Option 2 – Chapter 15

Contract Renewals for Other Projects with Current Rents at or Below Comparable Market Rents

Owners or Purchasers interested in the Capital Repairs and/or Transfer program as defined in Chapter 15 of the Section 8 Renewal Guide, may do so under Option 2.

Both for-profit and Non-profit owners can submit a request for Option 2.

Under Option 2 Chapter 15, the Owner/Purchaser must submit a request for budget-based rent increase, not to exceed comparable market rents for costs associated with the transaction including new debt service and debt service coverage.

To qualify for Option 2

Owners must have:

  • Aggregate current rent levels under the expiring contract must be at or less than the comparable market rents (this is determined with a Rent Comparability Study), or
  • The property’s aggregate current rents exceed the comparable market rents, but the property is exempt from Mark-to-Market (Option 3) restructuring and the Owner is willing to reduce their rents to the comparable market rents.

Renewal requests over 5 years requires HUD approval. For properties with a contract term that exceeds 5 years, the property will need to obtain a new Rent Comparability Study at the end of the 5th year and the rents will be adjusted to the comparable market rents.

In addition to the Option qualifications

Owner/Purchaser must agree to the following:
A Use Agreement – The Owner must agree to accept a 20-year recorded Use Agreement requiring the current or future owners to accept any Section 8 contract offered by HUD for the next 20 years. If the property already has a Use Agreement, the Owner must agree to extend the term an additional 20 years.

20-year Contract – The Owner/Purchaser must agree to accept a twenty-year Section 8 Contract, subject to annual appropriations. If the Owner/Purchaser is terminating a current contract, the Owner/Purchaser must agree that at the end of the 20-year contract, the contract will be renewed for the remaining term of the original contract.

Combine Multiple Contracts or Stages – Where applicable, and if possible, the Owner/Purchase must combine multiple contracts or stages.

Utility Allowance Analysis

A Full Baseline Utility Allowance with all supporting data collected from utility companies or tenants is required at minimum every 3 years but can be prepared and submitted annually.
Download the Baseline Utility Allowance Worksheet

For the two years following the most recent Baseline Utility Allowance, owners and agents have the option to again obtain data from utilities or tenants to determine utility allowances, or to perform a Factor-Based Utility Analysis, adjusting the allowance using a state-specific increase factor called the Utility Allowance Factor (UAF) provided by HUD.
Download the UAF Calculation Worksheet

What is required for your submission?

Access our Option 2 Chapter 15 Checklist here for a detailed list of submission requirements or download it along with our Option 2 Chapter 15 Resource Bundle below.

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