rent 
system is flexible and offers more choice for clients.
    Comments object to losing the HA's 20 percent exception authority 
in the certificate program. Comments recommend increasing the 
percentage of exception units.
    Comments complain that the new rule restricts HA flexibility. They 
state that an HA should retain discretion to allow FMR exceptions on a 
community-wide or unit-by-unit basis. The comments state that the old 
certificate system allows the HA to consider local market conditions 
and circumstances of participating families. The HA needs discretion to 
meet special needs or unusual circumstances. Sometimes the HA needs to 
grant an exception rent for a specific unit because of special family 
needs.
    Comments suggest that an HA may reduce arbitrary variation in HA 
exception rent approval by adopting objective criteria for determining 
when to grant exception rents. The HA administrative plan should 
include provisions on HA approval of exception rents. Inclusion of HA 
exception rent policy in the administrative plan prevents arbitrary or 
abusive action by the HA.
    Comments note that removal of HA exception rent authority hampers 
ability of certificate-holders to lease units. The HA loses landlords 
when the FMR is low and rents are high. A tight market forces tenants 
into poor neighborhoods. Under the old rule, an HA can use the 20 
percent exception authority so program families can lease in new areas. 
However, an HA comment states that the HA does not allow exception 
rents since there are many units available under the FMR.
2. Over-FMR Tenancy
    Some public comments concern the relation between exception rent 
limits on maximum subsidy, and the new rules that allow some 
certificate families to pay a higher rent. In this type of tenancy, the 
maximum subsidy is capped at the FMR limit, but the family can pay the 
owner rent that exceeds the FMR limit. (In the proposed rule, this is 
called an ``excess rent'' tenancy. In the final rule this is called an 
``over-FMR'' tenancy.) By law, the HA may not approve such tenancies 
for more than 10 percent of ``incremental'' units in the HA program.
    Comments state that the over-FMR tenancy is not an adequate 
substitute for the 20 percent exception rent authority. Over-FMR 
tenancies are limited to 10 percent of the HA program and families who 
can afford to pay more than the FMR. Poor welfare families will not 
qualify for excess rent tenancy. According to the comments, the over-
FMR tenancy substitutes for the individual exception rent authority 
under old rule. An HA needs authority to approve higher rents for more 
than 10 percent of incremental units.
3. Exception Rent: HUD Approval
    Comments note that the new rule requires HUD approval for all 
exception rents. The law does not require HUD approval for exception 
rents up to 10 percent over FMR. Comments claim that elimination of HA 
exception rent authority is contrary to law.
    Comments state that communities should not be required to submit an 
unusual amount of data in requesting approval of an exception rent. An 
HA cannot afford to hire consultants for each FMR change.
    Comments recommend a 30 day deadline for HUD to review an HA 
exception rent request. If HUD misses the deadline, the HA request 
should be automatically approved.
    Comments ask HUD to clarify some aspects of the new exception rent 
system. HUD should specify that the new exception rent authority 
replaces the former HA authority to approve exception rents without HUD 
approval. HUD should explain how deletion of 20 per cent authority is 
phased-in, and whether prior approved exceptions are grandparented.
    Comments note that the new system only allows an exception rent for 
a unit located in an approved exception rent area. The new system may 
eliminate incentive for an owner to improve property over the HQS.
4. Exception Rent: New Procedure
    Comments state that the new exception rent procedure is too 
complex. The authority to approve an exception rent is not based on 
individual family circumstances. HUD should not require the HA to 
document the rent level representing a given percentile of the local 
market.

C. FMR/Exception Rent Limit: New Rule

1. Approval of Exception Rent
    a. New rule. Fair market rents (FMRs) are published annually by 
HUD. An ``exception rent'' is a maximum rent subsidy in excess of the 
published FMR. Under the old rule, an HA was authorized to approve 
exception rents up to 110 percent of the FMR for up to 20 percent of 
units under the ACC (annual contributions contract between HUD and an 
HA).
    The new rule (Sec. 982.504(b)) permits two types of exception rent:

--An exception rent for part of the FMR area. Such exception rents must 
be approved by HUD. Area exception rents apply to all three types of 
program tenancy: a regular certificate tenancy, a voucher tenancy and 
an over-FMR tenancy.
--For a regular certificate tenancy only, an exception rent granted by 
the HA as a reasonable accommodation for a person with disabilities.

    b. Area Exception Rent. The final rule provides that an HA may 
request exception rent approval for a part of the fair market rent area 
designated as an ``exception rent area'' (Sec. 982.504(b)(1)). HUD may 
approve an exception rent for all units, or for all units of a given 
size (number of bedrooms), leased by program families in a HUD-approved 
exception rent area. However, the total population of exception rent 
areas in a fair market rent area may not include more than 50 percent 
of the population of the fair market rent area 
(Sec. 982.504(b)(1)(iv)).
    The amount of the HUD-approved exception rent is subject to two 
restrictions. First, the exception rent may not exceed 120 percent of 
the published fair market rent (Sec. 982.504(b)(1)(ii)(A)). For a 
regular tenancy in the Section 8 certificate program, the maximum 
monthly rent is 120 percent of the published FMR (42 U.S.C. 
1437f(c)(1)). In the voucher program, the payment standard must be 
``based on'' the published fair market rent (42 U.S.C. 1437f(o)(1). 
Under the rule (Sec. 982.505), the 120 percent of FMR

[[Page 23833]]

limit is the maximum payment standard for a voucher or over-FMR 
tenancy.
    Second, in addition to the 120 percent limit, the exception rent 
may not exceed a second limit, designed to test whether there is a need 
for higher rental subsidy in a proposed exception rent area. Under the 
proposed rule, HUD would have applied the same methodology that is used 
to determine the FMR for the whole FMR area. FMRs are currently set at 
the 40th percentile rent--the rent level that includes rents for 40 
percent of standard quality units renting in the local housing market 
(Sec. 888.113(a)). When the proposed rule was published in February 
1993, FMRs were set at the 45th percentile rent. The proposed rule 
would have provided that the exception rent may not exceed the 45th 
percentile rent as determined by the methodology used to determine the 
published FMR.
    Under the final rule, the HUD field office may approve an area 
exception rent for a high-rent portion of the FMR area. HUD may use one 
of two alternative methods for determining the maximum area exception 
rent. The area exception rent may be based either: (1) on the 40th 
percentile rent for the exception rent area, or (2) on the relationship 
between the median rent of the exception rent area as compared with the 
median rent for the whole FMR area (Sec. 982.504(b)(1)).
    Using the first method, the exception rent may not exceed the lower 
of:

--120 percent of the published FMR, or
--The 40th percentile rent for the exception rent area.

    Using the second method, the exception rent may not exceed the 
lower of:

--120 percent of the FMR, or
--The published FMR times a fraction comprised of the median rent of 
the exception rent area divided by the median rent of the entire FMR 
area.

    When the second method is used, HUD compares exception area median 
rent to median rent for the entire FMR area. The information needed for 
this comparison can be obtained easily from the decennial United States 
census. By contrast, information on the 40th percentile rent level 
relationships for the FMR and exception rent areas is not available in 
census publications or tabulations in the same detail used by HUD to 
compute the FMR.
    Under the proposed rule and existing practice, an HA would have 
been required to submit survey data which justifies the HA's request 
for HUD approval of an exception rent. To secure exception rent 
approval, the HA would have been forced to gather and submit survey 
data showing the 40th percentile rent for the proposed exception rent 
area. The new rule relieves the HA of the obligation and burden of 
supplying rental survey data to support its request for exception rent 
approval.
    The new rule provides instead that HUD may use decennial census 
data and other available statistically valid information to determine 
the median rent for the exception rent area and FMR area. HAs usually 
lack the resources and statistical know-how to conduct adequate rental 
surveys for determination of percentile rent. Moreover, the random 
digit dialing technique that is used to determine the FMR does not work 
well for parts of FMR areas because of the large number of calls, and 
therefore the associated high cost, that is required to obtain an 
adequate sample size for the exception rent area.
    The determination that exception area rents are more expensive than 
rents for the FMR area as a whole (either by median rent comparison or 
by determination of the 40th percentile rent) does not itself show that 
there is a programmatic justification for a higher subsidy. The final 
rule (Sec. 982.504(b)(1)(iii)) provides that HUD will not approve an 
exception rent unless HUD determines that an exception rent is needed 
either:

--To help families find housing outside areas of high poverty, or
--Because a high percentage of certificate or voucher holders have 
trouble finding housing for lease under the program within the term of 
the certificate or voucher.

    An area exception rent only applies if a family selects and rents a 
unit within a HUD-approved exception rent area (Sec. 982.504(b)(1)(i)). 
There is no limit on the number or percentage of area exception rent 
units in the HA program. However, the total population of exception 
rent areas in an FMR area may not include more than 50 percent of the 
population of the fair market rent area (Sec. 982.504(b)(1)(iv)).
    c. Regular Tenancy: Accommodation for Person With Disabilities. The 
final rule (Sec. 982.504(b)(2)) provides that on request from a family 
that includes a person with disabilities, the HA must approve an 
exception rent of up to 120 percent of the fair market rent if 
appropriate as a reasonable accommodation for the needs of a such 
person arising from such person's disability. This authority to approve 
a higher rent only applies to a regular certificate tenancy, and does 
not apply to a voucher tenancy or over-FMR certificate tenancy.
2. Exception Rent: New Rule--HUD Response
    HUD has not adopted the recommendation to retain the HA 20 percent 
exception authority in the old certificate rule, or to retain a broad 
authority for HAs to grant exception rents for neighborhoods or special 
cases. Instead, the rule is designed to apply a uniform and equitable 
exception standard for all areas and all cases (with a limited 
exception to accommodate the special needs of a person with 
disabilities). This standard is applied across the whole universe of 
the HA tenant-based programs--to establish the maximum initial rent to 
owner in a regular certificate tenancy, or the payment standard for a 
voucher or over-FMR tenancy.
    Under the old voucher rule, HUD only allowed the use of 
``community-wide'' exception rents to determine the voucher payment 
standard: certificate exception rents that apply to the whole HA 
jurisdiction. Under the new rule, the same exception rent limit applies 
for certificates and vouchers. For both tenant-based programs, and for 
any form of tenancy, HUD may approve an exception rent for a portion of 
the HA jurisdiction. Some comments support this change, noting that 
exception rents are critical to success of the certificate and voucher 
programs.
    As noted above, some comments claim that elimination of the HA's 20 
percent exception authority limits family opportunity to search for 
units in better areas--nearer to schools or jobs, and outside impacted 
areas with a high concentration of poor or minority families. However, 
under the new rule HUD may approve area exception rents so families can 
rent more expensive units in better areas. The granting of an area 
exception rent allows families to access decent units in the exception 
rent area. There is no percentage limit on the number of assisted 
families that may rent in exception rent areas.
    In a regular certificate tenancy, the family may rent a unit up to 
the exception rent limit. Such rentals do not count against the 
statutory limit on the percent of certificate families paying in excess 
of the FMR/exception rent limit under an over-FMR tenancy.
    HUD has not accepted a comment urging HUD to phase in elimination 
of an HA's 20 percent exception rent authority. There is no need for a 
phase-in since the new procedure does not reduce the subsidy for 
existing program tenancies. The new provision only applies to lease 
approvals after the regulation effective date. In the regular 
certificate program, the FMR/exception

[[Page 23834]]

rent limit only operates as a constraint on rent at the beginning of 
the lease term, but does not affect rent adjustments during the lease 
term. In a voucher or over-FMR tenancy, the family is protected against 
a drop of the payment standard during the lease term.
    Under the new rule, HUD may approve an exception rent for a 
``designated'' part of the FMR area. Comments state HUD should define 
what this means. HUD believes there is no need for further definition. 
Under the rule, HUD may designate any part of the FMR area.
    The rule specifies that a designated exception rent area may not 
include more than 50 percent of the FMR area population. If there is a 
need for higher rents and subsidy in a larger portion of the FMR area, 
HUD will consider whether the available data indicate that HUD should 
adopt a higher published FMR, instead of adopting a higher ``exception 
rent'' for more than half of the FMR area.

V. Minimum Rent: Family Share of Rent

    In the certificate and voucher programs the family must contribute 
at least 10 percent of gross income as rent for the unit (for 
certificates: 42 U.S.C. 1437a(a)(1) and 1437f(c)(3)(A); see also 24 CFR 
5.613 (61 FR 54502, October 18, 1996); for vouchers: 42 U.S.C. 
1437f(o)(2); see also Sec. 982.507 (regular certificate tenancy); 
Sec. 982.505(b)(2)(ii) (vouchers); Sec. 982.505(c)(2) (over-FMR 
tenancy)). Comments state that HUD should raise the ``minimum rent'' 
from 10 percent of gross income to 14 percent.
    HUD has not raised the minimum rent. The minimum rent percentage is 
determined by the statute.
    For several years, temporary laws have provided that a Section 8 
assisted family must pay a ``minimum monthly rent'': the minimum share 
of rent that is not covered by Section 8 subsidy (110 Stat. 40, sec. 
402(a) of P.L. 104-99, 1/26/96, as amended by 110 Stat. 2892-2893, sec. 
201(c) of P.L. 104-204, 9/26/96). The temporary minimum rent 
requirement applies in addition to standing statutory requirements that 
specify the amount of the rent a Section 8 (non-voucher) family is 
``required to pay'' (42 U.S.C. 1437f(c)(3)(A)), and the amount of 
subsidy for a voucher family (42 U.S.C. 1437f(o)(2)). The Congress may 
extend temporary minimum rent requirements to future years. The rule is 
revised to provide for enforcement of minimum rents as enacted by the 
Congress.
    In an over-FMR tenancy, the initial gross rent (rent paid to owner 
plus allowance for tenant-paid utilities) exceeds the FMR limit 
(Sec. 982.4). The final rule provides that the subsidy payment for an 
over-FMR tenancy may not exceed gross rent minus the minimum rent as 
required by law (Sec. 982.505(c)(2)(ii)). For a regular tenancy, the 
final rule provides that the subsidy payment equals the gross rent 
minus the higher of the total tenant payment or the minimum rent as 
required by law (Sec. 982.507(b)).
    In a voucher tenancy, the subsidy payment may not exceed gross rent 
minus the minimum rent (minimum family share) (Sec. 982.505(b)(2)). In 
the voucher program, the minimum rent is the higher of (1) 10 percent 
of gross income (42 U.S.C. 1437f(o)(2)) or (2) a higher minimum rent as 
required by law. For each type of tenancy, the minimum rent requirement 
assures that the family must pay out-of-pocket at least a minimum share 
of actual rent during the course of the tenancy.
    In the regulatory formula for determining the amount of subsidy in 
an over-FMR tenancy (Sec. 982.505(c)(2)), total tenant payment is 
deducted from the payment standard to calculate the maximum subsidy 
(payment standard minus total tenant payment). Minimum rent is deducted 
from the actual unit rent (gross rent) to determine the minimum family 
share. The actual subsidy for a family is the lesser of the amounts 
derived from these two calculations.
    For a voucher or over-FMR tenancy, the assistance formulas also 
assure that the subsidy does not exceed the amount needed to support 
the actual reasonable rent for the unit. Subsidy may not exceed the 
difference between the ``gross rent'' and the minimum rent 
(Sec. 982.505(b)(2)(i) (voucher tenancy) and Sec. 982.505(c)(2) (over-
FMR tenancy)). ``Gross rent'' is the sum of the actual rent to owner 
and the HA allowance for tenant-paid utilities (definition at 
Sec. 982.4). Rent to owner must be reasonable (Sec. 982.503(a)).

VI. Certificate Program: Over-FMR Tenancy

A. New Type of Tenancy

    For the first time under this rule, some families in the 
certificate program may choose to rent units that rent for more than 
the fair market rent (FMR)/exception rent limit. In the proposed rule 
this type of tenancy was called an ``excess rent tenancy.'' In the 
final rule this type of tenancy is called an ``over-FMR tenancy'' 
(Sec. 982.4).
    The name used in the proposed rule may be misleading, since the 
phrase ``excess rent tenancy'' suggests that the rent is excessive. By 
law and HUD regulation, rent paid to the owner must be reasonable--both 
in relation to comparable market rents and to family financial 
resources. Thus the rent may not be ``excessive.'' The phrase ``over-
FMR tenancy'' better indicates that the family pays a rent that exceeds 
the FMR limit--the cap on gross rent in the regular certificate 
program.
    By allowing a family to rent above the FMR/exception rent limit, 
this regulatory change enlarges the pool of available housing that can 
be rented by a family under the certificate program, and may enable the 
family to pick a unit that better fits the family needs. A family that 
enters an over-FMR tenancy pays more than the statutory formula rent 
(``total tenant payment'') that otherwise defines the family share of 
unit rent. However, as for all housing assisted in the certificate and 
voucher programs, the total rent to owner may not exceed the reasonable 
market rent. Moreover, as for all housing assisted in the certificate 
program, the fair market rent limit is the maximum initial subsidy. 
(The initial subsidy payment is the difference between the fair market 
rent limit and the formula rent paid by the family.)
    In the final rule, the term ``regular tenancy'' is used to 
distinguish the basic form of certificate program tenancy used since 
the beginning of the certificate program from an ``over-FMR'' 
tenancy,'' newly authorized by this rule. A regular tenancy is defined 
as a certificate program tenancy ``other than an over-FMR tenancy'' 
(Sec. 982.4).
    In a regular tenancy, the initial rent (the rent at the beginning 
of the lease term, including the HA allowance for tenant-paid 
utilities) may not exceed the FMR/exception rent limit. The family pays 
the portion of rent determined by the statutory formula (42 U.S.C. 
1437f(c)(3)(A) and 1437a(a)(1)), generally 30 percent of adjusted 
income. The family is prohibited from paying a higher share of the 
rent. The subsidy covers the difference between the actual unit rent 
and the formula rent paid by the family.
    Both in the voucher program and in an over-FMR tenancy in the 
certificate program, the family may rent a unit for more than FMR/
exception rent limit. The family pays the portion of rent not covered 
by the HUD subsidy.
    For a tenancy in the voucher program, the HA sets the maximum 
subsidy level, called the ``payment standard''. The payment standard 
may not exceed the FMR/exception rent limit. Unless HUD approves a 
lower percent, the payment standard may not be less than 80 percent of 
the FMR/exception rent limit.

[[Page 23835]]

For an over-FMR tenancy in the certificate program, the maximum subsidy 
equals the FMR/exception rent limit. (For any tenancy in the 
certificate and voucher programs, the actual subsidy payment generally 
equals the maximum subsidy minus 30 percent of the family's adjusted 
income.)

B. Over-FMR Tenancy: Comments

1. General Effect of Rule
    Some comments welcome regulatory change to allow over-FMR tenancies 
in the certificate program. By permitting use of an over-FMR tenancy, 
the certificate program operates more like the voucher program. The 
over-FMR tenancy opens housing opportunities for program participants. 
The over-FMR tenancy helps families, including large families, that 
cannot find suitable units at rents under the FMR.
    Comments state that the over-FMR tenancy removes the need for 
``side payments'' by a family. (``Side payments'' are illegal family 
rental payments to a Section 8 landlord that exceed the tenant rent 
share (``tenant rent'') defined by federal law.) Comparability assures 
that rent paid to the owner is not excessive. Comments assert that the 
tenant-based programs need flexibility for higher rental payments.
2. Objections to Over-FMR Tenancy
    Other comments object to the over-FMR tenancy. Comments state that 
HUD should not allow an assisted family to pay a higher share of family 
income. Authorization for the over-FMR tenancy casts the HA as a 
financial manager for the tenant. An over-FMR tenancy is not consistent 
with the low-income program. A tenant may overextend financially in 
agreeing to a higher rent. Family income may decrease after rental of 
the unit. The tenant may be forced to move. The HA will have a 
financial burden if a family is forced to move.
    HA comment indicates that there may be little need to allow the 
over-FMR tenancy. An HA states that there are many units available 
within the FMR in the HA's local housing market. Because of deflation, 
Section 8 tenants have a wider choice of housing.
    Comments state that the over-FMR tenancy encourages fraud, and non-
reporting of family income by participants. Owners will try to collect 
extra money. The over-FMR tenancy will make owners greedy, and cause 
price escalation in tight markets. The over-FMR tenancy may be 
``discriminatory.'' Landlords will favor over-FMR tenants. The 
permission to allow an over-FMR tenancy limits the ability of other 
families to find housing in the open market.
    Comments state that the over-FMR tenancy will be an administrative 
burden. The HA must determine residual income, and track over-FMR 
tenancies. HA's cannot explain the over-FMR tenancy to families, and 
the families will not understand how such a tenancy works. The new rule 
will create a new certificate sub-program rather than simplifying 
administration by combining and conforming the certificate and voucher 
programs, the stated objective of the conforming rule.

C. Over-FMR Tenancy: 10 Percent Limit

1. Law
    The law provides that an HA may not approve over-FMR tenancies 
(``excess rentals'') for more than 10 percent of ``incremental rental 
assistance'' (42 U.S.C. 1437f(c)(3)(B)(ii)). To implement this 
statutory restriction, the proposed rule would have provided that the 
number of over-FMR tenancies may not exceed 10 percent of ``incremental 
units'' in the HA certificate program. Incremental refers to additional 
program units not provided for families previously receiving Section 8 
assistance.
2. Comments
    Comments state that the HUD rule should not restrict the number of 
over-FMR tenancies in an HA program. HUD should not limit HA authority 
to approve over-FMR tenancies to 10 per cent of the HA's incremental 
units. The 10 percent limit is arbitrary and too low.
    Comments also state that the same requirements should apply to 
certificates and vouchers. The certificate rule should follow the 
voucher program. In the voucher program, there is no limit on the 
number or percentage of units that rent above the voucher payment 
standard. The voucher program should be the model for a future combined 
tenant-based program. Different certificate and voucher limits on 
family share of rent confuse families and landlords.
    Comments state that the rule should allow over-FMR tenancy for all 
families. The HA should not have to approve over-FMR tenancies on a 
unit by unit basis. Tenants and owners will not know if HA exception 
authority is available. Comments ask how an HA determines whether to 
approve a family's request within the 10 percent limit.
    Comments note that the opportunity for an over-FMR tenancy opens up 
a tight housing market. Availability of over-FMR tenancy for all units 
would increase family opportunities. The 10 percent maximum restricts 
family choice. All families should have the same choice. An over-FMR 
tenancy permits a family to rent a single family dwelling instead of an 
apartment.
    Comments state that there is no need for a 10 percent cap. Rent 
paid by a family must be reasonable and affordable. Allowing Section 8 
assistance for an over-FMR tenancy does not increase the amount of HUD 
subsidy. The family pays the excess over FMR.
    The meaning of ``incremental'' units is not clear, and should be 
stated in plain language.
    Under the old rule, an HA could approve exception rents for up to 
20 percent of units under ACC. However, over-FMR tenancies are only 
permitted for 10 percent of ACC units. Comments claim that the proposed 
rule reduces authority to grant exceptions from 20 percent to 10 
percent of ACC. Comment asks if pre-rule exception rents count against 
the 10 percent limit.
3. HUD Response
    HUD agrees with commenters that the 10 percent limit is an 
arbitrary restriction on the HA's authority to approve over-FMR rentals 
in the certificate program. As remarked in the comments, the 
opportunity for an over-FMR tenancy opens up new housing choices for an 
assisted family, but does not increase the maximum federal subsidy. HUD 
is, however, constrained by current law, under which such rentals may 
not exceed 10 percent of ``incremental'' units in the HA certificate 
program (see 42 U.S.C. 1437f(c)(3)(B)(ii)).
    In HUD appropriations practice, incremental assistance generally 
refers to appropriated funding for units which increase the aggregate 
supply of federally assisted housing, as contrasted with continued 
funding for previously assisted units or families. The 10 percent limit 
is applied to the base of incremental units in the HA program. Under 
the proposed rule, the number of incremental units under the ACC 
(consolidated ACC) would be calculated by subtracting ACC units for 
families previously assisted under other Section 8 or federal housing 
programs. Under the final rule (Sec. 982.506(a)(2)), all certificate 
units are counted as incremental except units provided to replace units 
for which HUD provided tenant-based program funding designated for 
families residing in section 8 project-based housing.

[[Page 23836]]

D. Over-FMR Tenancy: Affordability of Rent (Maximum Family Share)

1. Law and Regulation
    In a regular Section 8 certificate tenancy, a family must rent a 
unit below the FMR limit, and a statutory formula specifies the family 
share of the rent (called ``total tenant payment'') as a percentage of 
family income (42 U.S.C. 1437f(c)(3)(A) and 1437a(a)(1)). The family 
usually pays 30 percent of adjusted income toward the total unit rent.
    In an over-FMR tenancy, a family may rent a unit over the FMR 
limit. The family pays a higher percentage of income towards the total 
unit rent than otherwise allowed by the statutory Section 8 rent 
formula. The law provides that a family may not enter an over-FMR 
tenancy (agree to pay more than 30 percent of income) unless the HA has 
determined that:

    * * * the rent for the unit and the rental payments of the 
family are reasonable, after taking into account other family 
expenses (including child care, unreimbursed medical expenses, and 
other appropriate family expenses). (42 U.S.C. 
1437f(c)(3)(B)(i)(II))

    The proposed rule would have provided, both for vouchers and for an 
excess rent (over-FMR) tenancy, that the initial family share of rent 
may not exceed half of a family's adjusted income. Under the proposed 
rule, the other half of family income must not be needed for rent, and 
remains available (as ``residual income'') for family expenses other 
than housing--including costs of food, child care, unreimbursed medical 
expenses and other appropriate family expense.
    The final rule does not prescribe the percent or amount of residual 
family income that must be left over for non-housing expenses in an 
over-FMR tenancy. The HA decides how to implement the statutory test. 
The final rule grants the HA maximum authority to determine whether the 
family share of rent at the beginning of the lease term is reasonable. 
In making this determination, the HA must consider amounts remaining 
for other family expenses, such as child care, unreimbursed medical 
expenses, and other appropriate family expenses as determined by the HA 
(Sec. 982.506(b)(2)).
    In the proposed rule, the residual income requirement would have 
applied to rentals under the voucher program, as well as over-FMR 
tenancies (called ``excess rent'' tenancies in the proposed rule) under 
the certificate program. In the final rule, the revised residual income 
requirement only applies for an over-FMR tenancy in the certificate 
program. There is no such statutory or regulatory requirement for 
rentals under the voucher program.
2. Comments
    a. Objections to Affordability. Some comments object to the 
affordability (residual income requirement) for an over-FMR tenancy 
under the statute and proposed rule. These comments assert that the 
family should be allowed to pay a higher rent.
    Comments object that the affordability test limits use of the over-
FMR tenancy to families that can afford to pay the rent. The residual 
income requirement excludes families that are too poor to locate an 
affordable unit. HUD should not deny assistance for rental of a unit 
because a family would have to pay more than half of income for rent, 
if the family would have to pay even more on the private market.
    The family should choose how much to pay for rent, and whether a 
unit is affordable. The HA should not be responsible for determining if 
the rent is affordable for the family. The family should have freedom 
of choice. The family should not be prevented from renting above the 
payment standard because the rent does not leave enough residual income 
for non-rental purposes. The family should decide its own priorities. 
The program should not decide maximum housing cost in relation to 
family income, and should not require rent reasonableness.
    Comments state that the proposed 50 percent residual income 
requirement is arbitrary. The rule should not require that participant 
has 50 percent for other costs. If an HA believes the family cannot 
afford the unit, the HA should counsel the family.
    Comments also indicate that the HA cannot enforce the residual 
income requirement. Residents will choose units beyond their means. A 
residual income requirement is not needed since the HA performs rent 
reasonableness. Other comments urge that HUD should not require either 
affordability or rent reasonableness.
    b. Defining Affordability. Comments argue that the HA should limit 
the rent paid by a family. The HA should not approve a unit unless the 
family can afford the rent.
    Some comments favor a residual income test that prevents a family 
from renting a unit if the family will not have income to cover other 
everyday living expenses. A family needs residual income for other non-
rent family necessities. A residual income test avoids problems between 
the tenant and owner. A tenant who cannot afford the rent may break the 
lease.
    Comments express different views on the appropriate test of 
residual income. Some comments indicate that an HA should have 
discretion whether to approve an over-FMR tenancy if a family is paying 
more than half of income for rent. Other comments state that the rule 
should not allow rent over 50 percent of income. Comments welcome the 
proposed change requiring that a voucher family must have 50 percent 
residual income after payment of its rent.
    Comments state that a family should not be permitted to pay as much 
as 50 per cent of income (adjusted income) for rent. A family paying 50 
percent (of gross income) would qualify for statutory federal 
preference in admission to assisted housing. (Note: federal preference 
requirements have been suspended.) Comments state that it is disturbing 
and absurd to provide federal preference for admission of a family with 
a 50 percent rent burden, but allow a program rent burden exceeding 50 
percent. Comments note that a family that qualifies for rent burden 
preference (because rent is more than 50 percent of income) cannot meet 
the residual income test unless the family moves or rent is reduced.
    Comments recommend that HUD should allow an HA to:

--Limit maximum rents: Rent cannot exceed 10 or 20 percent over the 
FMR/exception rent.
--Require affordability: Rent cannot exceed 50 percent or 40 per cent 
of adjusted income.

    c. Affordability: Other Comments. Comments state that the 
regulatory affordability test should consider family payments for taxes 
and social security. HUD adjusted income does not reflect tax payments. 
Families pay a higher percent of ``real'' (after tax) income for rent. 
On the other hand, comments note that adjusted income does not count 
all family resources, such as student loans.
    Comments state that there should be a uniform affordability policy 
for certificates and vouchers. The same limit should apply for both 
tenant-based programs. Comments object to HUD's proposal to apply a 
residual income test in the voucher program, as well as an over-FMR 
tenancy in the certificate program.
    The rule should clarify what happens if family does not maintain 
required residual income.
    Comments note that the affordability test is an administrative 
burden for the HA. The affordability (residual income) requirement is 
confusing.

[[Page 23837]]

3. How HA Determines Affordability
    Program subsidy pays a part of the rent. The balance is paid by the 
family. To decide, as required by law, whether the family can afford 
the housing, the HA must examine whether the family share of the rent 
(``rental payments of the family'') is reasonable in relation to family 
resources and other family expenses. By contrast, the rent 
reasonableness test examines whether the rent paid to an owner is 
reasonable in relation to market rents for comparable units, not 
whether the rent is reasonable for an individual assisted family.
    The final rule (Sec. 982.4) adds the defined term ``family share'': 
``the portion of rent and utilities paid by the family''. Family share 
is calculated by subtracting the housing assistance payment from the 
gross rent (rent to owner plus any utility allowance) 
(Sec. 982.515(a)).
    The term ``family share'' replaces the equivalent term ``tenant 
contribution'' in the proposed rule. Gross rent is the total of rent to 
owner plus any allowance for tenant paid utilities. Family share is the 
family-paid portion of gross rent. The definition of family share as 
including tenant-paid utilities is consistent with the traditional use 
of gross rent to determine the family rent contribution (total tenant 
payment) for Section 8 or public housing.
    The rule provides that the HA may not use housing assistance 
payments or other program funds (including any administrative fee 
reserve) to pay any part of the family share (Sec. 982.515(b)). Payment 
of the family share is the responsibility of the family.
    The proposed rule prescribed a specific formula for an HA 
determination that family rental payments are ``reasonable.'' The 
proposed rule would have provided that the family share of rent (tenant 
contribution) must leave at least 50 percent of adjusted income to meet 
other family expenses (``residual income''). In the proposed rule, this 
requirement would have applied both to an over-FMR tenancy, and to a 
voucher tenancy.
    The final rule (Sec. 982.506(b)(2)) essentially tracks the 
statutory requirement. The HA may not approve an over-FMR tenancy 
unless the HA determines that the initial family share is reasonable.

    In making this determination, the HA must take into account 
other family expenses, such as child care, unreimbursed medical 
expenses, and other appropriate family expenses as determined by the 
HA.

The final rule does not dictate any specific formula or procedure for 
determining that the family will have enough money left over for non-
rent expenses. The HA has discretion to develop an appropriate 
procedure.
    Under the proposed and final rule, the requirement to determine 
that the family share of rent does not absorb an unreasonable share of 
family income only applies at initial HA approval of an over-FMR 
tenancy. The HA does not repeat this determination during the course of 
the assisted tenancy. By contrast, the rent reasonableness requirement 
(to determine that rent paid to owner does not exceed comparable market 
rents) applies both at initial lease approval and during the course of 
the assisted tenancy.
    In the proposed rule, the requirement to assure that the family 
rent burden is reasonable would have been applied to the voucher 
program, as well as to an over-FMR tenancy in the certificate program. 
Under the final rule, the requirement is only applied to approval of an 
over-FMR tenancy, as required by law.

E. Over-FMR Tenancy: Amount of Subsidy

1. Comments
    In a voucher or over-FMR tenancy, the ``payment standard'' is the 
maximum subsidy for a family. In an over-FMR tenancy, the payment 
standard is the FMR limit (``FMR/exception rent limit''). In a voucher 
tenancy, the HA sets the payment standard. Generally, the voucher 
payment standard must be in the band from 80 percent to 100 percent of 
the FMR limit.
    Comments note that the voucher payment standard may be less than 
the FMR limit. Consequently the maximum subsidy in the voucher program 
may be less than the maximum subsidy for an over-FMR tenancy. Comments 
state that the same payment standard should be used for an over-FMR 
tenancy and a voucher tenancy. An HA should not allow over-FMR 
tenancies in its certificate program unless the voucher payment 
standard equals the FMR. Otherwise over-FMR tenancy families will get a 
bigger subsidy in the same kind of program.
    In the regular certificate program, owner rents are adjusted 
annually by applying the annual adjustment factor (AAF) that is 
published by HUD. In the proposed rule, HUD proposed to adjust the 
subsidized rent for an over-FMR tenancy in the same way, by applying 
the published AAF. However, comments state that the proposed 
calculation of adjustment for an over-FMR tenancy is too complicated. 
Comments ask HUD to streamline the method of calculating subsidy 
adjustments.
2. HUD Response
    For an over-FMR tenancy, the new rule provides that the payment 
standard is always set at the FMR/exception rent limit during the lease 
term (Sec. 982.505(c)(1)). For an over-FMR tenancy, unlike a voucher 
tenancy, the HA may not set a payment standard below the FMR/exception 
rent limit.
    In a regular certificate tenancy, the FMR/exception rent limit only 
restricts rent at the beginning of the lease term. In such a tenancy, 
the FMR does not limit or affect subsequent adjustments of the rent to 
owner (by application of the published annual adjustment factor at the 
annual anniversary). Under the proposed rule for an over-FMR tenancy, 
the FMR/exception rent limit would have been applied in the same 
fashion--solely as a limit on subsidized rent at the beginning of the 
lease term. The FMR/exception rent limit would not have affected later 
adjustments by application of the AAF during the term of the lease.
    Under the final rule, the FMR/exception rent limit determines the 
amount of the payment standard for an over-FMR tenancy, both at initial 
leasing and over the course of the assisted tenancy. HUD believes that 
this is a simpler and more readily understandable way to adjust the 
amount of assistance. For an over-FMR tenancy, the amount of subsidy is 
always set at the program limit. As in the voucher program, the maximum 
subsidy is treated as a ``payment standard,'' and the same rules apply 
to determination of payment standards for a voucher or over-FMR subsidy 
(Sec. 982.505(d)). In this way, the rule gives parallel treatment of 
subsidies for over-FMR and voucher tenancies. In both forms of tenancy, 
a family may choose a unit renting for more than the maximum subsidy, 
and the family's share of rent is not fixed.
3. How Subsidy Is Adjusted
    Under the Section 8 statute, HUD has discretion to determine a 
system for adjusting the subsidized rent over the life of an assistance 
contract. The system for adjustment of rents may provide for annual 
adjustments:

    * * * to reflect changes in the fair market rentals established 
in the housing area * * * or, if the Secretary [of HUD] determines, 
on the basis of a reasonable formula. (42 U.S.C. 1437f(c)(2)(A))

    In a regular certificate tenancy, the rent to owner (formerly 
called ``contract

[[Page 23838]]

rent'') is adjusted each year of the lease. Under the HUD-determined 
``reasonable formula,'' the old rent to owner (contract rent) is 
multiplied by a HUD-published factor. (See 24 CFR, part 888, subpart 
B.) The adjusted rent may not exceed the reasonable rent for a 
comparable unassisted unit (42 U.S.C. 1437f(c)(2)(C)).
    In this rulemaking, HUD proposed to adjust the subsidized rent 
(maximum subsidy) for an over-FMR tenancy in the same fashion as for a 
regular tenancy--by applying the published annual adjustment factor 
(AAF) to the subsidized rent for the prior year. As for a regular 
tenancy, the adjusted subsidized rent for an over-FMR tenancy would not 
exceed the reasonable rent. Thus under this proposed system, the amount 
of the rental subsidy would be identical for a regular tenancy and for 
an over-FMR tenancy, both at initial leasing and over the course of the 
tenancy. However, in the case of an over-FMR tenancy, the family may 
pay the amount by which the actual rent to the owner exceeds the FMR/
exception rent limit (42 U.S.C. 1437f(c)(3)(B)).
    In the final rule, HUD has adopted a different formula to adjust 
the subsidy for an over-FMR tenancy in the Section 8 certificate 
program (Sec. 982.505(c)(2)). For an over-FMR tenancy, the housing 
assistance payment equals the lesser of:
    (1) The applicable over-FMR payment standard (i.e., the FMR/
exception rent limit) minus the total tenant payment (the statutory 
formula rent), or
    (2) The monthly gross rent (rent to owner plus utility allowance 
for any tenant-paid utilities) minus any minimum rent required by law.
    This new HUD adjustment formula meets both of the alternate 
statutory standards for adjustment of Section 8 subsidized rents (42 
U.S.C. 1437f(c)(2)(A)). Subsidy is adjusted in accordance with a HUD-
determined ``reasonable formula.'' Under the formula, changes in the 
over-FMR payment standard are based on ``changes in the fair market 
rentals'' for the area.

F. Over-FMR Tenancy: Other Comments

1. HA Discretion
    The proposed rule would have provided that an HA is not required to 
approve an over-FMR tenancy. Comments argue that an HA may not refuse 
if a family asks the HA to approve an over-FMR tenancy that satisfies 
statutory conditions (rent is reasonable, rent payments are reasonable 
for the family, and the number of such tenancies does not exceed 10 
percent limit of the HA's incremental units).
    In HUD's view, the choice to approve an over-FMR tenancy in the HA 
program generally, or in a particular case, rests with the HA. The 
language of the law explicitly allows the HA to ``approve'' family 
requests that meet the statutory conditions, and therefore vests in the 
HA the discretion whether or not to approve such requests in any or all 
cases (42 U.S.C. 1437f(c)(3)(B)). The law provides that the family 
``may pay'' a higher rental contribution if the HA has granted approval 
of an over-FMR tenancy. In this way, the statute merely grants 
permission for the HA to approve an over-FMR tenancy in which the 
assisted family will ``pay a higher percentage of income'' than 
specified in the statutory Section 8 rental formula.
    The final rule (Sec. 982.506(a)(1)) provides that the HA ``may 
approve'' an over-FMR tenancy at the request of a family. Generally, 
the HA is not required to approve any over-FMR tenancy 
(Sec. 982.506(a)(2)). However, the HA must approve an over-FMR tenancy 
in accordance with program requirements if needed as a reasonable 
accommodation for a person with disabilities.
2. Administrative Fee
    Comments state that HUD should consider the HA's burden of 
administering over-FMR tenancies in setting the administrative fee.
    This rule does not establish procedures for determining the HA 
administrative fee. Currently, administrative fees are calculated in 
accordance with permanent requirements enacted in the fiscal year 1997 
HUD appropriation act (section 202, Pub.L. 104-204, 110 Stat. 2893-
2894). (See also 62 FR 9488, March 3, 1997.)
    Comments state that HAs need to educate families and the public 
about the over-FMR tenancy. Otherwise people will believe that the 
program is illegal. HUD agrees that HAs should provide information on 
over-FMR tenancies and other aspects of the program.

VII. Voucher Tenancy: Payment Standard

A. Voucher Payment Standard

1. Setting Payment Standard
    In a voucher tenancy, as in a certificate over-FMR tenancy, the 
maximum monthly subsidy is based on the HA's ``payment standard'' 
(Sec. 982.505). In both cases, the assistance payment generally equals 
the difference between the payment standard and 30 percent of adjusted 
income.
    In the voucher program, the HA establishes the amount of the 
payment standard. Under the old rule, the HA was required to set a 
payment standard within the band from 80 percent to 100 percent of 
either: (1) the published fair market rent (for each FMR area and unit 
size) or (2) the ``community-wide'' exception rent (i.e., a HUD-
approved exception rent for the whole HA jurisdiction).
    The proposed rule would have removed the 80 percent minimum. The 
proposed rule would have permitted the HA to establish a payment 
standard at any level below the FMR/exception rent limit (including 
HUD-approved exception rents) in effect when the payment standard is 
adopted. The final rule provides that an HA must ask HUD approval to 
establish a payment standard below 80 percent of the FMR limit 
(Sec. 982.505(b)(1)(ii)).
2. Minimum and Maximum Payment Standard: Comments
    Some comments state that an HA should have discretion, as provided 
in HUD's proposed rule, to set the HA's voucher payment standard at any 
level below the FMR. HUD should not set a minimum payment standard.
    However, other comments argue that HUD should require a minimum 
payment standard. The HA should not be allowed to set its voucher 
payment standard below 80 percent of the FMR. According to the 
comments, removing a federal minimum reduces subsidy, and harms 
families with the lowest income. If rent exceeds the FMR, the family 
pays more than 30 percent of income for rent. Reducing subsidy below 
the FMR increases the gap between the HA payment standard and the 
actual rent. The lowest income poor may not be able to cover the gap 
and obtain decent housing.
    Comments state that if an HA lowers its voucher payment standard, 
an assisted family will not be able to afford the rent in spite of the 
housing subsidy. A low payment standard limits housing choices of 
assisted families. Elimination of a minimum voucher payment standard 
deprives participant families of the opportunity to rent decent, safe 
and affordable housing.
    Comments also note that if HUD removes the Federally required 
minimum payment standard, HAs may try to stretch voucher dollars too 
far. Rent burdens could rise closer to 50 percent of family income, 
than to 30 percent of income.
    Comments state that HUD should either set the minimum percent of 
FMR

[[Page 23839]]

that can be used as the voucher payment standard, or prohibit an HA 
setting the payment standard at a level that makes housing unaffordable 
to the poorest families. HUD should not allow a payment standard below 
the amount needed to afford decent housing in a local market.
    Comments argue that the HA should be required to set the voucher 
payment standard at the FMR. A lower voucher payment standard has a 
segregative effect. The voucher program should use the same payment 
standard as for an over-FMR tenancy in the certificate program. For 
both types of tenancy, the same standard should determine the point at 
which a family pays more than 30 percent of income as the family share 
of rent.
    Comments state that setting the voucher payment standard to conform 
with the FMR would permit more efficient and consistent program 
administration.
    Comments state that HUD should clarify if an HA may automatically 
adjust payment standards when FMRs increase or decrease, or must 
perform a ``convoluted analysis.'' The HA should be allowed to set its 
payment standard up to the current FMR without the need to obtain HUD 
approval or to submit rent studies or documentation. Increases in the 
FMR have already been studied and approved by HUD.
3. Minimum and Maximum Payment Standard: HUD Response
    After consideration of public comments, HUD has decided to retain 
the restriction, absent special HUD approval, against setting the 
voucher payment standard below 80 percent of the FMR/exception rent 
limit. An HA's voucher payment standards must be ``based on'' the fair 
market rent (42 U.S.C. 1437f(o)(1)), which represents HUD estimate of 
the amount needed to rent decent housing in the local market. The level 
of the voucher payment standard may not be wholly disconnected from the 
fair market rent limit.
    Under current procedures, FMRs are set at the ``40th percentile 
rent'' (Sec. 888.113). Forty percent of units in the local market rent 
below the FMR. By setting a payment standard below the FMR, an HA 
reduces the percentage of units that can be rented below the payment 
standard. At a given rent, a reduction of the payment standard reduces 
the assistance payment, and therefore increases the share of rent that 
must be paid by an assisted family. A reduction of the payment standard 
therefore either limits family choice of rental housing in the local 
market, or increases family rent burden.
    To assure that the voucher standard is ``based on'' the FMR, and 
does not unduly limit family housing choice, HUD has decided to retain 
the 80 percent minimum. The HA may, however, request approval of a 
payment standard below this amount. HUD may then consider whether the 
proposed payment standard level allows a reasonable housing choice in 
the local market, and bears a reasonable relation to the published FMR.

B. Shopping Incentive

1. Comments
    In the regular certificate program, a participant family does not 
have an economic incentive to shop for a lower rent unit. The subsidy 
covers the actual rent paid to the owner (up to the FMR), and any 
reduction in rent reduces the amount of the subsidy. In the voucher 
program, however, the payment standard, not the actual unit rent, 
determines the amount of subsidy (except in cases when the so-called 
minimum rent limits the amount of subsidy). A lower rent to the owner 
generally does not reduce the amount of the subsidy. In the voucher 
program, the family has an incentive to shop for a cheaper unit.
    Comments express different views on the value of a shopping 
incentive in the tenant-based programs. Some comments approve use of a 
shopping incentive, and recommend a shopping incentive for both the 
certificate and voucher programs. A participant should be rewarded for 
renting a less expensive unit. Other comments criticize the voucher 
shopping incentive, and assert shopping incentive should be eliminated 
or restricted. Comments suggest that shopping incentive should be 
treated the same way in the certificate and voucher programs. HUD 
should include or exclude shopping incentive in both programs.
    Comments claim that the shopping incentive does not work. Comments 
state that voucher families do not shop for lower rents. Voucher 
families seek higher-priced housing in safer neighborhoods with better 
schools. The shopping incentive is paid largely to in-place families 
who do not shop for new apartments. The shopping incentive is 
inequitable, costly, and wastes subsidy resources. The voucher shopping 
incentive should be either eliminated or granted only to families that 
actually move to housing renting below the payment standard.
    Under the voucher formula, the maximum assistance payment for a 
family is determined by an HA-established payment standard, rather than 
actual rent of the assisted unit (42 U.S.C. 1437f(o) (1) and (3)). For 
this reason, a lower rent generally does not reduce the amount of 
subsidy. (In some cases, a family that rents a unit substantially below 
the payment standard must pay a minimum share of the rent.)
    Comments note that in the certificate program, subsidy is limited 
according to the size of unit actually rented by family. Comments 
recommend that this principle should also apply in the voucher program.
    A comment acknowledges that a form of voucher shopping incentive is 
required by federal law. The comment proposes, however, that HUD delete 
the regulatory shopping incentive not required by the law. Under the 
old voucher rule, the amount of subsidy is based on size of the 
assisted family, not the size of the unit actually rented by the 
family. The comment contends that the old regulatory system in the 
voucher program is wasteful and inequitable. In the certificate 
program, a family pays the same contribution even if it rents a smaller 
unit. The landlord only receives rent for the size of unit actually 
rented by family. In the voucher program also, a family should receive 
subsidy for the unit size actually rented by the family.
2. HUD Response
    Since the beginning of the certificate program, the Section 8 
subsidy has been based on rent for the unit finally selected by a 
family, even if the family could have elected to rent a bigger unit 
within the appropriate FMR for the family size. The certificate 
assistance covered the actual rent for the unit selected, within the 
FMR for the actual size of the unit selected. In the second phase of 
the conforming rule, published on July 3, 1995, this principle was 
extended to the voucher program. In describing principles governing use 
of the HA ``subsidy standards'' (HA policies governing the appropriate 
subsidy for the family size and composition), the 1995 rule provides 
that the voucher payment standard may not exceed the payment standard 
for the unit rented by the family (Sec. 982.402(c)(2)).
    This final stage of the conforming rule states the formulas for 
determining the amount of assistance in a regular certificate tenancy, 
and for a voucher, or an over-FMR tenancy. For all three types of 
assistance, the subsidy may not exceed the maximum subsidy ``for the 
unit size rented by the family'' (Sec. 982.508(a)(2)(ii) (regular 
tenancy);

[[Page 23840]]

(Sec. 982.505(d)(2)(ii)) (voucher or over-FMR tenancy).
    In the final rule, a common provision describes how to determine 
the payment standard for either a voucher tenancy or an over-FMR 
tenancy (Sec. 982.505(d)(2)). The payment standard for a family is the 
lower of:

--the payment standard for the family unit size, or
--the payment standard for the unit size rented by the family.

VIII. Family Size: Effect on Amount of Subsidy

A. General

    An HA adopts standards (``subsidy standards'') to determine the 
number of bedrooms for a family. ``Family unit size'' is the 
appropriate number of bedrooms for a family under the HA subsidy 
standards. The family unit size is used to determine the maximum rent 
subsidy for a family.
    The HUD rule describes how family unit size determines the maximum 
rent subsidy for a family in the certificate or voucher program 
(Sec. 982.402(c); definitions of ``family unit size'' and ``subsidy 
standards'' in Sec. 982.4). (These rules were contained in the second 
phase of this conforming rule, published 60 FR 34660, July 3, 1995). 
Under these existing rules, the subsidy for a family in the certificate 
or voucher program is the lower of the appropriate subsidy (1) for the 
size and composition of a particular family (family unit size); or (2) 
for the particular unit size rented by the family (Sec. 982.402(c)). 
The same principle is applied and clarified in this rule, and is 
extended to calculation of subsidy for an over-FMR tenancy.
    In calculating a family's subsidy for a voucher tenancy or over-FMR 
tenancy, the payment standard is the lower of: the payment standard for 
the family unit size, or the payment standard for the unit size rented 
by the family (Sec. 982.505(d)(2)). This rule applies to each 
determination and redetermination of the applicable payment standard 
during the course of a voucher or over-FMR tenancy.
    In a regular tenancy under the certificate program, the FMR/
exception rent limit is the lower of the FMR/exception rent limit for 
the family unit size, or the FMR/exception rent limit for the unit size 
rented by the family (Sec. 982.508(a)(2)). For a regular tenancy, the 
FMR/exception rent limit is the maximum gross rent (and therefore the 
maximum rent to owner) at the beginning of the lease term. The initial 
rent to owner is the base for subsequent rent adjustment at each annual 
anniversary. The FMR/exception rent limit does not otherwise affect 
rent adjustments during the course of a regular tenancy.

B. Space for Live-in Aide

    With HA approval, a live-in aide may reside in the unit to provide 
necessary supportive services for a member of the assisted family who 
is a person with disabilities (see Sec. 982.316). In previously 
published provisions, the conforming rule provides that a live-in aide 
must be counted in determining the family unit size under the HA 
subsidy standards (Sec. 982.402(b)(6)). Thus the maximum subsidy 
increases so that the family can rent a unit with additional space for 
the live-in aide. In this phase of the conforming rule, the rule 
specifies that this general principle also applies when a person with 
disabilities chooses to reside in certain special housing types: 
congregate housing (Sec. 982.608(b)); a group home 
(Sec. 982.613(c)(1)(ii)); shared housing (Sec. 982.617(c)(3)); or a 
cooperative (Sec. 982.619(d)(2)).

IX. Over-FMR or Voucher Tenancy--Payment Standard: Changes in 
Subsidy During Tenancy

A. How Assistance is Adjusted

    In a regular certificate tenancy, rent to owner is adjusted at each 
annual anniversary during the lease term (Sec. 982.509). Under the 
proposed rule, HUD would have used the same system to adjust HUD 
subsidy for an over-FMR tenancy. On each contract anniversary, the 
amount of subsidy would have been adjusted by applying the most recent 
adjustment factor published by HUD.
    Under the final rule, the amount of the monthly assistance payment 
for an over-FMR tenancy is adjusted by the same system used for a 
voucher tenancy.
    For a voucher or over-FMR tenancy, the amount of the monthly 
subsidy (assistance payment) for a participant family is the amount by 
which the HA ``payment standard'' exceeds the family contribution (as 
determined by statute and rule for each program). The payment standard 
is the lower of the appropriate payment standard for the family size or 
for the unit size actually rented by the family (Sec. 982.505(d)(2); 
Sec. 982.402(c)(2)).
    The final rule provides (Sec. 982.505(d)(4)) that the payment 
standard used to compute the subsidy during the lease term is the 
higher of: (1) the current payment standard, or (2) the initial payment 
standard minus any drop in rent to owner. The current payment standard 
is the payment standard amount determined at the most recent regular HA 
reexamination. The initial payment standard is the payment standard 
determined when the HA approves the lease (before the beginning of the 
lease term). If rent to owner drops during the term, the rent decrease 
is subtracted from the initial payment standard. Thus this amount 
equals the initial payment standard minus any amount by which the 
initial rent to owner exceeds the current rent to owner.

B. Protecting Family Against Drop in Subsidy

    Under existing requirements for the voucher program, a participant 
family is protected against a drop in the monthly subsidy during the 
lease. The payment standard may rise (for example, if there is an 
increase in the published FMR). However, if family composition does not 
change, the payment standard may not fall below the HA payment standard 
at the beginning of the lease term. When deciding whether to lease a 
unit at the rent demanded by an owner, a family can count on receiving 
a subsidy calculated from the same (or higher) payment standard during 
the term of the lease, though the subsidy may decrease if there is a 
change in family composition or the family decides to move to another 
unit.
    In an over-FMR tenancy, the payment standard for each unit size is 
the FMR/exception rent limit. In the voucher program, the HA may set 
its payment standard for each unit size at 80 to 100 percent of the 
FMR/exception rent limit. For a voucher or over-FMR tenancy, the 
payment standard for the family is the higher of (1) the payment 
standard at the beginning of the lease term (minus the amount of any 
actual drop in the rent to owner during the course of the tenancy) or 
(2) the payment standard determined at the most recent regular 
reexamination (Sec. 982.505(d)(4)).
    In an over-FMR or voucher tenancy, the family must pay out-of-
pocket any rent in excess of the payment standard. In deciding whether 
to lease at a given rent, the family needs assurance that the HA 
assistance payment will not fall during the term of the tenant's lease 
because of reductions in the payment standard. Under this rule, the 
family is protected against a drop in the payment standard during the 
lease term. The payment standard that is used to calculate the family's 
assistance does not drop below the HA payment standard in effect at the 
time the lease is approved.
    During the tenancy, a family is largely insulated against a 
decrease in voucher or over-FMR subsidy because of a decrease in the 
applicable HA payment standard. In the final rule, this

[[Page 23841]]

protection is modified by reducing the subsidy to the extent of any 
actual decrease in the rent to owner since the beginning of the 
tenancy.
    Most often, rent to owner decreases if there is a general fall in 
market rents, and if rent to owner is reduced by enforcement of market 
comparability at the annual anniversary. This rule provides that the HA 
must redetermine comparability if there has been a five percent 
decrease in the FMR in effect 60 days before the contract anniversary 
as compared with the FMR in effect at the prior contract anniversary. 
Rent to owner may also decrease in accordance with the terms of the 
lease, or because rent is reduced by local rent control or some other 
binding requirement. Regardless of the cause of any reduction in the 
rent to owner, the actual amount of the rent reduction is deducted from 
the amount of the initial payment standard in calculating the current 
payment standard.
    The family is protected against a fall of the payment standard 
during the term of the lease. On the other hand, however, the payment 
standard for the family rises if the HA payment standard at the time of 
regular reexamination is higher than the HA payment standard at the 
beginning of the lease/contract term. If the family enters a new 
assisted lease (for the same or a different unit), the payment standard 
for the family is then conformed to the current HA payment standard in 
effect when the new lease is approved. The family is only protected 
against a fall in the HA payment standard during the HAP contract term.

C. When Payment Standard Changes

    Comments state that an HA should only change the payment standard 
at the annual recertification. The HA should not change the payment 
standard as soon as there is a change in the family size.
    Under the payment standard formula in the final rule, the payment 
standard is adjusted if there is a change in the payment as determined 
at the most recent ``regular'' reexamination, the annual 
recertification of family income and composition.

X. Regular Tenancy--Rent to Owner: Annual Rent Adjustment During 
Tenancy

A. Comments

    Some comments approve allowing downward adjustment of certificate 
program contract rents--now called ``rent to owner.'' An HA should 
adjust rent as market conditions change.
    Other comments object to decrease of contract rent by annual 
adjustment. Generally, a conventional landlord does not lower rent on 
an ongoing lease. Conventional rents increase or remain steady. The 
comments claim that negative rent adjustments are a disincentive to 
owner participation. The owner runs a risk of rent reduction. If area 
rents are falling, Section 8 rent to owner should not increase by 
application of the AAF. However, rents should not be reduced. Rent 
reasonableness should be used to control excess rents, rather than 
adjustment by a negative AAF.
    The new rule deletes the old provision that prohibited annual 
adjustment below the initial rent (at the beginning of the lease term). 
Comments state that this change will discourage owner participation. 
The rule should not permit adjustment below the initial rent.
    Comments recommend that so long as rent is reasonable, rent should 
be adjusted up to the FMR exception rent limit at time of adjustment. 
The increase in the FMR is greater than the AAF. Because of the AAF 
system, an HA cannot approve adjusted rent that is reasonable and 
within the FMR.
    The rule provides that an owner must request an annual adjustment 
at least sixty days in advance (Sec. 982.509(b)(5)). Adjustments are 
not retroactive. The annual adjustment for a contract anniversary must 
be requested at least sixty days before the next anniversary 
(Sec. 982.509(b)(6)).
    Comments ask HUD to clarify requirements concerning an owner 
request for adjustment. An HA points out that the requirement to submit 
a written request for rent adjustment is burdensome, and creates 
paperwork for administration of the program. The HA prefers to contact 
owners personally or by telephone. Other comments state that the rule 
should require an HA to give an owner advance notice of an available 
increase in rent, and that the increase must be requested in writing. 
Rules that deny owner rent increases because of their lack of 
sophistication contribute to growing owner hostility. Because of such 
hostility, families experience greater difficulty locating housing. 
Comment suggests that an owner should be permitted to terminate the 
tenancy if dissatisfied with the adjustment.
    Some comments assert that annual adjustments should only be granted 
when the owner requests. HUD should require written notice of rent 
increases (both in the certificate and voucher programs). This 
requirement would reduce confusion for landlords with tenants in both 
programs. Requiring an owner to give notice of a rent increase may 
delay or reduce rent increase requests. Another HA currently requires 
the owner and tenant to submit request for lease approval 60 days 
before the anniversary date. By this process, an HA can determine if a 
proposed rent increase is consistent with the annual adjustment factor 
and rent reasonableness.
    Comments state that an adjustment should be effective a month after 
the HA receives the owner's written request. The owner should not 
receive a retroactive adjustment. Other comment says that owners will 
object if adjustment is not retroactive when the owner request is late. 
The current regulation causes incredible paperwork processing rent 
increases.
    Comments recommend that the rule should state whether HA is allowed 
to supply forms for requesting adjustment.

B. New Rule

    In a regular certificate tenancy, rent to owner is adjusted each 
year. The new rule provides (Sec. 982.509(b)) that the adjusted rent is 
the lower of:

--The pre-adjustment rent (minus any previously approved special 
adjustments) multiplied by the annual adjustment factor (AAF) published 
by HUD, or
--The reasonable rent.

Rent to owner may be increased or decreased by applying the two 
elements of the regulatory adjustment formula (Sec. 982.509(b)(3)).
    An AAF may be positive or negative. The published AAF for the area 
is based on objective data concerning changes in residential rental 
costs for the area (see 60 FR 12594, March 7, 1995). In addition, the 
adjusted rent may not exceed the reasonable rent for comparable units 
rented on the private unassisted market.
    HUD has not adopted recommendations to hold owner harmless against 
a rent decrease either because of a negative published factor (however 
rare), or because the market rent is less than rent adjusted by the 
formula factor. The regulatory adjustment formula for a regular 
certificate tenancy is a reasonable basis for determining changes in 
rent to owner during the assisted lease, and thereby determining the 
appropriate amount of Federal subsidy.
    For a regular tenancy, the family does not negotiate the procedure 
for adjusting rent received by the owner. Changes in rent are not 
controlled by normal constraints of the private unassisted market. The 
family's share of the rent is determined by the amount of family 
income, and is not affected at all by the amount of the adjusted rent 
to owner.

[[Page 23842]]

The family therefore lacks any incentive to limit the rent paid to the 
owner from HA assistance payments.
    For this reason, the program must supply another formula to 
determine rent adjustments during the assisted tenancy. The adjustment 
formula in this rule substantially restates the formula successfully 
used since the beginning of the Section 8 certificate program (with 
some technical modifications). Section 8 rents must provide an adequate 
incentive for participation by private owners at competitive private 
market rents. In general, massive participation by private landlords 
shows that existing certificate rent mechanisms, including procedures 
for adjustment of owner rent, have largely afforded adequate 
compensation for private landlords. In addition, HUD believes that the 
procedures for determining initial rent and rent adjustments reflect a 
reasonable balance between rents that open housing opportunities for 
program participants, and limitations to maximize the number of 
families assisted with available funds.
    In the final rule, HUD has revised proposed language that states 
when an owner must request an annual adjustment. The proposed rule 
would have provided that the rent will only be increased prospectively, 
and that an increase for any anniversary date must be requested by the 
next anniversary. These provisions are modified to allow at least sixty 
days for HA action on the owner request.
    The owner must give the HA written notice requesting an increase in 
the rent (Sec. 982.509(b)(4)). The rent is not increased unless the 
owner has complied with the HAP contract. To receive a rent increase, 
the request must be submitted at least sixty days before the increase 
is effective, and at least sixty days before the next annual 
anniversary (Sec. 982.509(b)(5) and (6)).

XI. Regular Tenancy--Rent to Owner: Special Rent Adjustment During 
Tenancy

A. General

    In a regular certificate tenancy, rents are adjusted annually by a 
published factor. If formula adjustments are not sufficient, HUD may 
approve additional increases in the rent to owner. Such increases are 
called ``special adjustments.'' By law (42 U.S.C. 1437f(c)(2)(B)), HUD 
has discretion to approve special adjustments:

    * * * necessary to reflect increases in the actual and necessary 
expenses of owning and maintaining the units which have resulted 
from substantial general increases in real property taxes, utility 
rates, or similar costs which are not adequately compensated for by 
[formula adjustments] * * *.

    In accordance with the law, the rule provides that special 
adjustments may only be granted because of ``substantial and general 
increases'' of unit costs (Sec. 982.510(a)(1)). Comments approve these 
requirements. By law, special adjustments are subject to comparability. 
Adjusted rent, including any special adjustment, may not exceed 
reasonable rent for comparable unassisted units (42 U.S.C. 
1437f(c)(2)(C); Sec. 982.510(b)).
    An owner does not have any right to receive a special adjustment of 
the rent to owner (previously called ``contract'' rent). A special 
adjustment must be approved by HUD (Sec. 982.510(a)(2)). HUD has ``sole 
discretion'' whether to approve or withhold a special adjustment 
requested by an owner (Sec. 982.510(a)(1)).

B. Purpose

    The old rule allowed special adjustments only for the following 
specific cost categories: real property taxes and assessments, and 
regulated or non-regulated utility costs. The proposed rule would have 
enlarged the list of covered cost categories, by permitting HUD 
approval of special adjustments for ``security costs'' as well as a 
broad authorization for approval of costs ``similar'' to the enumerated 
cost categories. The proposed rule would also have provided that HUD 
must approve a special adjustment to cover increases in ownership and 
maintenance cost that results from expiration of a real property tax 
exemption.
    The final rule does not expand the purpose of special adjustments 
allowed under the old rule. In this respect, the new rule substantially 
restates the grounds for special adjustment in the old rule. The final 
rule permits special adjustments to cover increases in utility costs or 
in real property taxes and special governmental assessments 
(Sec. 982.510(a)(1) and Sec. 983.255(b)). The final rule does not 
include authority to approve special adjustments for ``security costs'' 
or ``similar costs.'' Special adjustments may only be approved by HUD 
for the specific purposes enumerated in the rule.
    At this time, HUD knows no persuasive justification for expansion 
of special adjustments. First, any increase in special adjustments 
would draw on limited program funds in a time of severe budgetary 
restrictions. Second, HUD knows of no persuasive showing or evidence 
that a loosening of policy on special adjustments is necessary to 
provide adequate housing choice for assisted families. Third, while 
owners will always seek maximum rents, it is hard for HAs to determine 
when special adjustments are really necessary in a particular case, and 
for HUD to evaluate relative need for special adjustments in particular 
cases. Fourth, special adjustments significantly complicate HA 
administration and control of program rents. HUD believes that HAs 
should primarily rely on formula adjustments by published factors, as a 
universal process for adjusting program rents.
    The law provides that HUD may approve rent adjustments HUD 
determines necessary to cover increases in ownership and maintenance 
expenses ``. . . that have resulted from the expiration of a real 
property tax exemption'' (42 U.S.C. 1437f(c)(2)(B)). Such adjustments 
may only be approved if appropriations are available.
    The proposed rule would have provided that HUD must approve a 
special adjustment to cover increased expenses when a real property tax 
exemption expires. Although some comments endorse this provision, the 
final rule does not require or authorize special adjustments at 
expiration of a real property tax exemption. At this time, appropriated 
funds are not available for this purpose. The final rule therefore 
removes a proposed provision reciting the authority to grant a special 
adjustment for this purpose.
    Comments state that the rule should allow special adjustments for 
security costs, and for increases in insurance cost because of crime. 
The final rule does not authorize HUD approval of special adjustments 
for ``security costs.'' HUD believes that such costs should be met from 
market rents in accordance with program requirements. In the 
certificate and voucher programs, HAs do not review owner budgets. It 
would be difficult to determine if proposed increases are really 
required, or if crime-related costs can be met from assisted rental 
revenues. If increases were granted for security costs, there is no 
existing mechanism to assure that the owner would actually use the 
additional money for this purpose. For efficient administration of the 
tenant-based programs, the HA should not attempt to micro-manage owner 
expenditures for particular costs.
    Comments state that HUD should allow special adjustments because of 
major property upgrades that benefit the tenant. This recommendation is 
not adopted. This proposal would evade the fair market rent (for the 
family size and for the size of the unit rented) as the central 
statutory and regulatory control on unit rent. Moreover, the law does 
not

[[Page 23843]]

permit special adjustments for improvement of the particular project. 
As noted above, special adjustments may only be granted because of 
``general increases'' in real property costs--i.e., common increases 
that broadly affect landlord operating costs in the market area.
    HA comments state that the special adjustment rules are confusing. 
HUD should give a better description of the cases when special 
adjustments are warranted. HUD believes that the final rule contains a 
clear and straight-forward list of the types of expenses for which HUD 
may approve a special adjustment of the rent paid to owner.
    Comments recommend eliminating special adjustments, and 
substituting adjustment to level of the current FMR. In the current 
system, HAs negotiate new HAP contracts to avoid the need for HUD 
approval of special adjustments. HUD has not adopted this 
recommendation.

C. Comparability

    In accordance with the law, the rule provides that adjusted rent 
must be reasonable in comparison with rent of unassisted units in the 
local market. This principle applies to both the tenant-based and the 
project-based certificate programs. The reasonableness limit applies to 
special adjustments, as well as regular annual adjustments of the rent.
    HUD may not approve a special adjustment if the adjusted rent to 
owner would exceed the reasonable rent for comparable unassisted units 
(Sec. 982.510(b) and Sec. 983.255(c)(2)). (For PBC, reasonable rent is 
determined by a comparability study in accordance with special PBC 
requirements.) HUD may not consider granting a special adjustment over 
the amount of rent as adjusted by applying the published formula factor 
(AAF), unless reasonable rent exceeds the factor adjusted rent.
    Application of comparability for special adjustments satisfies two 
statutory requirements. First, the law provides that regular and 
special adjustments may not result in material difference between rents 
charged ``* * * for assisted units and unassisted units of similar 
quality, type and age in the same market area. * * *'' (42 U.S.C. 
1437f(c)(2)(C)). Second, the law also provides that special adjustments 
may only be granted for costs ``not adequately compensated'' by regular 
annual formula adjustments (42 U.S.C. 1437f(c)(2)(B)).
    In the project-based and tenant-based certificate programs, market 
rent for comparable unassisted units is used as a regulatory standard 
for determining whether owner is ``adequately compensated'' by the unit 
rent. Under the law, special adjustments are not designed to meet 
special or unique needs of a particular landlord. Special adjustments 
may only be approved to cover ``substantial general increases'' in 
costs common to owners in the locality, such as a general increase in 
real property tax rates (42 U.S.C. 1437f(c)(2)(B)). Thus levels of 
comparable unassisted market rents are used to gauge rents generally 
needed to adequately compensate landlords for increased costs to 
maintain and operate rental housing in the market area.

D. Required Documentation

    The old rule provides that an owner who seeks a special adjustment 
must submit ``financial statements'' which ``clearly support'' the 
owner's request for a special adjustment. This requirement applied both 
to the tenant-based and project-based certificate programs. In this 
rulemaking, HUD proposed to continue this requirement for both 
programs.
    In the final rule, the financial statement requirement is retained 
only for PBC (Sec. 983.255(d)), but is not included in the special 
adjustment requirements for a regular tenancy in the tenant-based 
certificate program (Sec. 982.510). The final PBC rule 
(Sec. 983.255(c)(1)) provides that an owner must demonstrate that rent 
to owner ``is not sufficient for proper operation of the housing''. The 
PBC rule (Sec. 983.255(d)) also states that:

    The owner must submit financial information, as requested by the 
HA, that support the grant or continuance of a special adjustment. 
For HAP contracts of more than twenty units, such financial 
information must be audited.

    In the tenant-based certificate program, the grant or denial of a 
special adjustment only affects rent during the present lease term of a 
particular assisted family. Conversely the special adjustment will not 
affect rent under a new lease for the same family or for any other 
family. In PBC, the grant or denial of a special adjustment may affect 
the level of rents during the remaining term of the project-based HAP 
contract, and may apply to all units covered by the project-based HAP 
contract.
    For the tenant-based program, the owner will not be required to 
submit a ``financial statement'' showing that costs are not adequately 
compensated by regular annual adjustments. To receive a special 
adjustment, the owner must show that a requested adjustment meets the 
regulatory standard--that the adjustment is appropriate to cover 
increases in actual and necessary costs for eligible cost items. 
However, the rule does not specify any particular format or procedure 
for documenting this fact.
    For PBC, however, the rule provides owner must ``demonstrate'' that 
cost increases are not adequately compensated for by the annual factor 
adjustment (Sec. 983.255(c)(1)). The PBC owner must submit ``financial 
information'' that support grant or continuance of a special adjustment 
(Sec. 983.255(d)). For PBC HAP contracts covering more than 20 units, 
the financial information must be audited.

E. HUD Approval

    Comments state that HUD should allow an HA to approve special 
adjustments without HUD approval. HAs are qualified to approve special 
adjustments.
    Under the law, HUD may not adopt this recommendation. HUD itself 
must approve all special adjustments. The HAP contract must provide 
``for the Secretary to make'' special adjustments. The Secretary may 
make special adjustments to the extent ``* * * [the Secretary] 
determines such adjustments are necessary. * * *'' (42 U.S.C. 
1437f(c)(2)(B)). By these provisions, HUD has statutory authority to 
determine that a special adjustment is necessary, and the authority to 
make a special adjustment in accordance with the Secretary's 
determination. This authority is clearly assigned to HUD, and may not 
be delegated to the HA.
    Comments state that an HA should have opportunity to comment before 
HUD decides to grant or deny a special adjustment. HUD believes there 
is no need to modify the rule in this respect. Ordinarily, a special 
adjustment is not granted without the HA's support. The HA submits the 
owner's request for special adjustment to HUD. The HA has ample 
opportunity to present its views. The HA provides supporting 
documentation and justification. The HA may submit any comments or 
information in support of, or in opposition to, the owner's request for 
a special adjustment. There is no need or advantage to complicate the 
adjustment process with additional procedural requirements.
    Comments state that HUD should be required to respond in 30 days 
when an HA asks HUD to approve a special adjustment. This 
recommendation is not adopted. HUD will try to respond promptly to 
special adjustment or other HA or owner concerns. However, HUD cannot 
undertake to comply with an arbitrary deadline that may not fit the 
facts of individual cases.
    A special adjustment must be approved by HUD. The special

[[Page 23844]]

adjustment provisions are revised to emphasize that HUD has sole 
discretion whether to grant or deny a special adjustment. The final 
rule states that HUD may approve a special adjustment ``* * * at HUD's 
sole discretion * * *. '' (Sec. 982.510(a)(1) and Sec. 983.255(a)(1)). 
The rule also provides that the Section 8 owner ``does not have any 
right to receive a special adjustment'' (Sec. 982.510(a)(2) and 
Sec. 983.255(a)(2)).

F. Term

    Comments state that HUD should not require an HA to track rent 
increases for a one-time special adjustment. A special adjustment for 
ongoing costs should not be treated as a one-time adjustment. Comments 
note that it is burdensome and unnecessary to track special 
adjustments, and require re-justification of approved special 
adjustments. Comments assert that the cost of deducting approved 
special adjustments may not exceed the saving. The deduction of special 
adjustments must be calculated, tracked and explained to owners.
    The final rule re-states and substantially simplifies proposed 
provisions on special adjustments for temporary or one-time costs 
(Sec. 982.510(c)(2) and Sec. 983.255(e)(2)). The HA may withdraw or 
limit the term of a special adjustment. If HUD approves a special 
adjustment to cover temporary or one-time costs (e.g., a one-time 
special assessment for drainage improvements), the special adjustment 
is only a temporary or one-time increase of the rent to owner.
    The rule also clarifies the relation between a special adjustment, 
and a subsequent regular annual adjustment by application of HUD's 
published annual adjustment factor (AAF). In an annual adjustment, the 
owner's pre-adjustment rent is multiplied by the AAF 
(Sec. 982.509(b)(1)(i) and Sec. 983.254(b)(1)(i)). The rule now states 
that the pre-adjustment rent to owner--the base for the annual 
adjustment, does not include any previously approved special adjustment 
(Sec. 982.509(b)(2) and Sec. 983.254(b)(3)).

XII. Fees and Charges to Family for Meals, Supportive Services or 
Other Items

    The final rule contains new provisions that state restrictions on 
owner charges to the family. These provisions largely codify and 
clarify HUD's construction of the existing program rules.
    The rule (Sec. 982.513) provides that:

--Rent to owner may not include the cost of meals or supportive 
services. Reasonable rent (comparable rent) does not include the value 
of meals or supportive services.
--The lease may not require the tenant or family members to pay charges 
for meals or supportive services. Non-payment of such charges is not 
grounds for eviction.
--The owner may not charge the tenant extra amounts for items 
customarily included in rent in the locality, or provided at no 
additional cost to the unsubsidized tenants in the premises.

XIII. Utility Allowance

A. Objections to Utility Allowance

1. Comments
    Comments state that HUD should eliminate the utility allowance in 
the certificate and voucher programs. Comments claim that elimination 
of utility allowances would unify the certificate and voucher programs.
    Comments assert that the utility allowance promotes dependence and 
reliance on federal subsidy. Because of the utility allowance, the HA 
must pay a tenant without countable income to live in an assisted unit. 
The utility allowance does not encourage conservation and reduce tenant 
consumption.
2. HUD Response
    The utility allowance is used when the family is responsible for 
paying the cost of utilities or other housing services that are not 
included in the rent to owner. The HA's utility allowance is the HA's 
estimate of the monthly cost for reasonable utility consumption (see 
definition of ``utility allowance'' at Sec. 5.603). The utility 
allowance performs different roles in the certificate and voucher 
programs. In the certificate program, the utility allowance is used so 
that a family does not pay more than the maximum rent. In the voucher 
program, the utility allowance is used so that a family does not pay 
less than the minimum rent.
    In the certificate program, the utility allowance is deducted from 
the family's total rent (``total tenant payment'') to calculate the 
amount payable to the owner (``tenant rent''). The utility allowance is 
used so that all families pay the same rental contribution (``total 
tenant payment''), regardless of whether utilities for a particular 
unit are paid by the owner or the family. The utility allowance is 
necessary for equivalent and equitable treatment of families that rent 
units with or without tenant-paid utilities.
    In the certificate program, the amount of ``rent'' paid by a family 
is specified by law. If the utility allowance is more than the total 
tenant payment, the family receives a ``utility reimbursement'' from 
the HA. The utility reimbursement is paid so that the family's out of 
pocket utility cost to live in the unit does not exceed rent payable 
under the statutory rent formula. The HA utility reimbursement provides 
money the family can use to pay for utilities not included in the rent 
to owner.
    The amount of the utility allowance and utility reimbursement are 
not determined by the actual utility costs of a particular assisted 
family. Rather, the utility allowance is based on reasonable 
consumption by an ``energy conservative household of modest 
circumstances'' (Sec. 5.603) in the community. A family that wastes or 
over-uses utilities does not get a higher utility allowance or utility 
reimbursement. The family pays for any excess consumption of tenant-
paid utilities and benefits from its own funds.
    In the voucher program, the utility allowance only affects 
calculation of the statutory maximum subsidy (``minimum rent''). Under 
the voucher law, the family must pay a minimum share of the actual rent 
for the unit ``including the amount allowed for utilities in the case 
of a unit with separate utility metering'' (42 U.S.C. 1437f(o)(2)). 
Thus the voucher statute explicitly requires use of a utility allowance 
for separately metered utilities that are not included in rent to 
owner. The utility allowance increases the base for calculation of the 
minimum rent, and therefore increases the minimum rent paid by affected 
voucher families.

B. Administration of Utility Allowance

1. Comments
    Comments state that the utility allowance requirement forces an HA 
to review utility costs annually and submit cumbersome utility 
calculations for HUD approval. Comments state that the rule should 
require HUD to act on the HA utility allowance submission within 30 
days. Comments ask if an HA should use the new utility allowance 
schedule if the HA is conducting a interim reexamination because of a 
change in family income. Comments state that an HA should maintain 
separate utility allowance schedules for areas with significant 
difference in utility costs.
2. HUD Response
    Under the rule, the HA is not required to seek HUD approval before 
adopting the utility allowance schedule. The HA must give HUD a copy of 
the utility allowance schedule, and--if requested by HUD--must provide 
any information

[[Page 23845]]

or procedures the HA used to prepare the schedule (Sec. 982.517(a)(2)). 
At HUD's direction, the HA must revise the schedule, to correct any 
errors, or as necessary to update the schedule (Sec. 982.517(c)(2)).
    As in the past, the HA must review its utility allowance schedule 
each year (Sec. 982.517(c)(1)). Under the old rule, the HA was required 
to revise the schedule if there was a ``substantial change'' in utility 
rates. Some HAs have failed to keep their allowance schedules up to 
date. The new rule establishes a more objective and definite standard 
triggering the requirement for revision of the utility allowance 
schedule. The new rule now provides that the HA must revise the 
allowance for a particular utility category if there is a ten percent 
or more change in the utility rate since the last revision 
(Sec. 982.517(c)(1)).
    An HA must maintain information that supports its annual utility 
allowance review and any revisions of the utility allowance schedule 
(Sec. 982.517(c)(1)).
    Sometimes, there may be significant differences in utility cost 
levels in different parts of an HA jurisdiction. This difference may 
occur because the HA has a large operating area, such as a State with 
different climatic regions, or because there are different utility 
suppliers for portions of the HA jurisdiction. The rule does not seek 
to specify when an HA should or must issue separate schedules for 
different portions of the HA jurisdiction. In general, the HA retains 
discretion to decide when it is necessary to set up separate schedules. 
However, an HA's utility allowances must meet the regulatory standard--
that the allowances must be based on utility costs for households ``in 
the same locality'' (Sec. 982.517(b)(1)).
    At any regular or interim reexamination of family income, the HA 
must determine the appropriate utility allowance from the current 
utility allowance schedule (Sec. 982.517(d)(2)). At the effective date 
of the reexamination, the HA must make appropriate adjustments in the 
housing assistance payment, including adjustments reflecting revision 
of the utility allowance. In the certificate program, changes in the 
utility allowance may affect the amount of the assistance payment to 
owner, the rent remaining to be paid by the family (``tenant rent''), 
utility reimbursement, and maximum rent to owner for a new rental. In 
the voucher program, changes in the utility allowance only affect 
calculation of the minimum rent.

C. Services Included in Utility Allowance

1. Comments
    The utility allowance schedule covers tenant-paid utilities and 
other tenant-paid housing services. Comments state that HUD should 
carefully review what is included in the utility allowance. Comments 
ask what other ``services'' are covered.
    Comments ask if the utility allowance must include garbage service 
and sewer service, though not mentioned in the rule. Comments state 
that the utility allowance should cover sewer and trash removal 
expenses.
    The rule allows a utility allowance for air conditioning of the 
unit. Comments ask if air conditioning is mandatory. Comments ask if 
the HA must grant a utility allowance for air conditioning if air 
conditioning is not commonly used for residential rentals in the HA 
area. Comments recommend that HUD should clarify that the utility 
allowance does not include ``non-essential utility mediums'' such as 
cable and satellite television.
2. HUD Response
    The HUD Office of Policy Development and Research has found that 
HAs throughout the United States use a wide variety of utility 
allowance schedules and formats. Many schedules are internally 
inconsistent, or at wide variance to the schedules of other 
jurisdictions using the same utility suppliers.
    HUD believes that the use of a common format will help HAs improve 
the quality and consistency of HA-adopted utility allowance schedules, 
so that the schedules more accurately represent utility consumption and 
costs in different localities. The final rule provides that the utility 
allowance schedule must be prepared and submitted on the form 
prescribed by HUD (Sec. 982.517(b)(4)).
    An HA's utility allowance schedule, and the utility allowance for 
an individual family, must include the utilities and services that are 
necessary in the locality to provide housing that complies with the 
housing quality standards. However, the HA may not provide any 
allowance for non-essential utility costs, such as costs of cable or 
satellite television. (Sec. 982.517(b)(2)(i))
    The HA utility schedule must classify covered utilities and other 
services according to specified categories (Sec. 982.517(b)(2)(ii)). 
The final rule refines and supplements the list of covered categories:

heating; air conditioning; cooking; water heating; water; sewer; 
trash collection (disposal of waste and refuse); other electric; 
refrigerator (cost of tenant-supplied refrigerator); range (cost of 
tenant-supplied range); and other specified housing services.

    The utility allowance must cover tenant-paid fees or costs for 
trash collection and sewage.
    The housing quality standards do not require air conditioning. The 
final rule provides that the HA must provide a utility allowance for 
tenant-paid air-conditioning costs if the majority of housing units in 
the market provide centrally air-conditioned units or there is 
appropriate wiring for tenant-installed air conditioners 
(Sec. 982.517(b)(2)(ii)).

D. Determining Utility Allowance: Unit Size and Size of Family

1. Comments
    The rule provides that a utility allowance is based on the unit 
actually leased by family, not on the family unit size (appropriate 
size unit for family under the HA ``subsidy standards'') 
(Sec. 982.517(d)(1)). According to comments, the utility allowance 
should be based on the family unit size.
    Comments note that an elderly family that wants to stay in the same 
unit rent may rent a unit larger than necessary (larger than the family 
unit size). If the HA uses the utility allowance for the actual size 
unit, the rent exceeds FMR, and the family must move.
    Comments state that an HA should have the option to give a utility 
allowance based either on the number of occupants or on the unit size. 
Other comments state that the family should receive a utility allowance 
for the larger of family unit size or actual unit leased.
    Comments state that the utility allowance should be based on actual 
need for the particular utility by the actual family configuration. 
Comments claim that utility expenses reflect the size of family, not 
the size of the unit. Comments state that using the utility allowance 
for a smaller unit penalizes a family for renting a smaller unit to 
reduce family rent.
2. HUD Response
    The final rule provides that the HA must use the utility allowance 
for the actual unit size rented. HUD has not accepted the 
recommendation to use the utility allowance for the family unit size 
under the HA subsidy standards, or the greater of the utility allowance 
for the family unit size or actual unit size.
    In occupancy of a particular unit, the family needs to pay 
utilities for the actual unit rented. In general, utility costs will be 
higher if a family leases a unit with more bedrooms. Furthermore,

[[Page 23846]]

utility cost is primarily affected by the character of the unit rather 
than the character of the family.
    For a regular tenancy in the certificate program, the initial gross 
rent may not exceed the FMR/exception rent limit. The maximum gross 
rent includes the appropriate utility allowance for the actual unit 
rented by the family.

E. Reasonable Accommodation

    The final rule adds a new provision allowing the HA to establish a 
special higher utility allowance, on a case-by-case basis, as a 
reasonable accommodation for a disabled person. The rule provides that 
on request from a family that includes a person with disabilities, the 
HA must approve a utility allowance which is higher than the applicable 
amount on the utility allowance schedule if a higher utility allowance 
is needed as a reasonable accommodation in accordance with 24 CFR part 
8 to make the program accessible to and usable by the family member 
with a disability (Sec. 982.517(e)).

F. Direct HA Payment of Tenant Utility Cost

1. Comments
    Comments state that there is a risk of unit damage or harm to other 
residents if the tenant does not pay the utility bill. HUD should 
require the HA to pay utility reimbursement directly to the utility 
company, or should permit direct payment with family consent.
    Comments recommend that HUD should eliminate utility reimbursement. 
Comments state that the term ``utility reimbursement'' should be used 
for the voucher program, and indicates that the family receives the 
same utility reimbursement in both programs.
2. HUD Response
    The rule provides that if the housing assistance payment exceeds 
rent to owner, the HA may pay the balance of the payment either to the 
family or directly to the utility supplier to pay the utility bill 
(Sec. 982.514(b)). In the certificate program, this case occurs when 
there is a utility reimbursement (because the utility allowance exceeds 
the total tenant payment). In the voucher program, this case occurs 
when the amount of the voucher subsidy (as calculated by the statutory 
formula) exceeds the rent to owner; there is no utility reimbursement 
(i.e., no payment based on the difference between the utility allowance 
and the family contribution).
    The rule does not, as suggested by comment, require the HA to pay 
certificate utility reimbursement directly to the utility company. The 
rule also does not require that the HA must secure family assent for 
direct payment. The HA has the election whether to remit the payment to 
the family or the utility supplier.

XIV. Reexamination of Family Income

A. Comments

    Comments state that HUD should set a uniform policy on interim 
reexamination. Comments state that the HA should be required to process 
any request for reexamination because of change in income or 
composition since the last determination. Income of low income 
families, particularly employment income, fluctuates. The HA must 
respond quickly to decrease in family income. If a family reports a 
decrease in income, HUD should require an HA to promptly increase the 
assistance payments.
    Comments state that changes should be effective for the month after 
the action that results in the decrease. The HA should reduce the 
family contribution even if the family delays reporting a decrease in 
income, or cannot immediately verify loss of income, e.g., because a 
former employer will not verify unemployment.
    Comments state that an increase in the family contribution should 
not be effective before the second month after family income increases, 
or after 30 days notice to the family. A family needs a delay to adjust 
and budget for an increase in family income.
    An HA asks for authority to require interim re-examination when 
family income increases, not just when adding a new family member. 
Comment notes that HAs are currently required to process reductions no 
matter how small the change in tenant contribution. The HA should be 
permitted to limit the number of interim adjustments each year, or to 
set a minimum dollar limit.
    For families that claim little or no income, a comment recommends 
reexamination more frequent than annually.

B. HUD Response

    At any time, the HA may conduct an interim examination of family 
income and composition (Sec. 982.516(b)(1)). At any time, a family may 
ask the HA to conduct a recertification if there is a change in family 
income or composition since the last determination 
(Sec. 982.516(b)(2)).
    Reexamination affects the amount of the subsidy and the family 
share of rent. The HA must conduct reexamination in accordance with 
policies in the HA administrative plan.
    The proposed rule would have provided that the HA must determine 
``whether a change should be made'' in response to a change of family 
income or composition between annual reexaminations. The final rule 
provides that the HA ``must make'' an interim determination effective 
``within a reasonable time'' after the family request 
(Sec. 982.516(b)(2)). The rule has not adopted the proposal that HAs be 
allowed to limit the number of interim reexaminations at the family's 
request.
    The final rule provides that an HA must adopt policies prescribing 
when and under what circumstances the family must report a change in 
family income or composition (Sec. 982.516(c)). The rule clarifies that 
HAs have authority to initiate an interim reexamination when family 
income increases (Sec. 982.516(b)(1)). However, HAs are not required to 
initiate an interim reexamination not requested by the family.
    The rule also provides that the HA must adopt policies prescribing 
how to determine the effective date of a change in the housing 
assistance payment because of an interim determination 
(Sec. 982.516(d)(1)). At the effective date of a regular or interim 
reexamination, the HA must make appropriate adjustments in the housing 
assistance payment and family unit size (Sec. 982.516(d)(2)).
    If a reexamination is requested by the family, the HA must make the 
interim reexamination effective within a ``reasonable time'' after the 
family request (Sec. 982.516(b)(2)). Within this broad standard, HAs 
have broad authority to set local policies on when to increase the 
assistance payment because of a reduction of family income. HUD does 
not wish to set a rigid national standard on timing of changes in the 
family contribution and assistance payment as a result of an interim 
reexamination.
    The law provides that ``reviews of family income shall be made no 
less frequently than annually'' (42 U.S.C. 1437f(c)(3)(A)). The law 
does not prescribe requirements for interim reexaminations between the 
annual review. HUD believes that HA's should have broad discretion to 
determine policies on conducting interim reexaminations. Over the 
years, the interim reexamination policies adopted in HA administrative 
plans have seldom been a source of contention. HAs have almost always 
acted responsibly in adopting policies on when to hold an interim 
reexamination, and when to make effective a change in the family share 
and housing assistance payment as a result of the reexamination.

[[Page 23847]]

    Common rules for the Section 8 and public housing programs provide 
that an HA must reexamine family income and composition at least 
annually (Sec. 5.617(a)). A family must submit information or 
documentation necessary to determine the family's adjusted income 
(Sec. 5.617(b)(2)). This rule confirms that the HA must obtain 
verification of factors affecting the family's adjusted income, or must 
document why verification was not available (Sec. 982.516(a)).

XV. Project-based Certificate (PBC) Program: Rent to Owner

A. PBC: Comparability Procedures

    During the term of a HAP contract, PBC rents must be reasonable 
(Sec. 983.256(a)(2)). Comparability applies both to HA determination of 
initial rent to owner (Sec. 983.256(a)(1)), and to regular or special 
adjustments during the HAP contract term (Sec. 983.254(b)(1) (regular); 
Sec. 983.255(c)(2) (special)). For PBC housing, the HA must redetermine 
that the current rent to owner is reasonable at least annually during 
the HAP contract term (Sec. 983.256(a)(3)). The final rule modifies 
procedures for analysis of comparability.
    The existing and proposed rule did not specify the form of 
comparability analysis for tenant-based or project-based certificate 
assistance. For PBC, but not for the tenant-based program, the final 
rule provides that the HA must use a standard HUD form to document 
comparability of the initial rent (Sec. 983.256(c)(1)(ii)) and adjusted 
rent (Sec. 983.256(c)(2)(iii)). For both purposes, HA records must show 
the calculation of comparable rent (``correlated subject rent'') on HUD 
Form 92273--``Estimates of Market Rent by Comparison.'' Form 92273 
lists property ``characteristics,'' and provides a format to enter the 
plus or minus dollar value of the differences (adjustments) between the 
subject and the comparable units for each characteristic. A separate 
Form 92273 must be prepared for each ``unit type'' in the PBC project: 
e.g., apartment, row-house, town house or single-family detached.
    In determining initial rent, the comparability analysis must use at 
least three comparable units in the private unassisted market 
(Sec. 983.256(c)(1)(ii)). However, the rule does not specify the 
minimum number of comparables that must be used in determining 
comparability of the adjusted rent.
    The existing and proposed rule do not specify minimum 
qualifications of the person who performs a comparability analysis for 
determination of initial or adjusted rent. For PBC only, the final rule 
provides that the HA must use a qualified ``State-certified appraiser'' 
(Sec. 983.256(c)(1)(i)) for determination of initial rent. The term 
``State-certified appraiser'' is defined at Sec. 983.2 (added by rule 
published July 3, 1995), but was not previously used in the rule. A 
State-certified appraiser must meet minimum certification requirements 
established by the Appraisal Foundation. To assure objectivity, the 
rule provides that the appraiser may not have any direct or indirect 
interest in the property or otherwise (Sec. 983.256(c)(2)(iii)).
    For determination of rent during the term of a PBC HAP contract, 
the HA is not required to use a State-certified appraiser. The 
comparability study may be prepared by HA staff or by another qualified 
person (Sec. 983.256(c)(2)(iii)).

B. PBC: Approval of Rent; HA Certification That Rent Is Reasonable

    Under the old rule, all PBC rents were approved by HUD. Under the 
new rule HUD must approve initial rent for HA-owned PBC units or PBC 
units financed with a HUD-insured multifamily mortgage 
(Sec. 983.253(b)). The HA approves the initial rent to owners for PBC 
units that are not financed with a HUD-insured multifamily mortgage, 
and are not owned by the HA (Sec. 983.253(a)).
    In all cases, the HA must certify to HUD that the initial PBC rent 
to owner is reasonable (Sec. 983.256(c)(1)(iii)).

C. PBC: Rent to Owner: Annual Adjustments

1. Adjustment by Published Factor
    At each annual anniversary, rent to owner is adjusted upon a timely 
request by the owner. Adjusted rent is the lesser of:

--The pre-adjustment rent to owner multiplied by the applicable factor 
published by HUD,
--The reasonable rent as shown by an HA ``comparability study''; or
--The rent requested by the owner.
(Sec. 983.254(b)(1); Sec. 983.256(c)(2)).

    Previously, program rules provided that the rent is adjusted by 
applying the most recently published factor: the HUD factor that is in 
effect on the contract anniversary date (when the adjustment is 
effective). For future HAP contracts, the final rule provides that rent 
will be adjusted by the published AAF factor in effect 60 days before 
the HAP contract anniversary (Sec. 983.254(b)(2)). This new rule 
applies if the Agreement to enter housing assistance payments contract 
is entered on or after the effective date of this rule. For earlier 
contracts, the applicable factor remains the factor in effect at the 
contract anniversary date--since this date is specified in the existing 
contract documents.
2. Adjustment Comparability: Comparability Studies
    By law and contract, the adjusted rent of housing assisted under 
the certificate program may not exceed the reasonable rent for 
comparable unassisted units. This limitation is now separately and 
independently expressed both in 42 U.S.C. 1437f(c)(2) (A) and (C).
    This final rule contains HUD's regulations for conducting 
comparability studies under Sec. 1437f(c)(2)(C) in the Section 8 PBC 
program (Sec. 982.206(c)(2)). To apply the comparability limitation 
under Sec. 1437f(c)(2)(C), the HA must conduct an adjustment 
comparability study if requested by the owner of a Section 8 PBC 
project. If the owner requests a comparability study under 
Sec. 1437f(c)(2)(C), the comparability study must be submitted to the 
owner at least 60 days before the HAP contract anniversary. Unless the 
comparability study is submitted by this deadline, the rent to owner 
(formerly ``contract rent'') is adjusted by applying the annual 
adjustment factor.
    The proposed rule would have provided that rent reasonableness only 
applies to PBC annual adjustments if the requested rent (gross rent, 
including the allowance for tenant-paid utility) is 110 percent or more 
of the FMR limit. Under the final PBC rule, as in the rule for the 
tenant-based certificate program, rent reasonableness always applies at 
the annual adjustment of rent to owner (see Sec. 983.254(b)(1); 
Sec. 983.256(c)(2)). Factor-adjusted rent may never exceed the 
comparable rent.
    By law, adjusted rent for a unit assisted in the certificate 
program ``shall not exceed'' rent for a comparable unassisted unit in 
the market area (42 U.S.C. 1437f(c)(2)(A)). Moreover, rent adjustments 
may not result in ``material differences'' between rents for assisted 
and unassisted units (42 U.S.C. 1437f(c)(2)(C)). HUD has determined 
that any excess over the reasonable rent for comparable unassisted 
units is a material difference, and should not be permitted. Any excess 
rent is a waste of scarce funds.
    Under the proposed rule, the adjustment system would have wholly 
ignored rent reasonableness if the factor-adjusted rent did not exceed 
110 percent of the FMR. In such cases, the proposed rule afforded no 
means of limiting the discrepancy between the factor-adjusted rent and 
the reasonable rent for a unit. Under the final rule, the comparability 
analysis must be conducted without regard to the relation

[[Page 23848]]

between the adjusted rent and the published FMR. The FMR determines the 
general level of market rents in the area. By contrast, the 
comparability study determines the rental value of the particular unit, 
and is therefore a more precise way of determining the appropriate rent 
and subsidy for the particular unit.
    The HA must conduct a comparability study to limit PBC rent 
increases over the initial rent. The adjusted rent for a contract unit 
may not exceed the reasonable rent as shown by a comparability study. A 
comparability study analyzes rents charged for comparable unassisted 
units (Sec. 982.206(c)(2)(ii)).
    The final rule provides that an adjustment comparability study must 
be prepared on the standard HUD multifamily appraisal form (HUD Form 
92273) (Sec. 982.206(c)(2)(iii)). The same form is also used to 
determine comparability of the initial rent at the beginning of the PBC 
HAP contract term. For determination of adjustment comparability, the 
rule also provides that a comparability study must show how the 
reasonable rent was determined. The appraisal must state major 
differences between the contract units and comparable unassisted units 
(Sec. 982.206(c)(2)(iv)).
3. When Owner Requests Rent Increase; HA Comparability Study
    As indicated above, the proposed rule would have required the HA to 
conduct a comparability analysis only if the rent requested by an owner 
is 110 percent or more of the FMR limit. The proposed rule would have 
also provided that the HA must first notify the owner in writing of its 
intention to conduct a rent reasonableness study, and then also notify 
owner of the study result 30 days after owner requests an increase of 
the rent.
    The old rule did not specify when the owner must submit a request 
for adjustment of the rent. The proposed rule would have provided:

--That rent will not be adjusted retroactively--for the period before 
owner's request.
--That rent will not be adjusted for the 60 days following the owner's 
request.
--That the adjustment for any anniversary is lost unless requested by 
the owner at least 60 days before the following anniversary.

    Comments question the need to notify an owner that the HA intends 
to conduct a comparability study. Comments state that the notice 
requirement is an administrative burden, and will not improve the PBC 
program. Under the final rule, HUD has eliminated the regulatory 
directive requiring HAs to provide notice of the annual comparability 
study. (Of course, HAs may elect to remind owners at appropriate points 
in the annual cycle.)
    Under the new rule, an owner must request the adjustment (increase) 
for any contract anniversary at least 120 days before that contract 
anniversary (Sec. 983.254(a)(1)). The annual adjustment is wholly lost 
unless requested by this deadline.
    The final rule establishes a fixed timetable both for owner's 
request for adjustment, and for the HA submission of a statutory 
comparability study in response to the owner request. The rule provides 
that:

--A PBC owner must request a rent increase at least 120 days before the 
HAP contract anniversary. The owner's request for increase must be 
submitted in writing, and ``in the form and manner required by the HA'' 
(Sec. 983.254(a)(1)).
--If the owner properly requests a rent increase by the 120 day 
deadline, the HA must submit a comparability study to the owner at 
least 60 days before the contract anniversary (Sec. 983.256(c)(2)(v)).

    If the owner misses the 120 day deadline, the owner does not 
receive any increase in the rent at the annual adjustment 
(Sec. 983.254(a)(2)). If the HA misses the 60 day deadline, an increase 
in rent by application of the published factor is not subject to 
comparability (Sec. 983.256(c)(2)(v)). In this case, the owner receives 
the full annual adjustment by application of the published factor to 
the pre-adjustment rent.
    The HA may not grant a rent increase unless the owner has complied 
with obligations under the HAP contract. The final rule 
(Sec. 983.254(a)(2)(ii)) prohibits an increase in the rent unless:

during the year before the contract anniversary, the owner complied 
with all requirements of the HAP contract, including compliance with 
the HQS for all contract units.
4. Rent Decrease at Annual Adjustment
    Rent may increase or decrease by application of the published 
annual adjustment factor (AAF) and comparability at the contract 
anniversary (see Sec. 983.254(b)). The old rent is multiplied by the 
published factor. Rent to owner increases if the factor is positive (a 
factor of more than one) and if the increased rent is reasonable. Rent 
decreases if the published factor is negative (a factor of less than 
one). The owner must submit a written request for a ``rent increase'' 
(Sec. 983.254(a)(1)). The request must be submitted by the 120 day 
deadline. A rent decrease by application of the published factor or 
comparability occurs automatically, without any owner request.
    Rent may decrease at annual adjustment: either by application of a 
negative factor, or by application of comparability. However, under the 
old rule, rent could not be adjusted below the initial rent--the 
contract rent (rent to owner) at the beginning of the PBC HAP contract 
term. The proposed rule would have removed this limitation for both 
tenant-based and PBC. For PBC alone, the final rule retains this 
limitation. The final rule provides that the amount of the initial 
rent--if correctly determined--is the limit on any downward adjustment 
of the rent. The PBC rule provides that, except as necessary to correct 
errors in establishing the initial rent in accordance with HUD 
requirements, the adjusted rent to owner must not be less than the 
initial rent (Sec. 983.254(d)).
    Comments state that the rule should not allow an HA to decrease the 
rent by applying a negative adjustment factor. This recommendation is 
not adopted. The final rule provides that rent to the owner must be 
adjusted ``up or down'' by applying the published factor in accordance 
with regulatory requirements (Sec. 982.204(b)(4)). The amount of rent 
should not be insulated from rent reduction by application of the 
factor, which is designed to reflect the best currently available data 
on market changes in residential rent and utility cost levels. 
Furthermore, the rule clarifies that rents will be reduced, by 
application of a negative factor or by comparability, regardless of 
whether owner requests an adjustment of the rent. Obviously, owners who 
expect a reduction will not request a rent adjustment.

D. PBC: Rent to Owner: Special Adjustments

    HUD may approve a ``special adjustment'' of the rent paid to a PBC 
project owner (Sec. 983.255(a)). A special adjustment may only be 
granted if there are ``substantial and general increases'' in owner 
costs for any of four specified purposes: real property taxes, special 
government assessments, utility rates or costs of unregulated utilities 
(Sec. 983.255(b); see 42 U.S.C. 1437f(c)(2)(B)).
    The owner does not have any right to receive a special adjustment 
(Sec. 983.255(a)(2)). HUD has discretion to grant or deny owner's 
request for a special adjustment (Sec. 983.255(a)(1)).

[[Page 23849]]

    The owner must justify a special adjustment. Comments recommended 
that owners should be required to submit sworn or certified financial 
statements to justify requests for special rent adjustments. Comments 
recommended that special adjustment requests should be automatically 
approved if the HUD field office review is not completed within 30 
days.
    The rule provides that a PBC special adjustment may only be granted 
``if and to the extent the owner demonstrates that cost increases are 
not adequately compensated by application of the published annual 
adjustment factor at the contract anniversary'' (Sec. 983.255(c)(1)). 
The owner must demonstrate that the rent to owner is not sufficient for 
proper operation of the housing. The owner must submit financial 
information, as required by the HA, that supports the grant or 
continuance of a special adjustment (Sec. 983.255(d)).
    For PBC HAP contracts covering 20 or more units, the owner must 
submit audited financial information to support the request for a 
special adjustment. In establishing this 20 unit threshold, HUD has 
balanced the benefit of additional assurance provided by the audit 
against the cost and burden for the owner. The rule does not require 
submission of sworn or certified information as suggested by comment. 
However, any program submission by an owner or auditor is subject to 
Federal criminal penalties for misrepresentation or fraud in connection 
with Federal financial assistance.
    HUD declines to grant AN automatic special adjustment rent increase 
if the HUD field office review is not completed within 30 days. HUD may 
need a longer period for review and determination on the owner's 
request and materials submitted by the HA and owner. The expiration of 
an arbitrary period does not show that owner needs an adjustment that 
meets the statutory and regulatory standard. Moreover, the owner is 
never entitled to a special adjustment. There is no contractual or 
moral commitment to provide a special adjustment under any 
circumstance.
    If HUD finds that a special adjustment is justified, special 
adjustments may be made effective to cover past owner costs. In 
general, it has been HUD's practice that a special adjustment is made 
effective on the later of the first day of the month following the date 
of: (1) the owner's request or (2) the tax rate increase or other cost 
triggering the special adjustment. This practice avoids damage to the 
owner from necessary delay in processing a request for special 
adjustment.

E. PBC: Rent to Owner: Correcting Mistakes

    The proposed rule would have provided that errors in establishing 
or adjusting the rent are subject to ``post-audit changes.'' The final 
rule provides that the HA may, ``at any time,'' correct any errors in 
establishing or adjusting rent in accordance with HUD requirements 
(Sec. 983.259). The HA may recover any excess payment from the owner.

F. PBC: Rent to Owner: HA-Owned Units

    A 1990 law provides that an HA that administers the Section 8 
program may enter into a HAP contract with itself to pay assistance for 
HA-owned units (42 U.S.C. 1437f(a)). The rule provides that HUD must 
approve initial rents (Sec. 983.253(b), and annual rent adjustments 
(Sec. 983.254(c))) for HA-owned PBC units.

XVI. Special Housing Types

A. General

    Subpart M of the rule gathers provisions on special housing types 
in the tenant-based programs. The special housing types are program 
variants designed to meet special housing needs within the structure of 
the Section 8 tenant-based programs. The special housing types are:

--Single room occupancy (SRO) housing;
--Congregate housing;
--Group home (replacing prior provisions on Individual Group 
Residences);
--Shared housing;
--Cooperative;
--Manufactured home.

    A single individual or other family has the choice whether to use a 
special housing type offered in the HA program, or to rent other 
eligible housing (Sec. 982.601(c)). The HA may not restrict the 
family's freedom to choose among available units in the local housing 
market (Sec. 982.601(c)).
    Except for program modifications explicitly stated in subpart M, 
all of the regulatory requirements for other tenant-based assistance 
also apply to the special housing types (Sec. 982.601(d)). The rule 
separately states the requirements for each special housing type.
    In the proposed rule, provisions on special housing types were left 
largely unchanged, with some technical clarification and 
reorganization. In the final rule, HUD has restated the rules to follow 
a more consistent and parallel organization that addresses the basic 
questions about each special housing type:

--Who may reside in the housing,
--Whether there is a separate assistance contract and lease for each 
assisted individual,
--How to determine the maximum rent paid to an owner and the amount of 
the housing assistance payment, and
--Special housing quality standards (HQS).

    For each special housing type, the rule states modifications of the 
standard program HQS.

B. HA Choice

1. HA Discretion to Offer Special Housing Type
    In the past, HA's were generally required to offer each of the 
special housing types permitted under HUD program rules. HAs were only 
given the option whether to allow shared housing.
    HUD has now decided to allow an HA maximum discretion in deciding 
whether to offer each of the special housing types permitted under 
program rules. With two exceptions as described below, the HA may now 
choose whether to offer any particular special housing type in its 
program (Sec. 982.601(b)). This decision rests wholly in the discretion 
of the individual HA, and HUD does not second-guess or review the HA 
decision. The HA administrative plan must state the HA policy choice 
whether to offer particular special housing types in the HA tenant-
based program (Sec. 982.54(d)(17)). HUD does not approve the 
administrative plan.
2. Person With Disabilities: Reasonable Accommodation
    An HA's Section 8 program must be readily accessible to persons 
with disabilities (Section 504 of the Rehabilitation Act of 1973, and 
HUD's implementing regulation (24 CFR part 8)). The rule provides that 
an HA must permit a family to use any special housing type if needed as 
a reasonable accommodation so that the program is readily accessible 
for persons with disabilities (in accordance with 24 CFR part 8 
(Sec. 982.601(b)(3)).
3. Manufactured Home
    The HA must also allow a family to rent a manufactured home (with 
the space on which the home is located) (Sec. 982.620(a)(2)).
    The regulations also permit HAs to provide Section 8 assistance for 
a family that owns a manufactured home and leases only a manufactured 
home space (Sec. 982.620(a)(3) and Secs. 982.622 to 982.624). For such 
families, the assistance only covers the cost of space rental. The HA 
may elect whether to provide such space rental assistance in

[[Page 23850]]

the tenant-based program (Sec. 982.620(a)(3)).
    Both for rental of a manufactured home and space, or for 
manufactured home space rental, the HA must comply with special 
manufactured home housing quality standards (HQS) (Sec. 982.621). The 
basic Section 8 Housing Quality Standards (HQS) describe the physical 
characteristics of housing that can be rented under the program (see 
Sec. 982.401). HAs must use these HQS standards, and must allow rental 
of housing that meet the HQS standards. The HQS for manufactured homes 
describe the physical characteristics of manufactured housing that can 
be rented under the program (Sec. 982.621). HAs must use these HQS 
standards, and must allow families to rent manufactured homes that meet 
the standards. If the HA elects to offer space rental assistance, the 
HA must also use the physical HQS for manufactured homes for such 
housing (Sec. 982.620(b)(1) and Sec. 982.621).

C. Family Choice

    In an HA's tenant-based program, all families have freedom to shop 
for eligible housing that is available for rent in the local market 
(Sec. 982.353 (a) and (f)). An HA may not restrict family choice by 
requiring the family to rent housing that qualifies as a special 
housing type, or to rent any specific unit.
    If an HA has decided to offer a special housing type in its 
program, a family has the choice whether to rent housing that qualifies 
as a special housing type or as any specific special housing type, or 
to rent other eligible housing in accordance with requirements of the 
program. The HA may not set aside program funding for special housing 
types in general, or for a specific special housing type. 
(Sec. 982.601(c).)

D. Group Homes for Elderly or Disabled

    The final rule substantially reforms and simplifies the old rules 
on ``Independent Group Residences'' (IGR) for persons who are elderly 
or disabled. The proposed rule would have largely codified and 
continued IGR requirements under the old certificate and voucher rules. 
Under the old rule, an elderly or disabled participant who cannot live 
independently may live in group housing with necessary supportive 
services. The IGR must be approved or licensed by the State. A State-
recognized service agency determines the supportive service needs of 
IGR residents and coordinates services for the residents. The State 
approves the agreement between the landlord and the agency that 
provides supportive services.
    Under the old IGR program rules, the HA must determine that 
prospective IGR residents are unable to live independently. The HA must 
assure that IGR residents receive necessary services. In this respect, 
the treatment of IGRs differs from all other housing that may be 
selected by a certificate or voucher holder under the HQS. For non-IGR 
housing, the HA does not ask whether the family has the capacity for 
independent living.
    In the final rule, HUD has reshaped and simplified the old IGR 
requirements. First, HUD eliminates the requirement that group housing 
is only available for individuals who cannot live independently. 
Second, HUD wholly eliminates the Federally-imposed supportive services 
requirements.
    The new rule dramatically simplifies the role of the HA. The HA 
does not assess the nature and character of the occupant's disability 
in order to match the occupant with requirements for occupancy in a 
group home, or to assure that the occupant will benefit from 
appropriate supportive services.
    As in the past, the new rules provide that a group home must be 
licensed by the State. The State may or may not require supportive 
services or other protections or benefits for group home residents.
    An elderly or disabled Section 8 participant chooses whether to 
live in a group home or in other housing that satisfies the HUD housing 
quality standards. The HA may not bar access to group housing because 
the HA believes that the participant can live independently, and does 
not need supportive services. Conversely, the HA may not bar access to 
group housing because the HA believes that the participant needs 
supportive services that are not available at the housing.
    If a family seeks admission to certain units, the owner--not the 
HA--determines whether the family qualifies to reside in the housing. 
In all Section 8 housing, the selection of tenants is the function of 
the owner (42 U.S.C. 1437f(d)(1)(A)). The owner may determine 
qualifications for occupancy.
    For group housing, as for other housing that meets the Section 8 
housing quality standards, the HA has no responsibility or authority to 
act as a gatekeeper who determines whether the assisted family has or 
lacks the capacity to live independently. A Section 8 family may choose 
to live in a group home or other eligible housing. The HA may not 
inquire into the nature or extent of disability.
    The existing and proposed rule would have provided that IGR 
residents must be ``ambulatory'' and capable of taking appropriate 
actions for their own safety in an emergency. These provisions have 
been excised. Such safety concerns are critical, but are better handled 
by State and local authorities than by imposing a layer of Federal 
regulatory requirements enforced through local housing authorities. 
Further, safety should be a concern for residents of all housing or all 
assisted housing, not just for residents of Section 8 group homes.
    In the final rule, HUD has retained provisions confirming that 
residents of a group home must not require continual medical or nursing 
care. Since the beginning of the Section 8 program, HUD has construed 
the Section 8 statute as precluding assistance in facilities that 
provide continual medical or nursing care. Section 8 was designed to 
provide rental assistance, rather than as a subsidy for nursing homes 
or other medical facilities.
    In a Section 8 group home, up to twelve elderly or disabled 
individuals live together in a single unit (which may be an apartment 
or a home) (Sec. 982.610). Group homes serve a vulnerable population. 
The rule therefore provides, as in the past, that group homes must be 
licensed by the State (Sec. 982.612). The State may devise and enforce 
its own scheme of protections for elderly and disabled group home 
residents. However, such protections are not required by HUD, and are 
not enforced by the HA in administering Section 8 assistance for a 
group home resident.
    In the proposed rule (as in the existing regulation), the HQS for 
Independent Group Residences would have provided that sanitary 
facilities must accommodate the needs of ``physically handicapped 
occupants with wheelchairs or other special equipment.'' The final rule 
provides that sanitary facilities in a group home must be accessible to 
and usable by the residents, including residents with disabilities. 
(Sec. 982.614(c)(1)(iv)). The group home must contain sanitary 
facilities readily accessible to and usable by residents, including 
persons with disabilities.
    This special housing type is now called a ``group home,'' rather 
than ``Independent Group Residence'' (or IGR) (Sec. 982.4(b)).

E. Other Changes

1. Congregate Housing
    The proposed rule would have provided across-the-board that subsidy 
for an elderly or disabled person in congregate housing is controlled 
by the

[[Page 23851]]

zero bedroom FMR/exception rent limit. The final rule provides that if 
there are two or more rooms (not including kitchen or sanitary 
facilities), the one bedroom FMR/exception rent limit determines the 
maximum subsidy (Sec. 982.608(a)(2)). (As indicated above, additional 
space is allowed if an HA-approved live-in aide also lives in the unit 
to care for an elderly or disabled member of the family.)
2. Shared Housing
    In shared housing, an assisted family shares a home or apartment 
with other assisted or unassisted residents. The unit includes both 
common and private space. The assisted family has exclusive right to 
use its private space. The final rule amends the minimum private space 
requirement in the HQS for shared housing.
    Under the HQS, all housing must meet so-called ``performance'' 
requirements, the minimum program requirements. In addition, housing 
must also meet ``acceptability'' standards unless HUD has approved 
acceptability variations because of local conditions. The final rule 
revises acceptability requirements defining the minimum private space 
for residents of shared housing.
    The existing acceptability criteria would have provided that the 
private space for each assisted family must contain enough space ``so 
that children of opposite sex, other than very young children are not 
required to occupy the same bedroom.'' This private space acceptability 
requirement is now deleted.
    The amount of private space is now solely governed by the 
performance standard, requiring that the private space for an assisted 
family must contain at least one bedroom for each two persons 
(Sec. 982.618(d)). The final rule is revised to provide that the number 
of bedrooms in the family's private space may not be less than the 
``family unit size''--the appropriate number of bedrooms for the family 
under the HA subsidy standards (Sec. 982.618(d)(2)(ii)).
    The old rule provided that two assisted individuals may share a one 
bedroom unit in shared housing. The new rule provides that a zero or 
one bedroom unit may not be used for shared housing 
(Sec. 982.618(2)(iii)). Such units are too small for sharing by several 
families--whether the families consist of individual persons or of 
multi-person families.
    The rule is amended to clarify that the assisted family may reside 
in a shared housing unit with other assisted and unassisted persons 
(Sec. 982.615(b)(2)). However, as noted above, the assisted family has 
the exclusive right to use of its private space.

XVII. Live-in Aide for Disabled Resident

    The 1937 Act provides that an assisted family may consist of one or 
more elderly or disabled persons living with one or more ``persons . . 
. essential to their care or well being'' (42 U.S.C. 1437a(b)(3)(B); 
see Sec. 982.201(c)(3)). The final rule is revised (by adding a new 
Sec. 982.316) to restate and clarify authority for HA-approved live-in 
aides in the certificate and voucher programs (including live-in aides 
for elderly or disabled persons assisted in special housing types under 
part 982, subpart M).
    With approval of the HA, a live-in aide resides with the family to 
provide essential supportive services for an elderly person or person 
with disabilities (42 U.S.C. 1437a(b)(3)(B); definition of ``live-in 
aide'' at 24 CFR Sec. 5.403). The live-in aide is not a member of the 
assisted family, but is counted in determining the appropriate unit 
size, and therefore the amount of subsidy for the family 
(Sec. 982.402(b)(6)).
    The new rule provides that a family that consists of one or more 
elderly or disabled persons may request that the HA approve a live-in 
aide to reside in the unit and provide necessary supportive services 
for a family member who is a person with disabilities 
(Sec. 982.316(a)). The HA must approve a live-in aide if needed as a 
reasonable accommodation to make the program accessible to and usable 
by persons with disabilities in accordance with HUD regulations at 24 
CFR part 8 (implementing Section 504 of the Rehabilitation Act of 1973 
(29 U.S.C. 794)).
    Under existing regulatory provisions, occupancy by a live-in aide 
is counted in determining the ``family unit size''--the appropriate 
unit size for the family size and composition under the HA subsidy 
standards (Sec. 982.402(b)(6); see definition of ``family unit size'' 
and ``subsidy standards'' in Sec. 982.4). For ordinary rental housing 
or for a special housing type, the family unit size is used to 
determine the maximum subsidy. This rule confirms that occupancy by an 
HA-approved live-in aide is also counted in determining family unit 
size for special housing types: Sec. 982.608(b) (congregate housing); 
Sec. 982.613(c)(1)(ii) (group home); Sec. 982.617(c)(3) (shared 
housing); Sec. 982.619(d)(2) (cooperative); Sec. 982.620(c)(2) 
(manufactured housing).
    The final rule specifies circumstances in which the HA may decline 
to approve a particular person as a live-in aide for a person with 
disabilities (Sec. 982.316(b)). The rule provides that an HA may refuse 
to approve, or may withdraw such approval, if a proposed live-in aide:

--Commits fraud, bribery or any other corrupt or criminal act in 
connection with any federal housing program;
--Commits drug-related criminal activity or violent criminal activity, 
or
--Currently owes rent or other amounts to the HA or to another HA in 
connection with Section 8 or public housing assistance under the 1937 
Act.

XVIII. Streamlining of Part 982

    As part of the Department's effort to reinvent its regulations, 
this rulemaking includes changes to 24 CFR parts 5 and 982.
    Part 982 is amended to remove some provisions that are explanatory 
in nature but that neither impose obligations nor confer benefits on 
program participants. The information stated in such provisions either 
is available elsewhere or may be made available in HUD guidance 
documents.
    In addition, part 982 is amended to delete some provisions which 
duplicate provisions in regulations for other programs administered 
pursuant to the United States Housing Act of 1937 (1937 Act). Cross-
cutting provisions are consolidated in HUD regulations at 24 CFR part 5 
and cross-referenced in part 982. Part 5 contains general provisions 
applicable to more than one of the Department's programs, and, 
specifically, contains definitions of terms used in HUD programs. It is 
the Department's intent to include in part 5 as many as possible of the 
definitions that are used in more than one program, removing the need 
to restate these definitions in numerous program regulations.
    This rule moves some of the definitions in part 982 to part 5. An 
introductory paragraph is added to the definitions section at 
Sec. 982.4, listing the definitions applicable to the certificate and 
voucher programs that are found in part 5. The remaining program 
definitions are stated in full in part 982.

XIX. Other Changes

    To reflect the consolidation of provisions of the former part 813, 
which had been referenced in Sec. 982.4, into 24 CFR part 5 (which took 
place by a final rule published on October 18, 1996), this rule revises 
the cross references in Sec. 982.4 to part 813 to correctly reference 
part 5.
    The revised Sec. 982.205(c)(3) makes clear that an HA has the 
authority, if the

[[Page 23852]]

HA states this policy in its administrative plan, to remove an 
applicant's name from a tenant-based assistance waiting list if the 
applicant has refused offers of the types of tenant-based assistance 
offered by the HA. (Section 982.204(c)(1) is revised to remove a 
duplicative ``example'' of the same principle.) (Even if an HA operates 
a waiting list that covers public housing, as well as Section 8, this 
rule only affects an applicant's selection for Section 8 assistance, 
but does not affect the applicant's selection for public housing.)
    In general, an HA may remove from its waiting list the name of an 
applicant family that does not timely respond to HA requests for 
information or updates (e.g., information on current family income). 
However, the rule is now amended to specify that in communicating such 
HA requests to an applicant, the HA must provide reasonable 
accommodation, in accordance with 24 CFR part 8, for a family member 
who is a person with disabilities. The HA may not remove the 
applicant's name without providing such accommodation. The final rule 
provides that if an applicant does not respond to the HA request for 
information or updates because of the family member's disability, the 
HA must reinstate the applicant in the family's former position on the 
waiting list (Sec. 982.204(c)(2)).
    The rule is amended to provide that an HA may give preference for 
admission of families that include a person with disabilities. However, 
the HA may not give preference for admission of persons with a specific 
disability (Sec. 982.207(c)).
    Ordinarily, the HA may not extend the term of a certificate or 
voucher to more than 120 days (Sec. 982.303(b)(1)). The rule is amended 
to give the HUD field office authority to approve an additional term 
extension if needed as a reasonable accommodation to make the program 
accessible to and usable by a person with a disability 
(Sec. 982.303(b)(2)). This amendment removes the need to obtain a 
Headquarters regulation waiver for such extensions.

XX. Findings and Certifications

A. Impact on the Environment

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made in connection with the proposed rule in accordance 
with HUD regulations at 24 CFR part 50 that implement section 102(2)(C) 
of the National Environmental Policy Act of 1969, 42 U.S.C. 4332. Since 
the final rule does not contain additional provisions or requirements 
affecting the environment, a new FONSI is not required, and the FONSI 
for the proposed rule is still valid. The FONSI is available for public 
inspection and copying during regular business hours (7:30 a.m. to 5:30 
p.m.) in the Office of the Rules Docket Clerk, room 10276, 451 Seventh 
Street, SW, Washington, DC 20410-0500.

B. Federalism Impact

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule do not have significant impact on States or 
their political subdivisions, or the relationship between the Federal 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government. As a result, 
the rule is not subject to review under the Order. The rule merely 
completes the process of combining and conforming the regulations for 
tenant-based rental assistance under the Section 8 certificate and 
voucher programs and continues the Department's efforts to streamline 
regulations.

C. Unfunded Mandates Reform Act

    The Secretary, in accordance with the Unfunded Mandates Reform Act 
of 1995, 2 U.S.C. 1532, has reviewed this rule before publication and 
by approving it certifies that this rule does not impose a Federal 
mandate that will result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year.

D. Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule will not have a significant 
impact on a substantial number of small entities, because it does not 
place major burdens on housing authorities or housing owners. The rule 
just simplifies the operation of two similar programs by combining and 
conforming their provisions.

E. Regulatory Review

    The Office of Management and Budget (OMB) reviewed this rule under 
Executive Order 12866, Regulatory Planning and Review. OMB determined 
that this rule is a ``significant regulatory action,'' as defined in 
section 3(f) of the Order (although not economically significant, as 
provided in section 3(f)(1) of the Order). Any changes made as a result 
of that review are clearly identified in the docket file, which is 
available for public inspection in the office of the Department's Rules 
Docket Clerk, room 10276, 451 Seventh St. SW, Washington, DC 20410-
0500.
Catalog
    The Catalog of Federal Domestic Assistance numbers for the programs 
affected by this rule are 14.855 and 14.857.

List of Subjects

24 CFR Part 5

    Administrative practice and procedure, Aged, Grant programs--
housing and community development, Individuals with disabilities, Loan 
programs--housing and community development, Low- and moderate-income 
housing, Mortgage insurance, Pets, Public housing, Rent subsidies, 
Reporting and recordkeeping requirements.

24 CFR Part 8

    Administrative practice and procedure, Civil Rights, Equal 
employment opportunity, Grant programs--housing and community 
development, Housing, Individuals with disabilities, Loan programs--
housing and community development, Reporting and recordkeeping 
requirements.

24 CFR Part 882

    Grant programs--housing and community development, Housing, 
Homeless, Lead poisoning, Low- and moderate-income housing, 
Manufactured homes, Rent subsidies, Reporting and recordkeeping 
requirements.

24 CFR Part 982

    Grant programs--housing and community development, Housing, Low- 
and moderate-income housing, Rent subsidies, Reporting and 
recordkeeping requirements.

24 CFR Part 983

    Grant programs--housing and community development, Housing, Low- 
and moderate-income housing, Rent subsidies, Reporting and 
recordkeeping requirements.

    Accordingly, title 24 of the Code of Federal Regulations parts 5, 
8, 882, 982, and 983 are amended as follows:

PART 5--GENERAL HUD REQUIREMENTS; WAIVERS

    1. The authority citation for part 5 continues to read as follows:


[[Page 23853]]


    Authority: 42 U.S.C. 3535(d), unless otherwise noted.

Subpart A--Generally Applicable Definitions and Federal 
Requirements; Waivers

    2. In Sec. 5.100, definitions for ``Indian'' and ``Indian Housing 
Authority (IHA)'' are removed; and definitions for ``Housing agency 
(HA)'', and ``MSA'', are added in appropriate alphabetical order, to 
read as follows:


Sec. 5.100  Definitions.

* * * * *
    Housing agency (HA) means a State, county, municipality or other 
governmental entity or public body (or agency or instrumentality 
thereof) authorized to engage in or assist in the development or 
operation of low-income housing. (``PHA'' and ``HA'' mean the same 
thing.)
* * * * *
    MSA means a metropolitan statistical area.
* * * * *

Subpart B--Disclosure and Verification of Social Security Numbers 
and Employer Identification Numbers; Procedures for Obtaining 
Income Information

    3. Section 5.214 is amended by:
    a. Revising paragraph (1) in the definition of ``Assistance 
applicant'';
    b. Revising paragraph (1)(i) in the definition of ``Entity 
applicant'';
    c. Removing the definition of ``HA'';
    d. Revising paragraph (1)(i) in the definition of ``Individual 
owner applicant''; and
    e. Revising paragraph (1) in the definition of ``Participant'', to 
read as follows:


Sec. 5.214  Definitions.

* * * * *
    Assistance applicant. * * *
    (1) For any program under 24 CFR parts 215, 221, 236, 290, or 891, 
or any program under Section 8 of the 1937 Act: A family or individual 
that seeks rental assistance under the program.
* * * * *
    Entity applicant. * * *
    (1) * * *
    (i) The project-based assistance programs under Section 8 of the 
1937 Act;
* * * * *
    Individual owner applicant. * * *
    (1) * * *
    (i) The project-based assistance programs under Section 8 of the 
1937 Act; or
* * * * *
    Participant. * * *
    (1) For any program under 24 CFR Part 891, or Section 8 of the 1937 
Act: A family receiving rental assistance under the program;
* * * * *

Subpart D--Definitions and Other General Requirements for 
Assistance Under the United States Housing Act of 1937

    4. In Sec. 5.403, paragraph (a) is revised, and in paragraph (b), 
the definition for ``Annual contributions contract'' is added in 
appropriate alphabetical order, to read as follows:


Sec. 5.403  Definitions.

    (a) The terms displaced person, elderly person, low income family, 
near-elderly person, person with disabilities, and very low income 
family are defined in section 3(b) of the 1937 Act (42 U.S.C. 
1437a(b)). For purposes of reasonable accommodation and program 
accessibility for persons with disabilities, the term ``person with 
disabilities'' means ``individual with handicaps'' as defined in 24 CFR 
8.3.
    (b) * * *
    Annual contributions contract (ACC) means the written contract 
between HUD and a PHA under which HUD agrees to provide funding for a 
program under the 1937 Act, and the PHA agrees to comply with HUD 
requirements for the program.
* * * * *

Subpart E--Restrictions on Assistance to Noncitizens

    5. In Sec. 5.520, paragraphs (c)(1)(ii) and (c)(2)(i) are revised, 
to read as follows:


Sec. 5.520  Proration of assistance.

* * * * *
    (c) * * *
    (1) * * *
    (ii) Step 1. Determine total tenant payment in accordance with 
Sec. 5.613. (Annual income includes income of all family members, 
including any family member who has not established eligible 
immigration status.
* * * * *
    (2) * * *
    (i) Step 1. Determine the amount of the pre-proration voucher 
housing assistance payment in accordance with 24 CFR 982.505. (Annual 
income includes income of all family members, including any family 
member who has not established eligible immigration status.
* * * * *

PART 8--NONDISCRIMINATION ON THE BASIS OF HANDICAP IN FEDERALLY 
ASSISTED PROGRAMS AND ACTIVITIES OF THE DEPARTMENT OF HOUSING AND 
URBAN DEVELOPMENT

    6. The authority citation for part 8 continues to read as follows:

    Authority: 29 U.S.C. 794; 42 U.S.C. 3535(d) and 5309.

    7. In Sec. 8.28, paragraph (a)(5) is revised to read as follows:


Sec. 8.28  Housing certificate and housing voucher programs.

    (a) * * *
    (5) If necessary as a reasonable accommodation for a person with 
disabilities, approve a family request for an exception rent under 
Sec. 982.504(b)(2) for a regular tenancy under the Section 8 
certificate program so that the program is readily accessible to and 
usable by persons with disabilities.
* * * * *

PART 882--SECTION 8 MODERATE REHABILITATION PROGRAMS

    8. The heading for part 882 is revised to read as set forth above.
    9. The authority citation for part 882 is revised to read as 
follows:

    Authority: 42 U.S.C. 1437f and 3535(d).

    10. Section 882.101 is revised to read as follows:


Sec. 882.101  Applicability.

    (a) The provisions of this part apply to the Section 8 Moderate 
Rehabilitation program.
    (b) This part states the policies and procedures to be used by a 
PHA in administering a Section 8 Moderate Rehabilitation program. The 
purpose of this program is to upgrade substandard rental housing and to 
provide rental subsidies for low-income families.
    (c) Subpart H of this part only applies to the Section 8 Moderate 
Rehabilitation Single Room Occupancy Program for Homeless Individuals.
    11. Section 882.102 is revised to read as follows:


Sec. 882.102  Definitions.

    (a) The definitions in 24 CFR part 5 apply to this part.
    (b) In addition, the following definitions apply to this part:
    ACC reserve account (or ``project account''). The account 
established and maintained in accordance with Sec. 882.403(b).
    Agreement to enter into Housing Assistance Payments Contract 
(``Agreement''). A written agreement between the Owner and the PHA 
that,

[[Page 23854]]

upon satisfactory completion of the rehabilitation in accordance with 
requirements specified in the Agreement, the PHA will enter into a 
Housing Assistance Payments Contract with the Owner.
    Annual Contributions Contract (``ACC''). The written agreement 
between HUD and a PHA to provide annual contributions to the PHA to 
cover housing assistance payments and other expenses pursuant to the 
1937 Act.
    Assisted lease (or ``lease''). A written agreement between an Owner 
and a Family for the leasing of a unit by the Owner to the Family with 
housing assistance payments under a Housing Assistance Payments 
Contract between the Owner and the PHA.
    Congregate housing. Housing for elderly persons or persons with 
disabilities that meets the HQS for congregate housing.
    Contract. See definition of Housing Assistance Payments Contract.
    Contract rent. The total amount of rent specified in the Housing 
Assistance Payments Contract as payable to the Owner by the Family and 
by the PHA to the Owner on the Family's behalf.
    Decent, safe, and sanitary. Housing is decent, safe, and sanitary 
if it satisfies the applicable housing quality standards.
    Drug-related criminal activity means the illegal manufacture, sale, 
distribution, use, or the possession with intent to manufacture, sell, 
distribute or use, of a controlled substance (as defined in Section 102 
of the Controlled Substances Act (21 U.S.C. 802)).
    Drug-trafficking. The illegal manufacture, sale, or distribution, 
or the possession with intent to manufacture, sell or distribute, of a 
controlled substance (as defined in Section 102 of the Controlled 
Substances Act (21 U.S.C. 802)).
    Gross rent. The total monthly cost of housing an eligible Family, 
which is the sum of the Contract Rent and any utility allowance.
    Group home. A dwelling unit that is licensed by a State as a group 
home for the exclusive residential use of two to twelve persons who are 
elderly or persons with disabilities (including any live-in aide).
    Housing Assistance Payment. The payment made by the PHA to the 
Owner of a unit under lease by an eligible Family, as provided under 
the Contract. The payment is the difference between the Contract Rent 
and the tenant rent. An additional payment (the ``utility 
reimbursement'') is made by the PHA when the utility allowance is 
greater than the total tenant payment.
    Housing Assistance Payments Contract (``Contract''). A written 
contract between a PHA and an Owner for the purpose of providing 
housing assistance payments to the Owner on behalf of an eligible 
Family.
    Housing quality standards (HQS). The HUD minimum quality standards 
for housing assisted under the Section 8 moderate rehabilitation 
program. See Sec. 882.404 and 24 CFR 982.401. For SRO housing, see 24 
CFR 982.605; and for the Section 8 moderate rehabilitation SRO program 
under subpart H of this part, see Sec. 882.803(b). For congregate 
housing HQS, see 24 CFR 982.609; for group housing HQS, see 24 CFR 
982.614.
    Moderate rehabilitation. Rehabilitation involving a minimum 
expenditure of $1000 for a unit, including its prorated share of work 
to be accomplished on common areas or systems, to:
    (1) Upgrade to decent, safe and sanitary condition to comply with 
the Housing Quality Standards or other standards approved by HUD, from 
a condition below these standards (improvements being of a modest 
nature and other than routine maintenance); or
    (2) Repair or replace major building systems or components in 
danger of failure.
    Owner. Any person or entity, including a cooperative, having the 
legal right to lease or sublease existing housing.
    Single room occupancy housing (SRO). A unit that contains no 
sanitary facilities or food preparation facilities, or contains either, 
but not both, types of facilities.
    Statement of Family responsibility. An agreement in the form 
prescribed by HUD, between the PHA and a Family to be assisted under 
the Program, stating the obligations and responsibilities of the 
Family.
    Violent criminal activity. Any criminal activity that has as one of 
its elements the use, attempted use, or threatened use of physical 
force against the person or property of another.


Secs. 882.106, 882.108, 882.109, 882.110, 882.111, 882.118  [Removed 
and reserved]

    12. In Subpart A, Secs. 882.106, 882.108, 882.109, 882.110, 882.111 
and 882.118 are removed and reserved.


Sec. 882.112  [Redesignated as Sec. 882.414]

    13. Section 882.112 is redesignated as Sec. 882.414 in subpart D.


Sec. 882.217  [Redesignated as Sec. 882.517]

    14. Section 882.217 is redesignated as Sec. 882.517 in subpart E.

Subpart B--[Removed and Reserved]

    14a. Subpart B is removed and reserved.

Subparts C, F, and G--[Removed and Reserved]

    15. Subparts C, F, and G are removed and reserved.
    16. Section 882.401 is revised to read as follows:


Sec. 882.401  Eligible properties.

    (a) Eligible properties. Except as provided in paragraph (b) of 
this section, housing suitable for moderate rehabilitation as defined 
in Sec. 882.402 is eligible for inclusion under the Moderate 
Rehabilitation Program. Existing structures of various types may be 
appropriate for this program, including single-family houses, multi-
family structures and group homes.
    (b) Ineligible properties. (1) Nursing homes, units within the 
grounds of penal, reformatory, medical, mental and similar public or 
private institutions, and facilities providing continual psychiatric, 
medical or nursing services are not eligible for assistance under the 
Moderate Rehabilitation Program.
    (2) Housing owned by a State or unit of general local government is 
not eligible for assistance under this program.
    (3) High rise elevator projects for families with children may not 
be utilized unless HUD determines there is no practical alternative. 
(HUD may make this determination for a locality's Moderate 
Rehabilitation Program in whole or in part and need not review each 
building on a case-by-case basis.)
    (4) Single room occupancy (SRO) housing may not be utilized unless:
    (i) The property is located in an area in which there is a 
significant demand for such units as determined by the HUD Field 
Office; and
    (ii) The PHA and the unit of general local government in which the 
property is located approve of such units being utilized for such 
purpose.
    (5) No Section 8 assistance may be provided with respect to any 
unit occupied by an Owner; however, cooperatives will be considered as 
rental housing for purposes of the Moderate Rehabilitation Program.


Sec. 882.402  [Removed and reserved]

    17. Section 882.402 is removed and reserved.
    18. Section 882.404 is revised to read as follows:


Sec. 882.404  Housing quality standards.

    (a) Compliance with housing quality standards. Housing used in the 
Section

[[Page 23855]]

8 moderate rehabilitation program must meet the housing quality 
standards in 24 CFR 982.401.
    (b) Energy performance requirement. Caulking and weatherstripping 
are required as energy conserving improvements.
    (c) Special housing types. In 24 CFR part 982, subpart M (Special 
Housing Types), the following provisions on HQS for special housing 
types apply to the Section 8 moderate rehabilitation program:
    (1) 24 CFR 982.605 (HQS for SRO housing). (For the Section 8 
moderate rehabilitation SRO program under subpart H of this part 882, 
see also Sec. 882.803(b).)
    (2) 24 CFR 982.609 (HQS for congregate housing).
    (3) 24 CFR 982.614 (HQS for group home).
    19. Section 882.407 is revised to read as follows:


Sec. 882.407  Other Federal requirements.

    The moderate rehabilitation program is subject to applicable 
federal requirements in 24 CFR 5.105.


Sec. 882.411  [Amended]

    20. In Sec. 882.411, paragraph (c) is amended by removing the 
phrase ``under Sec. 882.112'' and adding in its place ``under 
Sec. 882.414''.


Sec. 882.413  [Amended]

    21. Section 882.413 is amended by removing paragraph (c).


Secs. 882.501, 882.502, 882.503, 882.504, 882.505, 882.506, 
882.508  [Removed and reserved]

    22. In Subpart E, Secs. 882.501, 882.502, 882.503, 882.504, 
882.505, 882.506, and 882.508 are removed and reserved.


Sec. 882.511  [Amended]

    23. In Sec. 882.511, the section heading is revised, paragraphs (a) 
through (e) are redesignated as paragraphs (b) through (f) 
respectively, and a new paragraph (a) is added, to read as follows:


Sec. 882.511  Lease and termination of tenancy.

    (a) Lease. The lease must include all provisions required by HUD, 
and must not include any provisions prohibited by HUD.
* * * * *
    24. Section 882.514 is amended by:
    a. Amending paragraph (a)(1) to remove ``parts 812 and 813 of this 
chapter, and'';
    b. Amending paragraph (d)(1) introductory text to remove 
``(Sec. 882.504(e))'';
    c. Amending paragraph (d)(1)(iv) to remove ``and'' at the end of 
the paragraph and amending paragraph (d)(1)(v) to remove the period at 
the end of the paragraph and add ``; and'' in its place.
    d. Redesignating paragraph (d)(2)(vi) as paragraph (d)(1)(vi); and
    e. Revising paragraph (e), to read as follows:


Sec. 882.514  Family participation.

* * * * *
    (e) Continued participation of Family when Contract is terminated. 
If an Owner evicts an assisted family in violation of the Contract or 
otherwise breaches the Contract, and the Contract for the unit is 
terminated, and if the Family was not at fault and is eligible for 
continued assistance, the Family may continue to receive housing 
assistance through the conversion of the Moderate Rehabilitation 
assistance to tenant-based assistance under the Section 8 certificate 
or voucher program. The Family must then be issued a certificate or 
voucher, and treated as any participant in the tenant-based programs 
under 24 CFR part 982, and must be assisted by the PHA in finding a 
suitable unit. All requirements of 24 CFR part 982 will be applicable 
except that the term of any housing assistance payments contract may 
not extend beyond the term of the initial Moderate Rehabilitation 
Contract. If the Family is determined ineligible for continued 
assistance, the certificate or voucher may be offered to the next 
Family on the PHA's waiting list. The unit will remain under the 
Moderate Rehabilitation ACC which provides for such a conversion of the 
units; therefore no amendment to the ACC will be necessary to convert 
to the Section 8 tenant-based assistance programs.
* * * * *
    25. Section 882.515 is amended by:
    a. Removing the first sentence from paragraph (b);
    b. Redesignating paragraph (c) as paragraph (d); and
    c. Adding a new paragraph (c), to read as follows:


Sec. 882.515  Reexamination of family income and composition.

* * * * *
    (c) Obligation to supply information. The family must supply such 
certification, release, information or documentation as the PHA or HUD 
determine to be necessary, including submission of required evidence of 
citizenship or eligible immigration status, submission of social 
security numbers and verifying documentation, submission of signed 
consent forms for the obtaining of wage and claim information from 
State Wage Information Collection Agencies, and submissions required 
for an annual or interim reexamination of family income and 
composition. See 24 CFR part 5.
* * * * *
    26. In Sec. 882.802, the definition for ``Eligible individual 
(``individual'') is revised to read as follows:


Sec. 882.802  Definitions.

* * * * *
    Eligible individual (``individual''). An individual who is capable 
of independent living and is authorized for admission to assisted 
housing under 24 CFR part 5.
* * * * *
    27. In Sec. 882.803, paragraph (b) is revised to read as follows:


Sec. 882.803  Project eligibility and other requirements.

* * * * *
    (b) Housing quality standards. (1) Section 882.404 (HQS for 
Moderate Rehabilitation) and 24 CFR 982.605 (HQS standards for SRO) are 
applicable to the Section 8 Moderate Rehabilitation SRO Program for 
Homeless Individuals (except that Sec. 882.404(c)(2) (congregate 
housing) and (c)(3) (group home) are not applicable).
    (2) In accordance with Sec. 882.404(a), the SRO program must meet 
the HQS standards in 24 CFR 982.401. However, 24 CFR 982.401(j) (lead-
based paint) and 982.401(l) (site and neighborhood) do not apply to 
this program.
    (3)(i) The site must be adequate in size, exposure and contour to 
accommodate the number and type of units proposed; adequate utilities 
and streets must be available to service the site. (The existence of a 
private disposal system and private sanitary water supply for the site, 
approved in accordance with local law, may be considered adequate 
utilities.)
    (ii) The site must be suitable from the standpoint of facilitating 
and furthering full compliance with the applicable provisions of title 
VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d-2000d-4), title 
VIII of the Civil Rights Act of 1968 (42 U.S.C. 3601-19), E.O. 11063 
(as amended by E.O. 12259; 3 CFR, 1959-1963 Comp., p. 652 and 3 CFR, 
1980 Comp., p. 307), and HUD regulations issued pursuant thereto.
    (iii) The site must be accessible to social, recreational, 
educational, commercial and health facilities, and other appropriate 
municipal facilities and services.
* * * * *
    28. In Sec. 882.805, paragraph (d)(1)(i)(B) is amended by removing 
reference to ``Sec. 882.803(b)(2)'' and adding in its place reference 
to ``24 CFR 982.605(b)(4)'',

[[Page 23856]]

and paragraph (c) is revised, to read as follows:


Sec. 882.805  HA application process, ACC execution, and pre-
rehabilitation activities.

* * * * *
    (c)(1) If an owner is proposing to accomplish at least $3000 per 
unit of rehabilitation by including work to make the unit(s) accessible 
to a person with disabilities occupying the unit(s) or expected to 
occupy the unit(s), the PHA may approve such units not to exceed 5 
percent of the units under its Program, provided that accessible units 
are necessary to meet the requirements of 24 CFR part 8, which 
implements section 504 of the Rehabilitation Act of 1973. The 
rehabilitation must make the unit(s), and access and egress to the 
unit(s), barrier-free with respect to the disability of the individual 
in residence or expected to be in residence.
    (2) The PHA must take the applications and determine the 
eligibility of all tenants residing in the approved units who wish to 
apply for the Program. After eligibility of all the tenants has been 
determined, the Owner must be informed of any adjustment in the number 
of units to be assisted. In order to make the most efficient use of 
housing assistance funds, an Agreement may not be entered into covering 
any unit occupied by a family which is not eligible to receive housing 
assistance payments. Therefore, the number of units approved by the PHA 
for a particular proposal must be adjusted to exclude any unit(s) 
determined by the PHA to be occupied by a family not eligible to 
receive housing assistance payments. Eligible Families must also be 
briefed at this stage as to their rights and responsibilities under the 
Program.
    (3) Should the Owner agree with the assessment of the PHA as to the 
work that must be accomplished, the preliminary feasibility of the 
proposal, and the number of units to be assisted, the Owner, with the 
assistance of the PHA where necessary, must prepare detailed work 
write-ups including specifications and plans (where necessary) so that 
a cost estimate may be prepared. The work write-up will describe how 
the deficiencies eligible for amortization through the Contract Rents 
are to be corrected including minimum acceptable levels of workmanship 
and materials. From this work write-up, the Owner, with the assistance 
of the PHA, must prepare a cost estimate for the accomplishment of all 
specified items.
    (4) The owner is responsible for selecting a competent contractor 
to undertake the rehabilitation. The PHA must propose opportunities for 
minority contractors to participate in the program.
    (5) The PHA must discuss with the Owner the various financing 
options available. The terms of the financing must be approved by the 
PHA in accordance with standards prescribed by HUD.
    (6) Before execution of the Agreement, the HA must:
    (i)(A) Inspect the structure to determine the specific work items 
that need to be accomplished to bring the units to be assisted up to 
the Housing Quality Standards (see Sec. 882.803(b)) or other standards 
approved by HUD;
    (B) Conduct a feasibility analysis, and determine whether cost-
effective energy conserving improvements can be added;
    (C) Ensure that the owner prepares the work write-ups and cost 
estimates required by paragraph (c)(3) of this section;
    (D) Determine initial base rents and contract rents;
    (ii) Assure that the owner has selected a contractor in accordance 
with paragraph (c)(4) of this section;
    (iii) After the financing and a contractor are obtained, determine 
whether the costs can be covered by initial contract rents, computed in 
accordance with paragraph (d) of this section; and, if a structure 
contains more than 50 units to be assisted, submit the base rent and 
contract rent calculations to the appropriate HUD field office for 
review and approval in sufficient time for execution of the Agreement 
in a timely manner;
    (iv) Obtain firm commitments to provide necessary supportive 
services;
    (v) Obtain firm commitments for other resources to be provided;
    (vi) Determine that the $3,000 minimum amount of work requirement 
and other requirements in paragraph (c)(1) of this section are met;
    (vii) Determine eligibility of current tenants, and select the 
units to be assisted, in accordance with paragraph (c)(2) of this 
section;
    (viii) Comply with the financing requirements in paragraph (c)(5) 
of this section;
    (ix) Assure compliance with all other applicable requirements of 
this subpart; and
    (x) If the HA determines that any structure proposed in its 
application is infeasible, or the HA proposes to select a different 
structure for any other reason, the HA must submit information for the 
proposed alternative structure to HUD for review and approval. HUD will 
rate the proposed structure in accordance with procedures in the 
applicable notice of funding availability. The HA may not proceed with 
processing for the proposed structure or execute an Agreement until HUD 
notifies the HA that HUD has approved the proposed alternative 
structure and that all requirements have been met.
* * * * *
    29. Section 882.806 is amended by:
    a. Revising the section heading;
    b. Amending paragraph (a)(2) to remove the first sentence;
    c. Amending paragraph (a)(2) to remove the phrase ``In addition, 
the'' and in place of this language add ``The'';
    d. Designating the text of paragraph (a)(2) following the heading 
as paragraph (a)(2)(ii);
    e. Adding a new paragraph (a)(2)(i); and
    f. Revising paragraphs (a)(3) and (a)(4) to read as follows:


Sec. 882.806  Agreement to enter into housing assistance payments 
contract.

    (a) * * *
    (2) Timely performance of work. (i) After execution of the 
Agreement, the Owner must promptly proceed with the rehabilitation work 
as provided in the Agreement. If the work is not so commenced, 
diligently continued, or completed, the PHA will have the right to 
rescind the Agreement, or take other appropriate action.
* * * * *
    (3) Inspections. The PHA must inspect, as appropriate, during 
rehabilitation to ensure that work is proceeding on schedule and is 
being accomplished in accordance with the terms of the Agreement, 
particularly that the work meets the acceptable levels of workmanship 
and materials specified in the work write-up.
    (4) Changes. (i) The Owner must submit to the PHA for approval any 
changes from the work specified in the Agreement which would alter the 
design or the quality of the required rehabilitation. The PHA may 
condition its approval of such changes on a reduction of the Contract 
Rents. If changes are made without prior PHA approval, the PHA may 
determine that Contract Rents must be reduced or that the Owner must 
remedy any deficiency as a condition for acceptance of the unit(s).
    (ii) Contract rents may not be increased except in accordance with 
Secs. 882.408(d) and 882.805(d)(2).
* * * * *
    30. In Sec. 882.807, paragraphs (a) and (d) are revised to read as 
follows:


Sec. 882.807  Housing assistance payments contract.

    (a) Time of execution. Upon PHA acceptance of the unit(s) and 
certifications pursuant to Sec. 882.507, the

[[Page 23857]]

Contract will be executed by the Owner and the PHA. The effective date 
must be no earlier than the PHA inspection which provides the basis for 
acceptance as specified in Sec. 882.507(e).
* * * * *
    (d) Unleased unit(s). At the time of execution of the Contract, the 
Owner will be required to submit a list of dwelling unit(s) leased and 
not leased as of the effective date of the Contract.
* * * * *
    31. Section 882.808 is amended by:
    a. Amending paragraph (d) to remove reference to ``882.112'' and 
add in its place reference to ``882.414'';
    b. Amending paragraph (i)(1) to remove reference to ``part 813'' 
and add in its place reference to ``part 5, subpart F'';
    c. Amending paragraph (i)(3) to remove reference to ``Section 
882.515(c)'' and add in its place reference to ``Section 882.515(d)'';
    d. Amending paragraph (o) to remove reference to ``Section 
882.217'' and add in its place reference to ``Section 882.517''; and
    e. Revising paragraphs (b)(4), (c), and (i)(2), to read as follows:


Sec. 882.808  Management.

* * * * *
    (b) * * *
    (4) Continued participation of individual when contract is 
terminated. Section 882.514(e) applies to this program.
* * * * *
    (c) Lease. Sections 882.403(d) and 882.511(a) apply to this 
program. In addition, the lease must limit occupancy to one eligible 
individual.
* * * * *
    (i) * * *
    (2) Interim reexaminations. The individual shall supply such 
certification, release, information, or documentation as the PHA or HUD 
determines to be necessary, including submissions required for interim 
reexaminations of individual income and determinations as to whether 
only one individual is occupying the unit. In addition Sec. 882.515(b) 
shall apply.
* * * * *


Sec. 882.810  [Removed and reserved]

    32. Section 882.810 is removed and reserved.


Sec. 882.406  [Redesignated as Sec. 882.810]

    33. Section 882.406 is redesignated as Sec. 882.810 in subpart H, 
and newly redesignated paragraph Sec. 882.810(g)(1)(iii)(C) is further 
amended by removing reference to ``24 CFR 813.107'' and adding in its 
place reference to ``24 CFR 5.613''.

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: UNIFIED RULE FOR 
TENANT-BASED ASSISTANCE UNDER THE SECTION 8 RENTAL CERTIFICATE 
PROGRAM AND THE SECTION 8 RENTAL VOUCHER PROGRAM

    34. The authority citation for part 982 is revised to read as 
follows:

    Authority: 42 U.S.C. 1437f and 3535(d).

    35. In part 982, the table of contents is amended by adding an 
entry for Sec. 982.316 under subpart G and adding entries for subparts 
K and M, to read as follows:
* * * * *

Subpart G--Leasing a Unit

* * * * *
Sec.
982.316  Live-in aide.
* * * * *

Subpart K--Rent and Housing Assistance Payment

982.501  Overview.
982.502  Negotiating rent to owner.
982.503  Rent to owner: Reasonable rent.
982.504  Maximum subsidy: FMR/exception rent limit.
982.505  Voucher tenancy or over-FMR tenancy: How to calculate 
housing assistance payment.
982.506  Over-FMR tenancy: HA approval.
982.507  Regular tenancy: How to calculate housing assistance 
payment.
982.508  Regular tenancy: Limit on initial rent to owner.
982.509  Regular tenancy: Annual adjustment of rent to owner.
982.510  Regular tenancy: Special adjustment of rent to owner.
982.511  Rent to owner: Effect of rent control.
982.512  Rent to owner in subsidized projects.
982.513  Other fees and charges.
982.514  Distribution of housing assistance payment.
982.515  Family share: Family responsibility.
982.516  Family income and composition: Regular and interim 
examinations.
982.517  Utility allowance schedule.
* * * * *

Subpart M--Special Housing Types

982.601  Overview.

Single Room Occupancy (SRO)

982.602  SRO: General.
982.603  SRO: Lease and HAP contract.
982.604  SRO: Rent and housing assistance payment.
982.605  SRO: Housing quality standards.

Congregate Housing

982.606  Congregate housing: Who may reside in congregate housing.
982.607  Congregate housing: Lease and HAP contract.
982.608  Congregate housing: Rent and housing assistance payment; 
FMR/exception rent limit.
982.609  Congregate housing: Housing quality standards.

Group Home

982.610  Group home: Who may reside in a group home.
982.611  Group home: Lease and HAP contract.
982.612  Group home: State approval of group home.
982.613  Group home: Rent and housing assistance payment.
982.614  Group home: Housing quality standards.

Shared Housing

982.615  Shared housing: Occupancy.
982.616  Shared housing: Lease and HAP contract.
982.617  Shared housing: Rent and housing assistance payment.
982.618  Shared housing: Housing quality standards.

Cooperative

982.619  Cooperative housing.

Manufactured Home

982.620  Manufactured home: Applicability of requirements.
982.621  Manufactured home: Housing quality standards.

Manufactured Home Space Rental

982.622  Manufactured home space rental: Rent to owner.
982.623  Manufactured home space rental: Housing assistance payment.
982.624  Manufactured home space rental: Utility allowance schedule.

    36. Section 982.4 is revised to read as follows:


Sec. 982.4  Definitions.

    (a) Definitions found elsewhere:
    (1) Statutory definitions. The terms displaced person, elderly 
person, low-income family, person with disabilities, public housing 
agency, State, and very low-income family are defined in section 3(b) 
of the 1937 Act (42 U.S.C. 1437a(b)). For purposes of reasonable 
accommodation and program accessibility for persons with disabilities, 
the term person with disabilities means individual with handicaps as 
defined in 24 CFR 8.3.
    (2) General definitions. The terms 1937 Act, Housing agency (HA), 
HUD, and MSA, are defined in 24 CFR part 5, subpart A.
    (3) Definitions under the 1937 Act. The terms annual contributions 
contract (ACC), and live-in aide are defined in 24 CFR part 5, subpart 
D.
    (4) Definitions concerning family income and rent. The terms 
adjusted income, annual income, tenant rent, total tenant payment, 
utility allowance, and utility reimbursement are defined in 24 CFR part 
5, subpart F.

[[Page 23858]]

    (b) In addition to the terms listed in paragraph (a) of this 
section, the following definitions apply:
    Absorption. In portability (under subpart H of this part 982): the 
point at which a receiving HA stops billing the initial HA for 
assistance on behalf of a portability family. The receiving HA uses 
funds available under the receiving HA consolidated ACC.
    Administrative fee. Fee paid by HUD to the HA for administration of 
the program. See Sec. 982.152.
    Administrative fee reserve (formerly ``operating reserve''). 
Account established by HA from excess administrative fee income. The 
administrative fee reserve must be used for housing purposes. See 
Sec. 982.155.
    Administrative plan. The plan that describes HA policies for 
administration of the tenant-based programs. See Sec. 982.54.
    Admission. The point when the family becomes a participant in the 
program. The date used for this purpose is the effective date of the 
first HAP contract for a family (first day of initial lease term) in a 
tenant-based program.
    Amortization payment. In a manufactured home space rental: The 
monthly debt service payment by the family to amortize the purchase 
price of the manufactured home.
    Applicant (applicant family). A family that has applied for 
admission to a program but is not yet a participant in the program.
    Budget authority. An amount authorized and appropriated by the 
Congress for payment to HAs under the program. For each funding 
increment in an HA program, budget authority is the maximum amount that 
may be paid by HUD to the HA over the ACC term of the funding 
increment.
    Certificate. A document issued by an HA to a family selected for 
admission to the certificate program. The certificate describes the 
program and the procedures for HA approval of a unit selected by the 
family. The certificate also states obligations of the family under the 
program.
    Certificate program. The rental certificate program.
    Certificate or voucher holder. A family holding a certificate or 
voucher with unexpired search time.
    Common space. In shared housing: Space available for use by the 
assisted family and other occupants of the unit.
    Congregate housing. Housing for elderly persons or persons with 
disabilities that meets the HQS for congregate housing. A special 
housing type: see Sec. 982.606 to Sec. 982.609.
    Contiguous MSA. In portability (under subpart H of this part 982): 
An MSA that shares a common boundary with the MSA in which the 
jurisdiction of the initial HA is located.
    Continuously assisted. An applicant is continuously assisted under 
the 1937 Act if the family is already receiving assistance under any 
1937 Act program when the family is admitted to the certificate or 
voucher program.
    Contract authority. The maximum annual payment by HUD to an HA for 
a funding increment.
    Cooperative (term includes mutual housing). Housing owned by a 
nonprofit corporation or association, and where a member of the 
corporation or association has the right to reside in a particular 
apartment, and to participate in management of the housing. A special 
housing type: see Sec. 982.619.
    Domicile. The legal residence of the household head or spouse as 
determined in accordance with State and local law.
    Drug-related criminal activity. As defined in 42 U.S.C. 
1437f(f)(5).
    Drug-trafficking. The illegal manufacture, sale, or distribution, 
or the possession with intent to manufacture, sell, or distribute, of a 
controlled substance as defined in section 102 of the Controlled 
Substances Act (21 U.S.C. 802).
    Exception rent. An amount that exceeds the published FMR. See 
Sec. 982.504(b). See also definition of FMR/exception rent limit.
    Fair market rent (FMR). The rent, including the cost of utilities 
(except telephone), as established by HUD for units of varying sizes 
(by number of bedrooms), that must be paid in the housing market area 
to rent privately owned, existing, decent, safe and sanitary rental 
housing of modest (non-luxury) nature with suitable amenities. See 
periodic publications in the Federal Register in accordance with 24 CFR 
part 888.
    Family self-sufficiency program (FSS program). The program 
established by an HA in accordance with 24 CFR part 984 to promote 
self-sufficiency of assisted families, including the coordination of 
supportive services (42 U.S.C. 1437u).
    Family share. The portion of rent and utilities paid by the family. 
For calculation of family share, see Sec. 982.515(a).
    Family unit size. The appropriate number of bedrooms for a family, 
as determined by the HA under the HA subsidy standards.
    FMR/exception rent limit. The Section 8 existing housing fair 
market rent published by HUD Headquarters, or any exception rent. For a 
regular tenancy in the certificate program, the initial rent to owner 
plus any utility allowance may not exceed the FMR/exception rent limit 
(for the selected dwelling unit or for the family unit size). For a 
tenancy in the voucher program, the HA may adopt a payment standard up 
to the FMR/exception rent limit. For an over-FMR tenancy in the 
certificate program, the payment standard is the FMR/exception rent 
limit.
    Funding increment. Each commitment of budget authority by HUD to an 
HA under the consolidated annual contributions contract for the HA 
program.
    Gross rent. The sum of the rent to owner plus any utility 
allowance.
    Group home. A dwelling unit that is licensed by a State as a group 
home for the exclusive residential use of two to twelve persons who are 
elderly or persons with disabilities (including any live-in aide). A 
special housing type: see Sec. 982.610 to Sec. 982.614.
    HAP contract. Housing assistance payments contract.
    Housing assistance payment. The monthly assistance payment by an 
HA, which includes:
    (1) A payment to the owner for rent to the owner under the family's 
lease; and
    (2) An additional payment to the family if the total assistance 
payment exceeds the rent to owner.
    Initial HA. In portability, the term refers to both:
    (1) An HA that originally selected a family that later decides to 
move out of the jurisdiction of the selecting HA; and
    (2) An HA that absorbed a family that later decides to move out of 
the jurisdiction of the absorbing HA.
    Initial payment standard. The payment standard at the beginning of 
the HAP contract term.
    Initial rent to owner. The rent to owner at the beginning of the 
HAP contract term.
    Jurisdiction. The area in which the HA has authority under State 
and local law to administer the program.
    Lease. (1) A written agreement between an owner and a tenant for 
the leasing of a dwelling unit to the tenant. The lease establishes the 
conditions for occupancy of the dwelling unit by a family with housing 
assistance payments under a HAP contract between the owner and the HA.
    (2) In cooperative housing, a written agreement between a 
cooperative and a member of the cooperative. The agreement establishes 
the conditions for occupancy of the member's cooperative dwelling unit 
by the member's family with housing assistance payments to the 
cooperative under a HAP contract between the cooperative and the HA.

[[Page 23859]]

For purposes of this part 982, the cooperative is the Section 8 
``owner'' of the unit, and the cooperative member is the Section 8 
``tenant.''
    Lease addendum. In the lease between the tenant and the owner, the 
lease language required by HUD.
    Manufactured home. A manufactured structure that is built on a 
permanent chassis, is designed for use as a principal place of 
residence, and meets the HQS. A special housing type: see Sec. 982.620 
and Sec. 982.621.
    Manufactured home space. In manufactured home space rental: A space 
leased by an owner to a family. A manufactured home owned and occupied 
by the family is located on the space. See Sec. 982.622 to 
Sec. 982.624.
    Mutual housing. Included in the definition of ``cooperative.''
    Notice of Funding Availability (NOFA). For budget authority that 
HUD distributes by competitive process, the Federal Register document 
that invites applications for funding. This document explains how to 
apply for assistance and the criteria for awarding the funding.
    Over-FMR tenancy. In the certificate program: A tenancy for which 
the initial gross rent exceeds the FMR/exception rent limit.
    Owner. Any person or entity with the legal right to lease or 
sublease a unit to a participant.
    Participant (participant family). A family that has been admitted 
to the HA program and is currently assisted in the program. The family 
becomes a participant on the effective date of the first HAP contract 
executed by the HA for the family (first day of initial lease term).
    Payment standard. In a voucher or over-FMR tenancy, the maximum 
subsidy payment for a family (before deducting the family 
contribution). For a voucher tenancy, the HA sets a payment standard in 
the range from 80 percent to 100 percent of the current FMR/exception 
rent limit. For an over-FMR tenancy, the payment standard equals the 
current FMR/exception rent limit.
    Portability. Renting a dwelling unit with Section 8 tenant-based 
assistance outside the jurisdiction of the initial HA.
    Premises. The building or complex in which the dwelling unit is 
located, including common areas and grounds.
    Private space. In shared housing: The portion of a contract unit 
that is for the exclusive use of an assisted family.
    Reasonable rent. A rent to owner that is not more than rent 
charged:
    (1) For comparable units in the private unassisted market; and
    (2) For comparable unassisted units in the premises.
    Receiving HA. In portability: An HA that receives a family selected 
for participation in the tenant-based program of another HA. The 
receiving HA issues a certificate or voucher and provides program 
assistance to the family.
    Regular tenancy. In the certificate program: A tenancy other than 
an over-FMR tenancy.
    Rent to owner. The total monthly rent payable to the owner under 
the lease for the unit. Rent to owner covers payment for any housing 
services, maintenance and utilities that the owner is required to 
provide and pay for.
    Set-up charges. In a manufactured home space rental: Charges 
payable by the family for assembling, skirting and anchoring the 
manufactured home.
    Shared housing. A unit occupied by two or more families. The unit 
consists of both common space for shared use by the occupants of the 
unit and separate private space for each assisted family. A special 
housing type: see Sec. 982.615 to Sec. 982.618.
    Single room occupancy housing (SRO). A unit that contains no 
sanitary facilities or food preparation facilities, or contains either, 
but not both, types of facilities. A special housing type: see 
Sec. 982.602 to Sec. 982.605.
    Special admission. Admission of an applicant that is not on the HA 
waiting list or without considering the applicant's waiting list 
position.
    Special housing types. See subpart M of this part 982. Subpart M of 
this part states the special regulatory requirements for: SRO housing, 
congregate housing, group homes, shared housing, cooperatives 
(including mutual housing), and manufactured homes (including 
manufactured home space rental).
    Subsidy standards. Standards established by an HA to determine the 
appropriate number of bedrooms and amount of subsidy for families of 
different sizes and compositions.
    Suspension. Stopping the clock on the term of a family's 
certificate or voucher, for such period as determined by the HA, from 
the time when the family submits a request for HA approval to lease a 
unit, until the time when the HA approves or denies the request.
    Tenant. The person or persons (other than a live-in aide) who 
executes the lease as lessee of the dwelling unit.
    Tenant rent. In the certificate program: The total tenant payment 
minus any utility allowance. (This term applies both to a regular 
tenancy and an over-FMR tenancy.)
    Utility hook-up charge. In a manufactured home space rental: Costs 
payable by a family for connecting the manufactured home to utilities 
such as water, gas, electrical and sewer lines.
    Violent criminal activity. Any illegal criminal activity that has 
as one of its elements the use, attempted use, or threatened use of 
physical force against the person or property of another.
    Voucher (rental voucher). A document issued by an HA to a family 
selected for admission to the voucher program. This document describes 
the program and the procedures for HA approval of a unit selected by 
the family. The voucher also states obligations of the family under the 
program.
    Voucher program. The rental voucher program.
    Waiting list admission. An admission from the HA waiting list.
    37. In Section 982.53, paragraph (a) is revised to read as follows:


Sec. 982.53  Equal opportunity requirements.

    (a) The tenant-based program requires compliance with all equal 
opportunity requirements imposed by contract or federal law, including 
the authorities cited at 24 CFR 5.105(a) and title II of the Americans 
with Disabilities Act, 42 U.S.C. 12101, et seq.
* * * * *
    38. Section 982.54 is amended by:
    a. Revising paragraph (d)(7);
    b. Redesignating paragraphs (d)(15) through (d)(19) as paragraphs 
(d)(18) through (d)(22) respectively; and
    c. Adding new paragraphs (d)(15) through (d)(17), to read as 
follows:


Sec. 982.54  Administrative plan.

* * * * *
    (d) * * *
    (7) Providing information about a family to prospective owners;
* * * * *
    (15) For the certificate and voucher programs, the method for 
determining that rent to owner is a reasonable rent (initially and 
during the term of a HAP contract);
    (16) Approval and administration of over-FMR tenancies in the HA 
certificate program;
    (17) HA choice whether to offer particular special housing types 
(see Sec. 982.601(b));
* * * * *


Sec. 982.102  [Amended]

    39. Section 982.102 is amended by removing paragraph (d).
    40. In Sec. 982.152, a new paragraph (a)(3) is added and paragraph 
(c)(1) is revised to read as follows:

[[Page 23860]]

Sec. 982.152  Administrative fee.

    (a) * * *
    (3) HA administrative fees may only be used to cover costs incurred 
to perform HA administrative responsibilities for the program in 
accordance with HUD regulations and requirements.
* * * * *
    (c) * * *
    (1) A one-time preliminary fee, in the amount of $500, is paid by 
HUD in the first year an HA administers a tenant-based assistance 
program under the 1937 Housing Act. The fee is paid for each new unit 
added to the HA program by the initial funding increment.
* * * * *


Sec. 982.153  [Amended]

    41. Section 982.153 is amended by removing paragraph (b) and by 
removing the paragraph designation ``(a)''.
    42. Section 982.158 is amended by removing ``and'' at the end of 
paragraph (f)(6), by redesignating paragraph (f)(7) as paragraph 
(f)(8), and by adding new paragraph (f)(7) to read as follows:


Sec. 982.158  Program accounts and records.

* * * * *
    (f) * * *
    (7) Records to document the basis for HA determination that rent to 
owner is a reasonable rent (initially and during the term of a HAP 
contract); and
* * * * *
    43. In Sec. 982.204, paragraph (c) is revised to read as follows:


Sec. 982.204  Waiting list: Administration of waiting list.

* * * * *
    (c) Removing applicant names from the waiting list. (1) The HA 
administrative plan must state HA policy on when applicant names may be 
removed from the waiting list. The policy may provide that the HA will 
remove names of applicants who do not respond to HA requests for 
information or updates.
    (2) An HA decision to withdraw from the waiting list the name of an 
applicant family that includes a person with disabilities is subject to 
reasonable accommodation in accordance with 24 CFR part 8. If the 
applicant did not respond to the HA request for information or updates 
because of the family member's disability, the HA must reinstate the 
applicant in the family's former position on the waiting list.
* * * * *
    44. In Sec. 982.205, the section heading and paragraph (c) are 
revised to read as follows:


Sec. 982.205  Waiting list: Different programs.

* * * * *
    (c) Other housing assistance: Effect of application for, receipt or 
refusal. (1) For purposes of this section, ``other housing assistance'' 
means a federal, State or local housing subsidy, as determined by HUD, 
including public or Indian housing.
    (2) The HA may not take any of the following actions because an 
applicant has applied for, received, or refused other housing 
assistance:
    (i) Refuse to list the applicant on the HA waiting list for tenant-
based assistance;
    (ii) Deny any admission preference for which the applicant is 
currently qualified;
    (iii) Change the applicant's place on the waiting list based on 
preference, date and time of application, or other factors affecting 
selection under the HA selection policy; or
    (iv) Remove the applicant from the waiting list.
    (3) Notwithstanding paragraph (c)(2) of this section, the HA may 
remove the applicant from the waiting list for tenant-based assistance 
if the HA has offered the applicant assistance under both the 
certificate program and the voucher program.
    45. Section 982.206 is amended by removing Example A and Example B 
from paragraph (b)(1) and by revising paragraph (a)(2) to read as 
follows:


Sec. 982.206  Waiting list: Opening and closing; public notice.

    (a) * * *
    (2) The HA must give the public notice by publication in a local 
newspaper of general circulation, and also by minority media and other 
suitable means. The notice must comply with HUD fair housing 
requirements.
* * * * *
    46. In Sec. 982.207, paragraph (c) is redesignated as paragraph 
(d), and a new paragraph (c) is added, to read as follows:


Sec. 982.207  Waiting list: Use of preferences.

* * * * *
    (c) The HA may give preference for admission of families that 
include a person with disabilities. However, the HA may not give 
preference for admission of persons with a specific disability.
* * * * *
    47. In Sec. 982.302, paragraph (a) is revised to read as follows:


Sec. 982.302  Issuance of certificate or voucher; Requesting HA 
approval to lease a unit.

    (a) When an applicant family is selected, or when a participant 
family wants to move to a new unit with continued tenant-based 
assistance (see Sec. 982.314), the HA issues a certificate or voucher 
to the family. The family may search for a unit.
* * * * *
    48. Section 982.303 is amended by:
    a. Amending paragraph (b)(1) by removing from the second sentence 
the phrase ``The initial term'' and adding in its place ``Except as 
provided in paragraph (b)(2)(ii) of this section, the initial term''; 
and
    b. Revising paragraph (b)(2), to read as follows:


Sec. 982.303  Term of certificate or voucher.

* * * * *
    (b) Extensions of term. * * *
    (2) If the family needs and requests an extension of the initial 
certificate or voucher term as a reasonable accommodation, in 
accordance with 24 CFR part 8, to make the program accessible to and 
usable by a family member with a disability:
    (i) The HA must extend the term of the certificate or voucher up to 
120 days from the beginning of the initial term;
    (ii) The HUD field office may approve an additional extension of 
the term.
* * * * *
    49. A new Sec. 982.316 is added to subpart G to read as follows:


Sec. 982.316  Live-in aide.

    (a) A family that consists of one or more elderly or disabled 
persons may request that the HA approve a live-in aide to reside in the 
unit and provide necessary supportive services for a family member who 
is a person with disabilities. The HA must approve a live-in aide if 
needed as a reasonable accommodation in accordance with 24 CFR part 8 
to make the program accessible to and usable by the family member with 
a disability. (See Sec. 982.402(b)(6) concerning effect of live-in aide 
on family unit size.)
    (b) At any time, the HA may refuse to approve a particular person 
as a live-in aide, or may withdraw such approval, if:
    (1) The person commits fraud, bribery or any other corrupt or 
criminal act in connection with any federal housing program;
    (2) The person commits drug-related criminal activity or violent 
criminal activity; or
    (3) The person currently owes rent or other amounts to the HA or to 
another HA in connection with Section 8 or public housing assistance 
under the 1937 Act.
    50. Section 982.352 is amended by:
    a. Revising paragraph (c)(7);
    b. Redesignating paragraph (c)(9) as paragraph (c)(12);

[[Page 23861]]

    c. Removing ``or'' after paragraph (c)(8);
    d. Adding new paragraphs (c)(9), (c)(10), and (c)(11), to read as 
follows:


Sec. 982.352  Eligible housing.

* * * * *
    (c) * * *
    (7) Rental assistance payments under Section 521 of the Housing Act 
of 1949 (a program of the Rural Development Administration);
* * * * *
    (9) Section 202 supportive housing for the elderly;
    (10) Section 811 supportive housing for persons with disabilities;
    (11) Section 202 projects for non-elderly persons with disabilities 
(Section 162 assistance); or
* * * * *


Sec. 982.401  [Amended]

    51. Section 982.401 is amended by removing the last sentence from 
paragraph (a)(1).
    52. In Sec. 982.402, paragraph (c) is revised to read as follows:


Sec. 982.402  Subsidy standards.

* * * * *
    (c) Effect of family unit size--maximum subsidy. The family unit 
size, as determined for a family under the HA subsidy standards is used 
to determine the maximum rent subsidy for the family:
    (1) Certificate program: Regular tenancy. HUD establishes fair 
market rents by number of bedrooms. For a regular tenancy, the initial 
gross rent (sum of the initial rent to owner plus any utility 
allowance) may not exceed either:
    (i) The FMR/exception rent limit for the family unit size; or
    (ii) The FMR/exception rent limit for the unit size rented by the 
family.
    (2) Certificate program: Over-FMR tenancy. For an over-FMR tenancy, 
the HA establishes payment standards by number of bedrooms. The payment 
standard for the family must be the lower of:
    (i) The payment standard for the family unit size; or
    (ii) The payment standard for the unit size rented by the family.
    (3) Voucher program. For a voucher tenancy, the HA establishes 
payment standards by number of bedrooms. The payment standards for the 
family must be the lower of:
    (i) The payment standards for the family unit size; or
    (ii) The payment standard for the unit size rented by the family.
* * * * *


Sec. 982.451  [Amended]

    53. Section 982.451 is amended by removing paragraph (a); by 
redesignating paragraphs (b) and (c) as paragraphs (a) and (b).
    54. In Sec. 982.452, paragraph (b)(2) is revised to read as 
follows:


Sec. 982.452  Owner responsibilities.

* * * * *
    (b) * * *
    (2) Maintaining the unit in accordance with HQS, including 
performance of ordinary and extraordinary maintenance. For provisions 
on family maintenance responsibilities, see Sec. 982.404(a)(4).
    55. A new subpart K is added, to read as follows:

Subpart K--Rent and Housing Assistance Payment


Sec. 982.501  Overview.

    (a) There are three types of tenancy in the Section 8 tenant-based 
programs:
    (1) A regular tenancy under the certificate program;
    (2) An over-FMR tenancy under the certificate program; and
    (3) A tenancy under the voucher program.
    (b) Some requirements of this subpart are the same for all three 
types of tenancy. Some requirements only apply to a specific type of 
tenancy. Unless specifically stated, requirements of this subpart are 
the same for all tenancies in the tenant-based programs.


Sec. 982.502  Negotiating rent to owner.

    The owner and the family negotiate the rent to owner. At the 
family's request, the HA must help the family negotiate the rent to 
owner.


Sec. 982.503  Rent to owner: Reasonable rent.

    (a) HA determination. (1) The HA may not approve a lease until the 
HA determines that the initial rent to owner is a reasonable rent.
    (2) The HA must redetermine the reasonable rent:
    (i) Before any increase in the rent to owner;
    (ii) If there is a five percent decrease in the published FMR in 
effect 60 days before the contract anniversary (for the unit size 
rented by the family) as compared with the FMR in effect one year 
before the contract anniversary; or
    (iii) If directed by HUD.
    (3) The HA may also redetermine the reasonable rent at any other 
time.
    (4) At all times during the assisted tenancy, the rent to owner may 
not exceed the reasonable rent as most recently determined or 
redetermined by the HA.
    (b) Comparability. The HA must determine whether the rent to owner 
is a reasonable rent in comparison to rent for other comparable 
unassisted units. To make this determination, the HA must consider:
    (1) The location, quality, size, unit type, and age of the contract 
unit; and
    (2) Any amenities, housing services, maintenance and utilities to 
be provided by the owner in accordance with the lease.
    (c) Owner certification of rents charged for other units. By 
accepting each monthly housing assistance payment from the HA, the 
owner certifies that the rent to owner is not more than rent charged by 
the owner for comparable unassisted units in the premises. The owner 
must give the HA information requested by the HA on rents charged by 
the owner for other units in the premises or elsewhere.


Sec. 982.504  Maximum subsidy: FMR/exception rent limit.

    (a) Purpose. (1) Fair market rents (FMRs) are published by HUD. In 
the tenant-based programs, the FMR/exception rent limit is used to 
determine the maximum subsidy for a family.
    (2) For a regular tenancy under the certificate program, the FMR/
exception rent limit is the maximum initial gross rent under the 
assisted lease.
    (3) For the voucher program, the FMR/exception rent limit is the 
maximum ``payment standard'' (maximum subsidy) for a family.
    (4) For an over-FMR tenancy under the certificate program, the FMR/
exception rent limit is the ``payment standard'' (maximum subsidy) for 
a family.
    (b) Determining exception rent.--(1) Area exception rent: HUD 
approval. (i) At HUD's sole discretion, HUD may approve an area 
exception rent for all units, or all units of a given size (number of 
bedrooms), leased by program families in a part of the fair market rent 
area that is designated as an ``exception rent area.'' A HUD-approved 
area exception rent applies to all HAs with jurisdiction of the 
exception rent area.
    (ii) An area exception rent may not exceed 120 percent of the FMR.
    (iii) HUD will determine the area exception rent by either of the 
two following methods:
    (A) Median rent method. In the median rent method, HUD determines 
the area exception rent by multiplying the FMR times a fraction of 
which the numerator is the median gross rent of the exception rent area 
and the denominator is the median gross rent of the entire FMR area. In 
this method, HUD uses median gross rent data from

[[Page 23862]]

the most recent decennial United States census, and the exception rent 
area may be any geographic entity within the FMR area (or any 
combination of such entities) for which median gross rent data is 
provided in decennial census data products.
    (B) 40th percentile rent method. In this method, HUD determines 
that the area exception rent equals the 40th percentile of rents to 
lease standard quality rental housing in the exception rent area. HUD 
determines the 40th percentile rent in accordance with the methodology 
described in 24 CFR 888.113 for determining fair market rents. An HA 
that asks HUD to approve an area exception rent determined by the 40th 
percentile rent method must present statistically representative rental 
housing survey data that justify exception rent approval by HUD.
    (iv) An area exception rent will not be approved unless HUD 
determines that an exception rent is needed either:
    (A) To help families find housing outside areas of high poverty; or
    (B) Because certificate or voucher holders have trouble finding 
housing for lease under the program within the term of the certificate 
or voucher.
    (v) The total populations of exception rent areas in an FMR area 
may not include more than 50 percent of the population of the fair 
market rent area.
    (vi) At any time, HUD may withdraw or modify any approved area 
exception rent.
    (2) Regular certificate tenancy: Exception rent as reasonable 
accommodation for person with disabilities: HA approval. For a regular 
tenancy in the certificate program, on request from a family that 
includes a person with disabilities, the HA must approve an exception 
rent of up to 120 percent of the fair market rent if the exception rent 
is needed as a reasonable accommodation so that the program is readily 
accessible to and usable by persons with disabilities in accordance 
with 24 CFR part 8.


Sec. 982.505  Voucher tenancy or over-FMR tenancy: How to calculate 
housing assistance payment.

    (a) Use of payment standard. For a voucher tenancy or for an over-
FMR tenancy under the certificate program, a ``payment standard'' is 
used to calculate the monthly housing assistance payment for a family. 
The ``payment standard'' is the maximum monthly subsidy payment for a 
family.
    (b) Voucher program: Amount of assistance.--(1) Voucher payment 
standard: Maximum and minimum. (i) The HA must adopt a payment standard 
schedule that establishes payment standards for the HA voucher program. 
For each FMR area and for each exception rent area, the HA must 
establish voucher payment standard amounts by unit size (zero-bedroom, 
one-bedroom, and so on).
    (ii) For a voucher tenancy, the payment standard for each unit size 
may not be:
    (A) More than the current FMR/exception rent limit; or
    (B) Less than 80 percent of the current FMR/exception rent limit, 
unless a lower percent is approved by HUD.
    (2) Voucher assistance formula. (i) For a voucher tenancy, the 
housing assistance payment for a family equals the lesser of:
    (A) The applicable payment standard minus 30 percent of monthly 
adjusted income; or
    (B) The monthly gross rent minus the minimum rent.
    (ii) The minimum rent is the higher of:
    (A) 10 percent of monthly income (gross income); or
    (B) A higher minimum rent as required by law.
    (3) Voucher payment standard schedule. (i) A voucher payment 
standard schedule is a list of the payment standard amounts used to 
calculate the voucher housing assistance payment for each unit size in 
an FMR area. The payment standard schedule for an FMR area includes 
payment standard amounts for any HUD-approved exception rent area in 
the FMR area.
    (ii) The voucher payment standard schedule establishes a single 
payment standard for each unit size in an FMR area and, if applicable, 
in a HUD-approved exception rent area within an FMR area.
    (iii) Payment standard amounts on the payment standard schedule 
must be within the maximum and minimum limits stated in paragraph 
(b)(1)(ii) of this section. Within these limits, payment standard 
amounts on the schedule may be adjusted annually, at the discretion of 
the HA, if necessary to assure continued affordability of units in the 
HA jurisdiction.
    (iv) To calculate the housing assistance payment for a family, the 
HA must use the applicable payment standard from the HA payment 
standard schedule for the fair market rent area (including the 
applicable payment standard for any HUD-approved exception rent area) 
where the unit rented by the family is located.
    (4) Payment standard for certain subsidized projects. For a voucher 
tenancy in an insured or noninsured Section 236 project, a Section 515 
project of the Rural Development Administration, or a Section 221(d)(3) 
below market interest rate project, the payment standard may not exceed 
the basic rental charge (as defined in 12 U.S.C. 1715z-1(f)(1)), 
including the cost for tenant-paid utilities.
    (c) Over-FMR tenancy: Determining amount of assistance.--(1) 
Payment standard. For an over-FMR tenancy, the payment standard for the 
unit size is the FMR/exception rent limit.
    (2) Over-FMR tenancy assistance formula. For an over-FMR tenancy, 
the housing assistance payment for a family equals the lesser of:
    (i) The applicable payment standard minus the total tenant payment; 
or
    (ii) The monthly gross rent minus the minimum rent as required by 
law.
    (d) Payment standard for family. (1) This paragraph (d) applies to 
both a voucher tenancy and an over-FMR tenancy.
    (2) The payment standard for a family is the lower of:
    (i) The payment standard for the family unit size; or
    (ii) The payment standard for the unit size rented by the family.
    (3) If the unit rented by a family is located in an exception rent 
area, the HA must use the appropriate payment standard for the 
exception rent area.
    (4) During the HAP contract term for a unit, the amount of the 
payment standard for a family is the higher of:
    (i) The initial payment standard (at the beginning of the lease 
term) minus any amount by which the initial rent to owner exceeds the 
current rent to owner; or
    (ii) The payment standard as determined at the most recent regular 
reexamination of family income and composition effective after the 
beginning of the HAP contract term.
    (5) If there is a change in family size or composition during the 
HAP contract term, paragraph (d)(4)(i) of this section does not apply 
at the next regular reexamination following such change, or thereafter 
during the term.


Sec. 982.506  Over-FMR tenancy: HA approval.

    (a) HA discretion to approve. (1) At the request of the family, the 
HA may approve an over-FMR tenancy in accordance with this section.
    (2) Generally, the HA is not required to approve any over-FMR 
tenancy. However, the HA must approve an over-FMR tenancy in accordance 
with this section, if needed as a reasonable accommodation so that the 
program is readily accessible to and usable by persons with 
disabilities in accordance with 24 CFR part 8.
    (b) Requirements.--(1) Ten percent limit. The HA may not approve

[[Page 23863]]

additional over-FMR tenancies if the number of such tenancies currently 
is ten percent or more of the number of incremental certificate units 
under the HUD-approved budget for the HA certificate program. 
``Incremental units'' means the number of budgeted certificate units 
minus any units for which HUD provided tenant-based program funding 
designated for families previously residing in housing with Section 8 
project-based assistance.
    (2) Affordability of family share. The HA may not approve an over-
FMR tenancy unless the HA determines that the initial family share is 
reasonable. In making this determination, the HA must take into account 
other family expenses, such as child care, unreimbursed medical 
expenses, and other appropriate family expenses as determined by the 
HA.
    (c) Amount of assistance. During an over-FMR tenancy, the amount of 
the housing assistance payment is determined in accordance with 
Sec. 982.505(c).
    (d) HA administrative plan. (1) The administrative plan must cover 
HA policies on approval and administration of over-FMR tenancies.
    (2) The plan must state how the HA decides whether to approve an 
over-FMR tenancy at the family's request (within the program limit 
stated in paragraph (b)(1) of this section). Such policy may be based 
on first-come, first-served; on an HA determined system of preferences; 
or on discretionary case-by-case consideration of individual requests.


Sec. 982.507  Regular tenancy: How to calculate housing assistance 
payment.

    The monthly housing assistance payment equals the gross rent, minus 
the higher of:
    (a) The total tenant payment; or
    (b) The minimum rent as required by law.


Sec. 982.508  Regular tenancy: Limit on initial rent to owner.

    (a) FMR/exception rent limit. (1) The initial gross rent for any 
unit may not exceed the FMR/exception rent limit on the date the HA 
approves the lease.
    (2) The FMR/exception rent limit for a family is the lower of:
    (i) The FMR/exception rent limit for the family unit size; or
    (ii) The FMR/exception rent limit for the unit size rented by the 
family.
    (b) Reasonable rent. The initial rent to owner may not exceed a 
reasonable rent as determined in accordance with Sec. 982.503.


Sec. 982.509  Regular tenancy: Annual adjustment of rent to owner.

    (a) When rent is adjusted. At each annual anniversary date of the 
HAP contract, the HA must adjust the rent to owner at the request of 
the owner in accordance with this section.
    (b) Amount of annual adjustment. (1) The adjusted rent to owner 
equals the lesser of:
    (i) The pre-adjustment rent to owner multiplied by the applicable 
Section 8 annual adjustment factor, published by HUD in the Federal 
Register, that is in effect 60 days before the HAP contract 
anniversary;
    (ii) The reasonable rent (as most recently determined or 
redetermined by the HA in accordance with Sec. 982.503); or
    (iii) The amount requested by the owner.
    (2) In making the annual adjustment, the pre-adjustment rent to 
owner does not include any previously approved special adjustments.
    (3) The rent to owner may be adjusted up or down in accordance with 
this section.
    (4) Notwithstanding paragraph (b)(1) of this section, the rent to 
owner for a unit must not be increased at the annual anniversary date 
unless:
    (i) The owner requests the adjustment by giving notice to the HA; 
and
    (ii) During the year before the annual anniversary date, the owner 
has complied with all requirements of the HAP contract, including 
compliance with the HQS.
    (5) The rent to owner will only be increased for housing assistance 
payments covering months commencing on the later of:
    (i) The contract anniversary date; or
    (ii) At least sixty days after the HA receives the owner's request.
    (6) To receive an increase resulting from the annual adjustment for 
an annual anniversary date, the owner must request the increase at 
least sixty days before the next annual anniversary date.


Sec. 982.510  Regular tenancy: Special adjustment of rent to owner.

    (a) Substantial and general cost increases. (1) At HUD's sole 
discretion, HUD may approve a special adjustment of the rent to owner 
to reflect increases in the actual and necessary costs of owning and 
maintaining the unit because of substantial and general increases in:
    (i) Real property taxes;
    (ii) Special governmental assessments;
    (iii) Utility rates; or
    (iv) Costs of utilities not covered by regulated rates.
    (2) An HA may make a special adjustment of the rent to owner only 
if the adjustment has been approved by HUD. The owner does not have any 
right to receive a special adjustment.
    (b) Reasonable rent. The adjusted rent may not exceed the 
reasonable rent. The owner may not receive a special adjustment if the 
adjusted rent would exceed the reasonable rent.
    (c) Term of special adjustment. (1) The HA may withdraw or limit 
the term of any special adjustment.
    (2) If a special adjustment is approved to cover temporary or one-
time costs, the special adjustment is only a temporary or one-time 
increase of the rent to owner.


Sec. 982.511  Rent to owner: Effect of rent control.

    In addition to the rent reasonableness limit under this subpart, 
the amount of rent to owner also may be subject to rent control limits 
under State or local law.


Sec. 982.512  Rent to owner in subsidized projects.

    (a) Subsidized rent. (1) The rent to owner in an insured or 
noninsured Section 236 project, a Section 515 project of the Rural 
Development Administration, a Section 202 project or a Section 
221(d)(3) below market interest rate project is the subsidized rent.
    (2) During the assisted tenancy, the rent to owner must be adjusted 
to follow the subsidized rent, and must not be adjusted by applying the 
published Section 8 annual adjustment factors. For such units, special 
adjustments may not be granted. The following sections do not apply to 
a tenancy in a subsidized project described in paragraph (a)(1) of this 
section: Sec. 982.509 (annual adjustment) and Sec. 982.510 (special 
adjustment).
    (b) HOME. For units assisted under the HOME program, rents are 
subject to requirements of the HOME program (24 CFR 92.252).
    (c) Other subsidy: HA discretion to reduce rent. In the case of a 
regular tenancy, the HA may require the owner to reduce the initial 
rent to owner because of other governmental subsidies, including tax 
credit or tax exemption, grants or other subsidized financing.


Sec. 982.513  Other fees and charges.

    (a) The cost of meals or supportive services may not be included in 
the rent to owner, and the value of meals or supportive services may 
not be included in the calculation of reasonable rent.
    (b) The lease may not require the tenant or family members to pay 
charges

[[Page 23864]]

for meals or supportive services. Non-payment of such charges is not 
grounds for termination of tenancy.
    (c) The owner may not charge the tenant extra amounts for items 
customarily included in rent in the locality, or provided at no 
additional cost to unsubsidized tenants in the premises.


Sec. 982.514  Distribution of housing assistance payment.

    The monthly housing assistance payment is distributed as follows:
    (a) The HA pays the owner the lesser of the housing assistance 
payment or the rent to owner.
    (b) If the housing assistance payment exceeds the rent to owner, 
the HA may pay the balance of the housing assistance payment either to 
the family or directly to the utility supplier to pay the utility bill 
on behalf of the family.


Sec. 982.515  Family share: Family responsibility.

    (a) The family share is calculated by subtracting the amount of the 
housing assistance payment from the gross rent.
    (b) The HA may not use housing assistance payments or other program 
funds (including any administrative fee reserve) to pay any part of the 
family share. Payment of the family share is the responsibility of the 
family.


Sec. 982.516  Family income and composition: Regular and interim 
examinations.

    (a) HA responsibility for reexamination and verification. (1) The 
HA's responsibilities for reexamining family income and composition are 
specified in 24 CFR part 5, subpart F.
    (2) The HA must obtain and document in the tenant file third party 
verification of the following factors, or must document in the tenant 
file why third party verification was not available:
    (i) Reported family annual income;
    (ii) The value of assets;
    (iii) Expenses related to deductions from annual income; and
    (iv) Other factors that affect the determination of adjusted 
income.
    (b) When HA conducts interim reexamination. (1) At any time, the HA 
may conduct an interim reexamination of family income and composition.
    (2) At any time, the family may request an interim determination of 
family income or composition because of any changes since the last 
determination. The HA must make the interim determination within a 
reasonable time after the family request.
    (3) Interim examinations must be conducted in accordance with 
policies in the HA administrative plan.
    (c) Family reporting of change. The HA must adopt policies 
prescribing when and under what conditions the family must report a 
change in family income or composition.
    (d) Effective date of reexamination. (1) The HA must adopt policies 
prescribing how to determine the effective date of a change in the 
housing assistance payment resulting from an interim redetermination.
    (2) At the effective date of a regular or interim reexamination, 
the HA must make appropriate adjustments in the housing assistance 
payment and family unit size.
    (e) Family member income. Family income must include income of all 
family members, including family members not related by blood or 
marriage. If any new family member is added, family income must include 
any income of the additional family member. The HA must conduct a 
reexamination to determine such additional income, and must make 
appropriate adjustments in the housing assistance payment and family 
unit size.

(Information collection requirements contained in this section have 
been approved by the Office of Management and Budget under control 
number 2577-0169.)


Sec. 982.517  Utility allowance schedule.

    (a) Maintaining schedule. (1) The HA must maintain a utility 
allowance schedule for all tenant-paid utilities (except telephone), 
for cost of tenant-supplied refrigerators and ranges, and for other 
tenant-paid housing services (e.g., trash collection (disposal of waste 
and refuse)).
    (2) The HA must give HUD a copy of the utility allowance schedule. 
At HUD's request, the HA also must provide any information or 
procedures used in preparation of the schedule.
    (b) How allowances are determined. (1) The utility allowance 
schedule must be determined based on the typical cost of utilities and 
services paid by energy-conservative households that occupy housing of 
similar size and type in the same locality. In developing the schedule, 
the HA must use normal patterns of consumption for the community as a 
whole and current utility rates.
    (2)(i) An HA's utility allowance schedule, and the utility 
allowance for an individual family, must include the utilities and 
services that are necessary in the locality to provide housing that 
complies with the housing quality standards. However, the HA may not 
provide any allowance for non-essential utility costs, such as costs of 
cable or satellite television.
    (ii) In the utility allowance schedule, the HA must classify 
utilities and other housing services according to the following general 
categories: space heating; air conditioning; cooking; water heating; 
water; sewer; trash collection (disposal of waste and refuse); other 
electric; refrigerator (cost of tenant-supplied refrigerator); range 
(cost of tenant-supplied range); and other specified housing services. 
The HA must provide a utility allowance for tenant-paid air-
conditioning costs if the majority of housing units in the market 
provide centrally air-conditioned units or there is appropriate wiring 
for tenant-installed air conditioners.
    (3) The cost of each utility and housing service category must be 
stated separately. For each of these categories, the utility allowance 
schedule must take into consideration unit size (by number of 
bedrooms), and unit types (e.g., apartment, row-house, town house, 
single-family detached, and manufactured housing) that are typical in 
the community.
    (4) The utility allowance schedule must be prepared and submitted 
in accordance with HUD requirements on the form prescribed by HUD.
    (c) Revisions of utility allowance schedule. (1) An HA must review 
its schedule of utility allowances each year, and must revise its 
allowance for a utility category if there has been a change of 10 
percent or more in the utility rate since the last time the utility 
allowance schedule was revised. The HA must maintain information 
supporting its annual review of utility allowances and any revisions 
made in its utility allowance schedule.
    (2) At HUD's direction, the HA must revise the utility allowance 
schedule to correct any errors, or as necessary to update the schedule.
    (d) Use of utility allowance schedule. (1) The HA must use the 
appropriate utility allowance for the size of dwelling unit actually 
leased by the family (rather than the family unit size as determined 
under the HA subsidy standards).
    (2) At reexamination, the HA must use the HA current utility 
allowance schedule.
    (e) Higher utility allowance as reasonable accommodation for a 
person with disabilities. On request from a family that includes a 
person with disabilities, the HA must approve a utility allowance which 
is higher than the applicable amount on the utility allowance schedule 
if a higher utility allowance is needed as a reasonable accommodation 
in accordance with 24 CFR part 8 to make the program accessible to and 
usable by the family member with a disability.


[[Page 23865]]


(Information collection requirements contained in this section have 
been approved by the Office of Management and Budget under control 
number 2577-0169.)

    56. In Sec. 982.552, paragraph (a)(1) is revised to read as 
follows:


Sec. 982.552  HA denial or termination of assistance for family.

    (a) * * *
    (1) An HA may deny assistance for an applicant or terminate 
assistance for a participant under the programs because of the family's 
action or failure to act as described in this section or Sec. 982.553. 
The provisions of this section do not affect denial or termination of 
assistance for grounds other than action or failure to act by the 
family.
* * * * *
    57. A new subpart M is added, to read as follows:

Subpart M--Special Housing Types


Sec. 982.601  Overview.

    (a) Special housing types. This subpart describes program 
requirements for special housing types. The following are the special 
housing types:
    (1) Single room occupancy (SRO) housing;
    (2) Congregate housing;
    (3) Group home;
    (4) Shared housing;
    (5) Cooperative (including mutual housing);
    (6) Manufactured home.
    (b) HA choice to offer special housing type. (1) The HA may permit 
a family to use any of the following special housing types in 
accordance with requirements of the program: single room occupancy 
housing, congregate housing, group home, shared housing or cooperative 
housing.
    (2) In general, the HA is not required to permit use of any of 
these special housing types in its program.
    (3) The HA must permit use of any special housing type if needed as 
a reasonable accommodation so that the program is readily accessible to 
and usable by persons with disabilities in accordance with 24 CFR part 
8.
    (4) For occupancy of a manufactured home, see Sec. 982.620(a).
    (c) Family choice of housing and housing type. The HA may not set 
aside program funding for special housing types, or for a specific 
special housing type. The family chooses whether to rent housing that 
qualifies as a special housing type under this subpart, or as any 
specific special housing type, or to rent other eligible housing in 
accordance with requirements of the program. The HA may not restrict 
the family's freedom to choose among available units in accordance with 
Sec. 982.353.
    (d) Applicability of requirements. Except as modified by this 
subpart, requirements in the other subparts of this part apply to the 
special housing types. Provisions in this subpart only apply to a 
specific special housing type. The housing type is noted in the title 
of each section.

Single Room Occupancy (SRO)


Sec. 982.602  SRO: General.

    (a) Who may reside in an SRO? A single person may reside in an SRO 
housing unit.
    (b) When may a person rent an SRO housing unit? A single person may 
rent a unit in SRO housing only if:
    (1) HUD determines there is significant demand for SRO units in the 
area;
    (2) The HA and the unit of general local government approve 
providing assistance for SRO housing under the program; and
    (3) The unit of general local government and the HA certify to HUD 
that the property meets applicable local health and safety standards 
for SRO housing.


Sec. 982.603  SRO: Lease and HAP contract.

    For SRO housing, there is a separate lease and HAP contract for 
each assisted person.


Sec. 982.604  SRO: Rent and housing assistance payment.

    (a) SRO FMR/exception rent limit. The FMR/exception rent limit for 
SRO housing is 75 percent of the zero-bedroom FMR/exception rent limit.
    (b) Regular tenancy: Limit on initial gross rent. For a regular 
tenancy in the certificate program, the initial gross rent may not 
exceed the FMR/exception rent limit for SRO housing.
    (c) Voucher program: Payment standard. The HA must adopt a payment 
standard for persons who occupy SRO housing with assistance under the 
voucher program. The SRO payment standard may not exceed the FMR/
exception rent limit for SRO housing. While an assisted person resides 
in SRO housing, the SRO payment standard must be used to calculate the 
housing assistance payment.
    (d) Over-FMR tenancy: Payment standard. While the assisted person 
resides in SRO housing with assistance under an over-FMR tenancy in the 
certificate program, the payment standard for the person is the SRO 
FMR/exception rent limit.
    (e) Utility allowance. The utility allowance for an assisted person 
residing in SRO housing is 75 percent of the zero bedroom utility 
allowance.


Sec. 982.605  SRO: Housing quality standards.

    (a) HQS standards for SRO. The HQS in Sec. 982.401 apply to SRO 
housing. However, the standards in this section apply in place of 
Sec. 982.401(b) (sanitary facilities), Sec. 982.401(c) (food 
preparation and refuse disposal), and Sec. 982.401(d) (space and 
security). Since the SRO units will not house children, the housing 
quality standards in Sec. 982.401(j), concerning lead-based paint, do 
not apply to SRO housing.
    (b) Performance requirements. (1) SRO housing is subject to the 
additional performance requirements in this paragraph (b).
    (2) Sanitary facilities, and space and security characteristics 
must meet local code standards for SRO housing. In the absence of 
applicable local code standards for SRO housing, the following 
standards apply:
    (i) Sanitary facilities. (A) At least one flush toilet that can be 
used in privacy, lavatory basin, and bathtub or shower, in proper 
operating condition, must be supplied for each six persons or fewer 
residing in the SRO housing.
    (B) If SRO units are leased only to males, flush urinals may be 
substituted for not more than one-half the required number of flush 
toilets. However, there must be at least one flush toilet in the 
building.
    (C) Every lavatory basin and bathtub or shower must be supplied at 
all times with an adequate quantity of hot and cold running water.
    (D) All of these facilities must be in proper operating condition, 
and must be adequate for personal cleanliness and the disposal of human 
waste. The facilities must utilize an approvable public or private 
disposal system.
    (E) Sanitary facilities must be reasonably accessible from a common 
hall or passageway to all persons sharing them. These facilities may 
not be located more than one floor above or below the SRO unit. 
Sanitary facilities may not be located below grade unless the SRO units 
are located on that level.
    (ii) Space and security. (A) No more than one person may reside in 
an SRO unit.
    (B) An SRO unit must contain at least one hundred ten square feet 
of floor space.
    (C) An SRO unit must contain at least four square feet of closet 
space for each resident (with an unobstructed height of at least five 
feet). If there is less closet space, space equal to the amount of the 
deficiency must be subtracted from the area of the habitable room space 
when determining the amount of floor space

[[Page 23866]]

in the SRO unit. The SRO unit must contain at least one hundred ten 
square feet of remaining floor space after subtracting the amount of 
the deficiency in minimum closet space.
    (D) Exterior doors and windows accessible from outside an SRO unit 
must be lockable.
    (3) Access. (i) Access doors to an SRO unit must have locks for 
privacy in proper operating condition.
    (ii) An SRO unit must have immediate access to two or more approved 
means of exit, appropriately marked, leading to safe and open space at 
ground level, and any means of exit required by State and local law.
    (iii) The resident must be able to access an SRO unit without 
passing through any other unit.
    (4) Sprinkler system. A sprinkler system that protects all major 
spaces, hard wired smoke detectors, and such other fire and safety 
improvements as State or local law may require must be installed in 
each building. The term ``major spaces'' means hallways, large common 
areas, and other areas specified in local fire, building, or safety 
codes.

Congregate Housing


Sec. 982.606  Congregate housing: Who may reside in congregate housing.

    (a) An elderly person or a person with disabilities may reside in a 
congregate housing unit.
    (b)(1) If approved by the HA, a family member or live-in aide may 
reside with the elderly person or person with disabilities.
    (2) The HA must approve a live-in aide if needed as a reasonable 
accommodation so that the program is readily accessible to and usable 
by persons with disabilities in accordance with 24 CFR part 8. See 
Sec. 982.316 concerning occupancy by a live-in aide.


Sec. 982.607  Congregate housing: Lease and HAP contract.

    For congregate housing, there is a separate lease and HAP contract 
for each assisted family.


Sec. 982.608  Congregate housing: Rent and housing assistance payment; 
FMR/exception rent limit.

    (a) Unless there is a live-in aide:
    (1) The FMR/exception rent limit for a family that resides in a 
congregate housing unit is the zero-bedroom FMR/exception rent limit.
    (2) However, if there are two or more rooms in the unit (not 
including kitchen or sanitary facilities), the FMR/exception rent limit 
for a family that resides in a congregate housing unit is the one-
bedroom FMR/exception rent limit.
    (b) If there is a live-in aide, the live-in aide must be counted in 
determining the family unit size.


Sec. 982.609  Congregate housing: Housing quality standards.

    (a) HQS standards for congregate housing. The HQS in Sec. 982.401 
apply to congregate housing. However, the standards in this section 
apply in place of Sec. 982.401(c) (food preparation and refuse 
disposal). Congregate housing is not subject to the HQS acceptability 
requirement in Sec. 982.401(d)(2)(i) that the dwelling unit must have a 
kitchen area.
    (b) Food preparation and refuse disposal: Additional performance 
requirements. The following additional performance requirements apply 
to congregate housing:
    (1) The unit must contain a refrigerator of appropriate size.
    (2) There must be central kitchen and dining facilities on the 
premises. These facilities:
    (i) Must be located within the premises, and accessible to the 
residents;
    (ii) Must contain suitable space and equipment to store, prepare, 
and serve food in a sanitary manner;
    (iii) Must be used to provide a food service that is provided for 
the residents, and that is not provided by the residents; and
    (iv) Must be for the primary use of residents of the congregate 
units and be sufficient in size to accommodate the residents.
    (3) There must be adequate facilities and services for the sanitary 
disposal of food waste and refuse, including facilities for temporary 
storage where necessary.

Group Home


Sec. 982.610  Group home: Who may reside in a group home.

    (a) An elderly person or a person with disabilities may reside in a 
State-approved group home.
    (b)(1) If approved by the HA, a live-in aide may reside with a 
person with disabilities.
    (2) The HA must approve a live-in aide if needed as a reasonable 
accommodation so that the program is readily accessible to and usable 
by persons with disabilities in accordance with 24 CFR part 8. See 
Sec. 982.316 concerning occupancy by a live-in aide.
    (c) Except for a live-in aide, all residents of a group home, 
whether assisted or unassisted, must be elderly persons or persons with 
disabilities.
    (d) Persons residing in a group home must not require continual 
medical or nursing care.
    (e) Persons who are not assisted under the tenant-based program may 
reside in a group home.
    (f) No more than 12 persons may reside in a group home. This limit 
covers all persons who reside in the unit, including assisted and 
unassisted residents and any live-in aide.


Sec. 982.611  Group home: Lease and HAP contract.

    For assistance in a group home, there is a separate HAP contract 
and lease for each assisted person.


Sec. 982.612  Group home: State approval of group home.

    A group home must be licensed, certified, or otherwise approved in 
writing by the State (e.g., Department of Human Resources, Mental 
Health, Retardation, or Social Services) as a group home for elderly 
persons or persons with disabilities.


Sec. 982.613  Group home: Rent and housing assistance payment.

    (a) Meaning of pro-rata portion. For a group home, the term ``pro-
rata portion'' means the ratio derived by dividing the number of 
persons in the assisted household by the total number of residents 
(assisted and unassisted) residing in the group home. The number of 
persons in the assisted household equals one assisted person plus any 
HA-approved live-in aide.
    (b) Rent to owner: Reasonable rent limit. (1) The rent to owner for 
an assisted person may not exceed the pro-rata portion of the 
reasonable rent for the group home.
    (2) The reasonable rent for a group home is determined in 
accordance with Sec. 982.503. In determining reasonable rent for the 
group home, the HA must consider whether sanitary facilities, and 
facilities for food preparation and service, are common facilities or 
private facilities.
    (c) Maximum subsidy.--(1) Family unit size. (i) Unless there is a 
live-in aide, the family unit size is zero or one bedroom.
    (ii) If there is a live-in aide, the live-in aide must be counted 
in determining the family unit size.
    (2) Regular tenancy: Limit on initial gross rent. For a person who 
resides in a group home under a regular tenancy in the certificate 
program, the initial gross rent may not exceed either:
    (i) The FMR/exception rent limit for the family unit size; or
    (ii) The pro-rata portion of the FMR/exception rent limit for the 
group home size.
    (3) Voucher tenancy: Payment standard. For a voucher tenancy, the

[[Page 23867]]

payment standard for a person who resides in a group home is the lower 
of:
    (i) The payment standard for the family unit size; or
    (ii) The pro-rata portion of the payment standard for the group 
home size.
    (4) Over-FMR tenancy: Payment standard. For an over-FMR tenancy, 
the payment standard for a person who resides in a group home is the 
lower of:
    (i) The FMR/exception rent limit for the family unit size; or
    (ii) The pro-rata portion of the FMR/exception rent limit for the 
group home size.
    (d) Utility allowance. The utility allowance for each assisted 
person residing in a group home is the pro-rata portion of the utility 
allowance for the group home unit size.


Sec. 982.614  Group home: Housing quality standards.

    (a) Compliance with HQS. The HA may not give approval to reside in 
a group home unless the unit, including the portion of the unit 
available for use by the assisted person under the lease, meets the 
housing quality standards.
    (b) Applicable HQS standards. (1) The HQS in Sec. 982.401 apply to 
assistance in a group home. However, the standards in this section 
apply in place of Sec. 982.401(b) (sanitary facilities), 
Sec. 982.401(c) (food preparation and refuse disposal), Sec. 982.401(d) 
(space and security), Sec. 982.401(g) (structure and materials) and 
Sec. 982.401(l) (site and neighborhood).
    (2) The entire unit must comply with the HQS.
    (c) Additional performance requirements. The following additional 
performance requirements apply to a group home:
    (1) Sanitary facilities. (i) There must be a bathroom in the unit. 
The unit must contain, and an assisted resident must have ready access 
to:
    (A) A flush toilet that can be used in privacy;
    (B) A fixed basin with hot and cold running water; and
    (C) A shower or bathtub with hot and cold running water.
    (ii) All of these facilities must be in proper operating condition, 
and must be adequate for personal cleanliness and the disposal of human 
waste. The facilities must utilize an approvable public or private 
disposal system.
    (iii) The unit may contain private or common sanitary facilities. 
However, the facilities must be sufficient in number so that they need 
not be shared by more than four residents of the group home.
    (iv) Sanitary facilities in the group home must be readily 
accessible to and usable by residents, including persons with 
disabilities.
    (2) Food preparation and service. (i) The unit must contain a 
kitchen and a dining area. There must be adequate space to store, 
prepare, and serve foods in a sanitary manner.
    (ii) Food preparation and service equipment must be in proper 
operating condition. The equipment must be adequate for the number of 
residents in the group home. The unit must contain the following 
equipment:
    (A) A stove or range, and oven;
    (B) A refrigerator; and
    (C) A kitchen sink with hot and cold running water. The sink must 
drain into an approvable public or private disposal system.
    (iii) There must be adequate facilities and services for the 
sanitary disposal of food waste and refuse, including facilities for 
temporary storage where necessary.
    (iv) The unit may contain private or common facilities for food 
preparation and service.
    (3) Space and security. (i) The unit must provide adequate space 
and security for the assisted person.
    (ii) The unit must contain a living room, kitchen, dining area, 
bathroom, and other appropriate social, recreational or community 
space. The unit must contain at least one bedroom of appropriate size 
for each two persons.
    (iii) Doors and windows that are accessible from outside the unit 
must be lockable.
    (4) Structure and material. (i) The unit must be structurally sound 
to avoid any threat to the health and safety of the residents, and to 
protect the residents from the environment.
    (ii) Ceilings, walls, and floors must not have any serious defects 
such as severe bulging or leaning, loose surface materials, severe 
buckling or noticeable movement under walking stress, missing parts or 
other significant damage. The roof structure must be firm, and the roof 
must be weathertight. The exterior or wall structure and exterior wall 
surface may not have any serious defects such as serious leaning, 
buckling, sagging, cracks or large holes, loose siding, or other 
serious damage. The condition and equipment of interior and exterior 
stairways, halls, porches, walkways, etc., must not present a danger of 
tripping or falling. Elevators must be maintained in safe operating 
condition.
    (iii) The group home must be accessible to and usable by a resident 
with disabilities.
    (5) Site and neighborhood. The site and neighborhood must be 
reasonably free from disturbing noises and reverberations and other 
hazards to the health, safety, and general welfare of the residents. 
The site and neighborhood may not be subject to serious adverse 
environmental conditions, natural or manmade, such as dangerous walks 
or steps, instability, flooding, poor drainage, septic tank back-ups, 
sewage hazards or mud slides, abnormal air pollution, smoke or dust, 
excessive noise, vibrations or vehicular traffic, excessive 
accumulations of trash, vermin or rodent infestation, or fire hazards. 
The unit must be located in a residential setting.

Shared Housing


Sec. 982.615  Shared housing: Occupancy.

    (a) Sharing a unit. An assisted family may reside in shared 
housing. In shared housing, an assisted family shares a unit with the 
other resident or residents of the unit. The unit may be a house or an 
apartment.
    (b) Who may share a dwelling unit with assisted family? (1) If 
approved by the HA, a live-in aide may reside with the family to care 
for a person with disabilities. The HA must approve a live-in aide if 
needed as a reasonable accommodation so that the program is readily 
accessible to and usable by persons with disabilities in accordance 
with 24 CFR part 8. See Sec. 982.316 concerning occupancy by a live-in 
aide.
    (2) Other persons who are assisted under the tenant-based program, 
or other persons who are not assisted under the tenant-based program, 
may reside in a shared housing unit.
    (3) The owner of a shared housing unit may reside in the unit. A 
resident owner may enter into a HAP contract with the HA. However, 
housing assistance may not be paid on behalf of an owner. An assisted 
person may not be related by blood or marriage to a resident owner.


Sec. 982.616  Shared housing: Lease and HAP contract.

    For assistance in a shared housing unit, there is a separate HAP 
contract and lease for each assisted family.


Sec. 982.617  Shared housing: Rent and housing assistance payment.

    (a) Meaning of pro-rata portion. For shared housing, the term 
``pro-rata portion'' means the ratio derived by dividing the number of 
bedrooms in the private space available for occupancy by a family by 
the total number of bedrooms in the unit. For example, for a family 
entitled to occupy three bedrooms in a five bedroom unit, the ratio 
would be 3/5.
    (b) Rent to owner: Reasonable rent. (1) The rent to owner for the 
family may

[[Page 23868]]

not exceed the pro-rata portion of the reasonable rent for the shared 
housing dwelling unit.
    (2) The reasonable rent is determined in accordance with 
Sec. 982.503.
    (c) Maximum subsidy.--(1) Regular tenancy: Limit on initial gross 
rent. For a regular tenancy under the certificate program, the initial 
gross rent may not exceed either:
    (i) The FMR/exception rent limit for the family unit size; or
    (ii) The pro-rata portion of the FMR/exception rent limit for the 
shared housing unit size.
    (2) Voucher or over-FMR tenancy: Payment standard. For a voucher 
tenancy or an over-FMR tenancy, the payment standard is the lower of:
    (i) The payment standard for the family unit size; or
    (ii) The pro-rata portion of the payment standard for the shared 
housing unit size.
    (3) Live-in aide. If there is a live-in aide, the live-in aide must 
be counted in determining the family unit size.
    (d) Utility allowance. The utility allowance for an assisted family 
residing in shared housing is the pro-rata portion of the utility 
allowance for the shared housing unit.


Sec. 982.618  Shared housing: Housing quality standards.

    (a) Compliance with HQS. The HA may not give approval to reside in 
shared housing unless the entire unit, including the portion of the 
unit available for use by the assisted family under its lease, meets 
the housing quality standards.
    (b) Applicable HQS standards. The HQS in Sec. 982.401 apply to 
assistance in shared housing. However, the HQS standards in this 
section apply in place of Sec. 982.401(d) (space and security).
    (c) Facilities available for family. The facilities available for 
the use of an assisted family in shared housing under the family's 
lease must include (whether in the family's private space or in the 
common space) a living room, sanitary facilities in accordance with 
Sec. 982.401(b), and food preparation and refuse disposal facilities in 
accordance with Sec. 982.401(c).
    (d) Space and security: Performance requirements. (1) The entire 
unit must provide adequate space and security for all its residents 
(whether assisted or unassisted).
    (2)(i) Each unit must contain private space for each assisted 
family, plus common space for shared use by the residents of the unit. 
Common space must be appropriate for shared use by the residents.
    (ii) The private space for each assisted family must contain at 
least one bedroom for each two persons in the family. The number of 
bedrooms in the private space of an assisted family may not be less 
than the family unit size.
    (iii) A zero or one bedroom unit may not be used for shared 
housing.

Cooperative


Sec. 982.619  Cooperative housing.

    (a) When cooperative housing may be used. A family may reside in 
cooperative housing if the HA determines that:
    (1) Assistance under the program will help maintain affordability 
of the cooperative unit for low-income families; and
    (2) The cooperative has adopted requirements to maintain continued 
affordability for low-income families after transfer of a cooperative 
member's interest in a cooperative unit (such as a sale of the 
resident's share in a cooperative corporation).
    (b) Rent to owner. (1) The reasonable rent for a cooperative unit 
is determined in accordance with Sec. 982.503. For cooperative housing, 
the rent to owner is the monthly carrying charge under the occupancy 
agreement/lease between the member and the cooperative.
    (2) The carrying charge consists of the amount assessed to the 
member by the cooperative for occupancy of the housing. The carrying 
charge includes the member's share of the cooperative debt service, 
operating expenses, and necessary payments to cooperative reserve 
funds. However, the carrying charge does not include down-payments or 
other payments to purchase the cooperative unit, or to amortize a loan 
to the family for this purpose.
    (3) Gross rent is the carrying charge plus any utility allowance.
    (4) For a regular tenancy under the certificate program, rent to 
owner is adjusted in accordance with Sec. 982.509 (annual adjustment) 
and Sec. 982.510 (special adjustments). For a cooperative, adjustments 
are applied to the carrying charge as determined in accordance with 
this section.
    (5) The occupancy agreement/lease and other appropriate documents 
must provide that the monthly carrying charge is subject to Section 8 
limitations on rent to owner.
    (c) Housing assistance payment. The amount of the housing 
assistance payment is determined in accordance with subpart K of this 
part.
    (d) Live-in aide. (1) If approved by the HA, a live-in aide may 
reside with the family to care for a person with disabilities. The HA 
must approve a live-in aide if needed as a reasonable accommodation so 
that the program is readily accessible to and usable by persons with 
disabilities in accordance with 24 CFR part 8. See Sec. 982.316 
concerning occupancy by a live-in aide.
    (2) If there is a live-in aide, the live-in aide must be counted in 
determining the family unit size.

Manufactured Home


Sec. 982.620  Manufactured home: Applicability of requirements.

    (a) Assistance for resident of manufactured home. (1) A family may 
reside in a manufactured home with assistance under the program.
    (2) The HA must permit a family to lease a manufactured home and 
space with assistance under the program.
    (3) The HA may provide assistance for a family that owns the 
manufactured home and leases only the space. The HA is not required to 
provide such assistance under the program.
    (b) Applicability. (1) The HQS in Sec. 982.621 always apply when 
assistance is provided to a family occupying a manufactured home (under 
paragraph (a)(2) or (a)(3) of this section).
    (2) Sections 982.622 to 982.624 only apply when assistance is 
provided to a manufactured home owner to lease a manufactured home 
space.
    (c) Live-in aide. (1) If approved by the HA, a live-in aide may 
reside with the family to care for a person with disabilities. The HA 
must approve a live-in aide if needed as a reasonable accommodation so 
that the program is readily accessible to and usable by persons with 
disabilities in accordance with 24 CFR part 8. See Sec. 982.316 
concerning occupancy by a live-in aide.
    (2) If there is a live-in aide, the live-in aide must be counted in 
determining the family unit size.


Sec. 982.621  Manufactured home: Housing quality standards.

    A manufactured home must meet all the HQS performance requirements 
and acceptability criteria in Sec. 982.401. A manufactured home also 
must meet the following requirements:
    (a) Performance requirement. A manufactured home must be placed on 
the site in a stable manner, and must be free from hazards such as 
sliding or wind damage.
    (b) Acceptability criteria. A manufactured home must be securely 
anchored by a tie-down device that distributes and transfers the loads 
imposed by the unit to appropriate ground anchors to resist wind 
overturning and sliding.

[[Page 23869]]

Manufactured Home Space Rental


Sec. 982.622  Manufactured home space rental: Rent to owner.

    (a) What is included. (1) Rent to owner for rental of a 
manufactured home space includes payment for maintenance and services 
that the owner must provide to the tenant under the lease for the 
space.
    (2) Rent to owner does not include the costs of utilities and trash 
collection for the manufactured home. However, the owner may charge the 
family a separate fee for the cost of utilities or trash collection 
provided by the owner.
    (b) Reasonable rent. (1) During the assisted tenancy, the rent to 
owner for the manufactured home space may not exceed a reasonable rent 
as determined in accordance with this section. Section 982.503 is not 
applicable.
    (2) The HA may not approve a lease for a manufactured home space 
until the HA determines that the initial rent to owner for the space is 
a reasonable rent. At least annually during the assisted tenancy, the 
HA must redetermine that the current rent to owner is a reasonable 
rent.
    (3) The HA must determine whether the rent to owner for the 
manufactured home space is a reasonable rent in comparison to rent for 
other comparable manufactured home spaces. To make this determination, 
the HA must consider the location and size of the space, and any 
services and maintenance to be provided by the owner in accordance with 
the lease (without a fee in addition to the rent).
    (4) By accepting each monthly housing assistance payment from the 
HA, the owner of the manufactured home space certifies that the rent to 
owner for the space is not more than rent charged by the owner for 
unassisted rental of comparable spaces in the same manufactured home 
park or elsewhere. The owner must give the HA information, as requested 
by the HA, on rents charged by the owner for other manufactured home 
spaces.


Sec. 982.623  Manufactured home space rental: Housing assistance 
payment.

    (a) Fair market rent. The FMR for a manufactured home space is 
determined in accordance with 24 CFR 888.113(e). Exception rents do not 
apply to rental of a manufactured home space.
    (b) Housing assistance payment: For regular certificate tenancy. 
(1) Limit on initial rent. For a regular tenancy, the initial rent to 
owner for leasing a manufactured home space may not exceed the 
published FMR for a manufactured home space.
    (2) Formula. (i) During the term of a regular tenancy, the amount 
of the monthly housing assistance payment equals the lesser of 
paragraphs (b)(2)(i)(A) or (b)(2)(ii)(B) of this section:
    (A) Manufactured home space cost minus the higher of:
    (1) The total tenant payment; or
    (2) The minimum rent as required by law.
    (B) The rent to owner for the manufactured home space.
    (ii) ``Manufactured home space cost'' means the sum of:
    (A) The amortization cost;
    (B) The utility allowance; and
    (C) The rent to owner for the manufactured home space.
    (c) Housing assistance payment: For voucher tenancy or over-FMR 
tenancy. (1) Payment standard. For a voucher tenancy or an over-FMR 
tenancy, the payment standard is used to calculate the monthly housing 
assistance payment for a family. The payment standard for a family 
renting a manufactured home space is the published FMR for rental of a 
manufactured home space. The amount of the payment standard is 
determined in accordance with Sec. 982.505(d)(4) and (d)(5).
    (2) Subsidy calculation for voucher tenancy. During the term of a 
voucher tenancy, the amount of the monthly housing assistance payment 
for a family equals the lesser of paragraphs (c)(2)(i) or (c)(2)(ii) of 
this section:
    (i) An amount obtained by subtracting 30 percent of the family's 
monthly adjusted gross income from the sum of:
    (A) The amortization cost;
    (B) The utility allowance; and
    (C) The payment standard.
    (ii) The monthly gross rent for the manufactured home space minus 
the minimum rent. For a voucher tenancy, the minimum rent is the higher 
of:
    (A) 10 percent of monthly income (gross income); or
    (B) A higher minimum rent as required by law.
    (3) Subsidy calculation for over-FMR tenancy. During the term of an 
over-FMR tenancy, the amount of the monthly housing assistance payment 
for a family equals the lesser of paragraphs (c)(3)(i) or (c)(3)(ii) of 
this section:
    (i) An amount obtained by subtracting the family's total tenant 
payment from the sum of:
    (A) The amortization cost;
    (B) The utility allowance; and
    (C) The payment standard.
    (ii) The monthly gross rent for the manufactured home space minus 
the minimum rent as required by law.
    (d) Amortization cost. (1) In calculating the subsidy payment for a 
voucher tenancy, an over-FMR tenancy, or a regular tenancy under the 
certificate program, the amortization cost may include debt service to 
amortize costs (other than furniture costs) included in the purchase 
price of the manufactured home. The debt service includes the payment 
for principal and interest on the loan. The debt service amount must be 
reduced by 15 percent to exclude debt service to amortize the cost of 
furniture, unless the HA determines that furniture was not included in 
the purchase price.
    (2) The amount of the amortization cost is the debt service 
established at time of application to a lender for financing purchase 
of the manufactured home if monthly payments are still being made. Any 
increase in debt service due to refinancing after purchase of the home 
is not included in the amortization cost.
    (3) Debt service for set-up charges incurred by a family that 
relocates its home may be included in the monthly amortization payment 
made by the family. In addition, set-up charges incurred before the 
family became an assisted family may be included in the amortization 
cost if monthly payments are still being made to amortize such charges.
    (e) Annual income. In determining a family's annual income, the 
value of equity in the manufactured home owned by the assisted family, 
and in which the family resides, is not counted as a family asset.


Sec. 982.624  Manufactured home space rental: Utility allowance 
schedule.

    The HA must establish utility allowances for manufactured home 
space rental. For the first twelve months of the initial lease term 
only, the allowances must include a reasonable amount for utility hook-
up charges payable by the family if the family actually incurs the 
expenses because of a move. Allowances for utility hook-up charges do 
not apply to a family that leases a manufactured home space in place. 
Utility allowances for manufactured home space must not cover costs 
payable by a family to cover the digging of a well or installation of a 
septic system.

PART 983--SECTION 8 PROJECT-BASED CERTIFICATE PROGRAM

    58. The authority citation for part 983 continues to read as 
follows:

    Authority: 42 U.S.C. 1437f and 3535(d).

    59. In part 983, the table of contents entries for subparts A and E 
are revised, and the table of contents entries for subpart F are added 
to read as follows:

[[Page 23870]]

PART 983--SECTION 8 PROJECT-BASED CERTIFICATE PROGRAM

SUBPART A--GENERAL INFORMATION

983.1  Purpose and applicability.
983.2  Additional definitions.
983.3  Information to be submitted to HUD by the HA concerning its 
plan to attach assistance to units.
983.4  HUD review of HA plans to attach assistance to units.
983.5  Housing quality standards.
983.6  Site and neighborhood standards.
983.7  Eligible and ineligible properties and HA-owned units.
983.8  Rehabilitation: Minimum expenditure requirement.
983.9  Prohibition against new construction or rehabilitation with 
U.S. Housing Act of 1937 assistance and use of flexible subsidy; 
pledge of Agreement or HAP contract.
983.10  Displacement, relocation, and acquisition.
983.11  Other Federal requirements.
983.12  Program accounts and records.
983.13  Special housing types.
* * * * *

SUBPART E--MANAGEMENT

983.201  Responsibilities of the HA.
983.202  Responsibilities of the owner.
983.203  Family participation.
983.204  Maintenance, operation and inspections.
983.205  Overcrowded and underoccupied units.
983.206  Assisted tenancy and termination of tenancy.
983.207  Informal review or hearing

SUBPART F--RENT AND HOUSING ASSISTANCE PAYMENT

983.251  Applicability.
983.252  Limits on initial rent to owner.
983.253  Initial rent: Who approves.
983.254  Annual adjustment of rent to owner.
983.255  Special adjustment of rent to owner.
983.256  Reasonable rent.
983.257  Other subsidy: Effect on rent to owner.
983.258  Rent to owner: Effect of rent control
983.259  Correction of rent.
983.260  Housing assistance payment: Amount and distribution.
983.261  Family share: Family responsibility to pay.
983.262  Other fees and charges.

    60. Section 983.1 is revised to read as follows:


Sec. 983.1  Purpose and applicability.

    (a) This part 983 applies to the Section 8 Project-based 
Certificate (PBC) program, authorized under section 8(d)(2) of the 1937 
Act (42 U.S.C. 1437f(d)(2)).
    (b)(1) Except as otherwise expressly modified or excluded by this 
part 983, provisions of 24 CFR part 982 apply to the PBC program.
    (2) The following provisions of 24 CFR part 982 do not apply to the 
PBC program:
    (i) Provisions on tenant-based assistance, on issuance or use of a 
voucher or certificate; and on portability;
    (ii) Provisions on voucher tenancy or over-FMR tenancy;
    (iii) In subpart D, Sec. 982.158(e) (retention of lease, HAP 
contract and family application);
    (iv) In subpart E, Sec. 982.202(b)(3) (where family will live); 
Sec. 982.204(d) (family size); Sec. 982.205(a) (waiting lists);
    (v) Subpart G, except that the following provisions of subpart G 
are applicable to the PBC Program: Sec. 982.308 (lease); 
Sec. 982.311(a), (b), (c) and (d)(1) (when assistance is paid); 
Sec. 982.312 (absence from unit); and Sec. 982.313 (security deposit);
    (vi) Subpart H (where family can live and move);
    (vii) In subpart I, Sec. 982.402(a)(3), Sec. 982.402(c) and (d) 
(effect of family unit size--subsidy and size of unit); and 
Sec. 982.403 (termination of HAP contract when unit is too big or too 
small);
    (viii) In subpart J, Sec. 982.451(a), Sec. 982.451(b)(2) (term of 
HAP contract same as lease); Sec. 982.454 (termination of HAP contract 
because of insufficient funding); Sec. 982.455 (termination of HAP 
contract; termination notice);
    (ix) Subpart K, except that the following provisions of Subpart K 
are applicable to the PBC Program: Sec. 982.504 (for determination of 
the FMR/exception rent limit); Sec. 982.516 (family income and 
composition; regular and interim examinations), Sec. 982.517 (utility 
allowance schedule);
    (x) In subpart M, all provisions authorizing assistance for shared 
housing (including Sec. 982.615 through Sec. 982.618); or assistance 
for a family occupying a manufactured home (including Sec. 982.620 
through Sec. 982.624).
    (3) This part does not apply to the voucher program, or to an over-
FMR tenancy under the certificate program. Every tenancy assisted in 
the PBC program is a regular tenancy under the certificate program.


Sec. 983.2  [Amended]

    61. In Sec. 983.2, the introductory text is amended by removing the 
reference to ``Sec. 982.3 of this chapter'' and adding in its place 
``24 CFR 982.4''.
    62. Section 983.3 is amended by adding new paragraph (d), to read 
as follows:


Sec. 983.3  Information to be submitted to HUD by the HA concerning its 
plan to attach assistance to units.

* * * * *
    (d) Amount of assistance. The HA must ensure that the amount of 
assistance that is attached to units is within the amounts available 
under the ACC.
    63. Section 983.5 is revised to read as follows:


Sec. 983.5  Housing quality standards.

    24 CFR 982.401 (housing quality standards) applies to the PBC 
program. For special housing types, housing quality standards in 24 CFR 
part 982, subpart M, apply to the PBC program.
    64. Section 983.7 is amended as follows:
    a. By revising the introductory text of paragraph (b);
    b. By removing ``or'' at the end of paragraph (b)(5) and by the 
removing the period at the end of paragraph (b)(6) and adding a 
semicolon in its place.
    c. By removing paragraph (b)(7), and by adding new paragraphs 
(b)(7) and (b)(8);
    d. By removing paragraph (d);
    e. By redesignating paragraph (c) as paragraph (d);
    f. By removing paragraph (f);
    g. By redesignating paragraph (g) as paragraph (f); and
    h. By adding paragraph (c), to read as follows:


Sec. 983.7  Eligible and ineligible properties and HA-owned units.

* * * * *
    (b) An HA may not attach or pay PBC assistance to units in the 
following types of housing:
* * * * *
    (7) College or other school dormitories; or
    (8) A manufactured home.
* * * * *
    (c) An HA may not attach or pay PBC assistance to units in any of 
the following types of subsidized housing:
    (1) Public housing;
    (2) A unit subsidized by any other form of Section 8 assistance 
(tenant-based or project-based);
    (3) A unit subsidized with any local or State rent subsidy;
    (4) A Section 236 project (insured or noninsured); or a unit 
subsidized with Section 236 rental assistance payments;
    (5) A Rural Development Administration Section 515 project;
    (6) A unit subsidized with rental assistance payments under Section 
521 of the Housing Act of 1949 (a Rural Development Administration 
Program);
    (7) Housing assisted under former Section 23 of the United States 
Housing Act of 1937 (before amendment by the Housing and Community 
Development Act of 1974);
    (8) A Section 221(d)(3) project;

[[Page 23871]]

    (9) A project with a Section 202 loan;
    (10) A Section 202 project for non-elderly persons with 
disabilities (Section 162 assistance);
    (11) Section 202 supportive housing for the elderly;
    (12) Section 811 supportive housing for persons with disabilities;
    (13) A Section 101 rent supplement project;
    (14) A unit subsidized with tenant-based assistance under the HOME 
program; or
    (15) Any unit with any other duplicative Federal State, or local 
housing subsidy, as determined by HUD. For this purpose, ``housing 
subsidy'' does not include the housing component of a welfare payment, 
a social security payment received by the family, or a rent reduction 
because of a tax credit.
* * * * *


Sec. 983.10  [Amended]

    65. In Sec. 983.10, paragraph (g)(1)(iii)(B) is amended by removing 
the reference to ``24 CFR 813.107'' and adding in its place ``24 CFR 
5.613''.
    66. Section 983.12 is revised to read as follows:


Sec. 983.12  Program accounts and records.

    (a) During the term of each assisted lease, and for at least three 
years thereafter, the HA must keep:
    (1) A copy of the executed lease; and
    (2) The application from the family.
    (b) During the HAP contract term, and for at least three years 
thereafter, the HA must keep a copy of:
    (1) The HAP contract; and
    (2) Records to document the basis for determination of the initial 
rent to owner, and for the HA determination that rent to owner is a 
reasonable rent (initially and during the term of the HAP contract).
    67. Section 983.13 is revised to read as follows:


Sec. 983.13  Special housing types.

    (a) Applicability. For applicability of rules on special housing 
types at 24 CFR part 982, subpart M, see Sec. 983.1(b)(2)(x). In the 
PBC program, the HA may not provide assistance for shared housing or 
for manufactured homes.
    (b) Group homes. A group home may include one or more group home 
units. There must be a single PBC HAP contract for units in the group 
home. A separate lease is executed for each elderly person or person 
with disabilities who resides in a group home.


Sec. 983.14  [Removed]

    68. Section 983.14 is removed.
    69. In Sec. 983.51, the introductory text of paragraph (d) is 
revised to read as follows:


Sec. 983.51  HA unit selection policy, advertising, and owner 
application requirements.

* * * * *
    (d) Owner application. The owner's application submitted to the HA 
must contain the following:
* * * * *


Sec. 983.52  [Amended]

    70. Section 983.52 is amended by:
    a. Removing the second and third sentences from paragraph (a);
    b. Removing the reference to ``Sec. 982.8 of this chapter'' from 
paragraph (a) and adding in its place ``Sec. 983.8''; and
    c. Removing the reference to ``Sec. 983.12'' from paragraph (c) and 
adding in its place reference to ``Sec. 983.202''.


Sec. 983.55  [Amended]

    71. Section 983.55 is amended by removing from paragraphs (a) and 
(b) the reference to ``Sec. 983.12'' and by adding in its place a 
reference to ``Sec. 983.202''.


Sec. 983.101  [Amended]

    72. Section 983.101 is amended by removing from paragraph (b)(3) 
the reference to ``Sec. 983.12'' each place it appears and by adding in 
its place a reference to ``Sec. 983.202''.


Sec. 983.103  [Amended]

    73. Section 983.103 is amended by removing from paragraph (d) the 
reference to ``Sec. 983.203'' and by adding in its place a reference to 
``Sec. 983.253''.


Sec. 983.151  [Amended]

    74. Section 983.151 is amended by removing the last sentence from 
paragraph (b)(3).
    75. Section 983.201 is revised to read as follows:


Sec. 983.201  Responsibilities of the HA.

    The HA must:
    (a) Inspect the project before, during and upon completion of new 
construction or rehabilitation; and
    (b) Ensure that the amount of assistance that is attached to units 
is within the amounts available under the ACC.


Sec. 983.202  [Amended]

    76. Section 983.202 is amended by removing from the second sentence 
the phrase ``disclosing information and submitting certifications as 
required by 24 CFR part 12 and implementing instructions,'' and by 
removing the additional phrase ``that accessibility'' and adding in 
place of this latter phrase the term ``accessibility''.


Sec. 983.203  [Amended]

    77. Section 983.203 is amended by:
    a. Removing from paragraph (a)(1) the phrase ``and 24 CFR 5.410 
through 5.430'';
    b. Removing from paragraph (b) the next to the last sentence, which 
is in parentheses;
    c. Removing from paragraph (d)(6) the parenthetical phrase ``(under 
Sec. 983.208)'' and adding in its place ``(under Sec. 983.207)''; and
    d. Removing from paragraph (g)(1) reference to ``Sec. 983.207'' and 
adding in its place ``Sec. 983.206''.
    78. In Sec. 983.204, a new paragraph (e) is added to read as 
follows:


Sec. 983.204  Maintenance, operation and inspections.

* * * * *
    (e) Enforcement of HQS. 24 CFR part 982 and this part 983 do not 
create any right of the family, or any party other than HUD or the HA, 
to require enforcement of the HQS requirement by HUD or the HA, or to 
assert any claim against HUD or the HA, for damages, injunction or 
other relief, for alleged failure to enforce the HQS.


Sec. 983.205  [Removed]


Secs. 983.206 through 983.208  [Redesignated as Secs. 983.205 through 
983.207]

    79. In subpart E, Sec. 983.205 is removed and Secs. 983.206 through 
983.208 are redesignated as Secs. 983.205 through 983.207, 
respectively.
    80. In newly redesignated Sec. 983.205, paragraph (a) is revised to 
read as follows:


Sec. 983.205  Overcrowded and underoccupied units.

    (a) 24 CFR 982.403, Terminating HAP contract: When unit is too big 
or too small, does not apply.
* * * * *
    81. Newly redesignated Sec. 983.207 is revised to read as follows:


Sec. 983.207  Informal review or hearing.

    24 CFR 982.554 (Informal review for applicants) and 24 CFR 982.555 
(Informal hearing for participants) are applicable.
    82. In part 983, a new subpart F is added, to read as follows:

SUBPART F--RENT AND HOUSING ASSISTANCE PAYMENT


Sec. 983.251  Applicability.

    (a) This subpart describes how to determine the amount of the rent 
to owner and the housing assistance payment in the PBC program.

[[Page 23872]]

    (b) In subpart K of 24 CFR part 982 (rent and housing assistance 
payment for tenant-based program), the following are the only sections 
that apply to the PBC program under this Part: Sec. 982.504 (for 
determination of the FMR/exception rent limit); Sec. 982.516 (regular 
and interim examinations of family income and composition); and 
Sec. 982.517 (utility allowance schedule).


Sec. 983.252  Limits on initial rent to owner.

    (a) Reasonable rent. The initial rent to owner for a unit may not 
exceed the reasonable rent as determined by the HA in accordance with 
Sec. 983.256.
    (b) FMR/exception rent limit. The initial gross rent for a unit 
(rent to owner plus utility allowance) may not exceed the FMR/exception 
rent limit on the date the Agreement is executed. The FMR/exception 
rent limit is determined by the HA in accordance with 24 CFR 982.504.


Sec. 983.253  Initial rent: Who approves.

    (a) For units that are not HUD-insured or HA-owned. The HA approves 
the initial rent to owners for PBC units that are not financed with a 
HUD-insured multifamily mortgage, and are not owned by the HA.
    (b) For units that are insured or HA-owned. For HA-owned PBC units 
or PBC units financed with a HUD insured multifamily mortgage, the 
initial rents must be approved by HUD.


Sec. 983.254  Annual adjustment of rent to owner.

    (a) Owner request for adjustment and compliance with contract. At 
each annual anniversary date of the HAP contract, the HA must adjust 
the rent to owner in accordance with the following requirements:
    (1) The owner must request a rent increase (including a 
comparability study to determine the amount of such increase) by 
written notice to the HA at least 120 days before the HAP contract 
anniversary. The request must be submitted in the form and manner 
required by the HA.
    (2) The HA may not increase the rent at the annual anniversary 
unless:
    (i) The owner requested the increase by the 120 day deadline; and
    (ii) During the year before the contract anniversary, the owner 
complied with all requirements of the HAP contract, including 
compliance with the HQS for all contract units.
    (b) Amount of annual adjustment. (1) The adjusted rent to owner 
equals the lesser of:
    (i) The pre-adjustment rent to owner multiplied by the applicable 
Section 8 annual adjustment factor published by HUD in the Federal 
Register;
    (ii) The reasonable rent as determined by the HA in accordance with 
Sec. 983.256; or
    (iii) The rent requested by owner.
    (2) For a HAP contract under an Agreement executed on or after June 
1, 1998, the applicable factor is the published annual adjustment 
factor in effect 60 days before the HAP contract anniversary. For a HAP 
contract under an Agreement executed before June 1, 1998, the 
applicable factor is the published annual adjustment factor in effect 
on the contract anniversary date.
    (3) In making the annual adjustment, the pre-adjustment rent to 
owner does not include any previously approved special adjustments.
    (4) The rent to owner may be adjusted up or down in accordance with 
this section.
    (c) Rent adjustments for HA-owned units. For HA-owned PBC units, 
the HA must request HUD approval of the annual adjustment. The HA may 
not increase the rent at the annual anniversary until and unless HUD 
has reviewed the HA comparability study, and has approved the 
adjustment.
    (d) Initial rent. Except as necessary to correct errors in 
establishing the initial rent in accordance with HUD requirements, the 
adjusted rent to owner must not be less than the initial rent.

(Information collection requirements in this section have been 
approved by the Office of Management and Budget under control number 
2577-0169.)


Sec. 983.255  Special adjustment of rent to owner.

    (a) HUD discretion. (1) At HUD's sole discretion, HUD may approve a 
special adjustment of the rent to owner. An HA may only make a special 
adjustment of the rent to owner if the adjustment has been approved by 
HUD.
    (2) The owner does not have any right to receive a special 
adjustment.
    (b) Purpose of special adjustment. A special adjustment may only be 
approved to reflect increases in the actual and necessary costs of 
owning and maintaining the contract units because of substantial and 
general increases in:
    (1) Real property taxes;
    (2) Special governmental assessments;
    (3) Utility rates; or
    (4) Costs of utilities not covered by regulated rates.
    (c) Limits on special adjustment. (1) A special adjustment may only 
be approved if and to the extent the owner demonstrates that cost 
increases are not adequately compensated by application of the 
published annual adjustment factor at the contract anniversary (see 
Sec. 983.254). The owner must demonstrate that the rent to owner is not 
sufficient for proper operation of the housing.
    (2) The adjusted rent may not exceed the reasonable rent as 
determined by a comparability study in accordance with Sec. 983.256.
    (d) Financial information. The owner must submit financial 
information, as requested by the HA, that supports the grant or 
continuance of a special adjustment. For HAP contracts of more than 
twenty units, such financial information must be audited.
    (e) Term of special adjustment. (1) The HA may withdraw or limit 
the term of any special adjustment.
    (2) If a special adjustment is approved to cover temporary or one-
time costs, the special adjustment is only a temporary or one-time 
increase of the rent to owner.

(Information collection requirements in this section have been 
approved by the Office of Management and Budget under control number 
2577-0169.)


Sec. 983.256  Reasonable rent.

    (a) Requirement. (1) The HA may not enter an agreement to enter 
into housing assistance payments contract until the HA determines that 
the initial rent to owner under the HAP contract is a reasonable rent.
    (2) During the term of a HAP contract, the rent to owner may not 
exceed the reasonable rent as determined by the HA.
    (3) At least annually during the HAP contract term, the HA must 
redetermine that the current rent to owner does not exceed a reasonable 
rent.
    (b) Comparability. The HA must determine whether the rent to owner 
is a reasonable rent in comparison to rent for other comparable 
unassisted units. To make this determination, the HA must consider:
    (1) The location, quality, size, unit type, and age of the contract 
unit; and
    (2) Any amenities, housing services, maintenance and utilities to 
be provided by the owner in accordance with the lease.
    (c) Appraisal. (1) Determining initial rent. (i) To determine that 
the initial rent to owner is reasonable, the HA must use a qualified 
State-certified appraiser who has no direct or indirect interest in the 
property or otherwise.
    (ii) For each unit type, the appraiser must submit a completed 
comparability analysis on Form HUD-92273 (Estimates of Market Rent by 
Comparison--the form is available at the Department of Housing and 
Urban Development, HUD Custom Service Center, 451 7th Street, SW, Room 
B-100, Washington, DC 20410) for HA review and approval. The appraisal

[[Page 23873]]

must use at least three comparable units in the private unassisted 
market.
    (iii) The HA must certify to HUD that the initial rent to owner for 
a unit does not exceed the reasonable rent.
    (2) Annual Adjustment: Comparability study. (i) In determining the 
annual adjustment of rent to owner (in accordance with Sec. 983.254), 
the adjusted rent to owner must not exceed a reasonable rent as 
determined by an HA ``comparability study.''
    (ii) The comparability study is an analysis of rents charged for 
comparable units. The HA comparability study must determine the 
reasonable rent for the contract units as compared with rents for 
comparable unassisted units. The adjusted rent for a contract unit may 
not exceed the reasonable rent as shown by the comparability study.
    (iii) The comparability study must include a completed 
comparability analysis for each unit type on Form HUD-92273 (Estimates 
of Market Rent by Comparison). The comparability study may be prepared 
by HA staff or by another qualified appraiser. The appraiser may not 
have any direct or indirect interest in the property or otherwise.
    (iv) The comparability study must show how the reasonable rent was 
determined, including major differences between the contract units and 
comparable unassisted units.
    (v) If the owner requests a rent increase by the 120 day deadline 
(in accordance with Sec. 983.254(a)), the HA must submit a 
comparability study to the owner at least 60 days before the HAP 
contract anniversary. If the HA does not submit the comparability study 
to the owner by this deadline, an increase of rent by application of 
the annual adjustment factor (in accordance with Sec. 983.254(b)) is 
not subject to the reasonable rent limit.
    (d) Owner certification of rents charged for other units. By 
accepting each monthly housing assistance payment from the HA, the 
owner certifies that the rent to owner is not more than rent charged by 
the owner for comparable unassisted units in the premises. The owner 
must give the HA information requested by the HA on rents charged by 
the owner for other units in the premises or elsewhere.

(Information collection requirements in this section have been 
approved by the Office of Management and Budget under control number 
2577-0169.)


Sec. 983.257  Other subsidy: Effect on rent to owner.

    (a) HOME. For units assisted under the HOME program, rents are 
subject to requirements of the HOME program (24 CFR 92.252).
    (b) Combining subsidy. The HA may only approve or assist a project 
in accordance with HUD regulations and guidelines designed to ensure 
that participants do not receive excessive compensation by combining 
HUD program assistance with assistance from other Federal, State or 
local agencies, or with low income housing tax credits. (See 42 U.S.C. 
3545(d) and section 3545 note.)
    (c) Other subsidy: HA discretion to reduce rent. The HA may reduce 
the initial rent to owner because of other governmental subsidies, 
including tax credit or tax exemption, grants or other subsidized 
financing.
    (d) Prohibition of other subsidy. For provisions prohibiting PBC 
assistance to units in certain types of subsidized housing, see 
Sec. 983.7(c).


Sec. 983.258  Rent to owner: Effect of rent control.

    In addition to the rent reasonableness limit, and other rent limits 
under this rule, the amount of rent to owner also may be subject to 
rent control limits under State or local law.


Sec. 983.259  Correction of rent.

    At any time during the life of the HAP contract, the HA may revise 
the rent to owner to correct any errors in establishing or adjusting 
rent to owner in accordance with HUD requirements. The HA may recover 
any excess payment from the owner.


Sec. 983.260  Housing assistance payment: Amount and distribution.

    (a) Amount. The monthly housing assistance payment equals the gross 
rent, minus the higher of:
    (1) The total tenant payment; or
    (2) The minimum rent as required by law.
    (b) Distribution. The monthly housing assistance payment is 
distributed as follows:
    (1) The HA pays the owner the lesser of the housing assistance 
payment or the rent to owner.
    (2) If the housing assistance payment exceeds the rent to owner, 
the HA may pay the balance of the housing assistance payment either to 
the family or directly to the utility supplier to pay the utility bill.


Sec. 983.261  Family share: Family responsibility to pay.

    (a) The family share is calculated by subtracting the amount of the 
housing assistance payment from the gross rent.
    (b) The HA may not use housing assistance payments or other program 
funds (including any administrative fee reserve) to pay any part of the 
family share. Payment of the family share is the responsibility of the 
family.


Sec. 983.262  Other fees and charges.

    (a) The cost of meals or supportive services may not be included in 
the rent to owner, and the value of meals or supportive services may 
not be included in the calculation of reasonable rent.
    (b) The lease may not require the tenant or family members to pay 
charges for meals or supportive services. Non-payment of such charges 
is not grounds for termination of tenancy.
    (c) The owner may not charge the tenant extra amounts for items 
customarily included in rent in the locality or provided at no 
additional cost to the unsubsidized tenants in the premises.

    Dated: April 13, 1998.
Andrew M. Cuomo,
Secretary.
[FR Doc. 98-10374 Filed 4-29-98; 8:45 am]
BILLING CODE 4210-32-P