Option 4
Renewal of Projects Exempt from or Not Eligible for Debt Restructuring
Known as the “Exception Rents” option, Option 4 is a good option for Owners when they have properties above market.
For-profit and Non-profit owners can submit a request for Option 4.
To qualify for Option 4, owners must:
- Have a property that is exempt from debt restructuring under Section 515(h) of MAHRA; or
- The property does not meet the definition of an “eligible multifamily housing project” under Section 512(2) of MAHRA
Under Option 4, at renewal, the property will process the “Lesser of Test”. What this means is the property will submit paperwork for an OCAF and a budget. Whichever process results in the lesser rents, is how the rents will be set.
For example, if the budget results in higher rents than the OCAF, the rents will be adjusted by the OCAF. OR, if the budget results in lower rents than the OCAF, the rents will be adjusted by the budget.
Properties can choose a term of 1 to 20 years for a contract renewal. Anything over 5 years requires HUD approval. In long term contracts, the property will be eligible for the Auto OCAF during rent adjustment years. If the property would like to adjust their rents with a budget during a rent adjustment year, a Rent Comparability Study would be required.
Please Note: Properties seeking an Option 4 renewal with an active Rural Development loan should see the ‘Option 4 Rural Housing’ tab below.
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 4 Checklist here for a detailed list of submission requirements, or download it along with our Option 4 Resource Bundle below.
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Renewal of Projects Exempt from or Not Eligible for Debt Restructuring for Rural Housing Service 515 Projects
Known as the “Exception Rents” option, Option 4 Rural Housing is a good option for Owners when they have properties above market.
For-profit and Non-profit owners can submit a request for Option 4 Rural Housing.
To qualify for Option 4 Rural Housing, owners must:
- Have a property that is exempt from debt restructuring under Section 515(h) of MAHRA; or
- The property does not meet the definition of an “eligible multifamily housing project” under Section 512(2) of MAHRA
Owners of Section 515/8 projects who are requesting a contract renewal under Option 4 pursuant to 524(b)(1) of MAHRA must submit their project budget approved by RHS. HUD Account Executives and Performance Based Contract Administrators are not required to review and approve these budgets. If the budget has been approved by RHS, the budget-based rent will be accepted.
Properties can choose a term of 1 to 20 years for a contract renewal. Anything over 5 years requires HUD approval. In long term contracts, the property will be eligible for the Auto OCAF during rent adjustment years. If the property would like to adjust their rents with a budget during a rent adjustment year, a Rent Comparability Study would be required.
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 4 Rural Housing Checklist here for a detailed list of submission requirements, or download it along with our Option 4 Resource Bundle below.
Download this document for free using the button below.
Contract Renewals for Other Projects with Current Rents at or Below Comparable Market Rents
Subject to HUD approval, owners may request to adjust their rents by a budget-based rent adjustment, limited by the market. In this instance, a budget is processed in lieu of the OCAF.
Both for-profit and Non-profit owners can submit a request for Option 2.
To request rental adjustments based on the Operating Cost Adjustment Factor see the ‘Option 2 OCAF Only’ tab above. To proceed with a budget-based Option 2 renewal continue to the steps below.
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 of over 5 years require 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.
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 Budget Checklist here for a detailed list of submission requirements, or download it along with our Option 2 Budget Resource Bundle below.
Renewal of Portfolio Reengineering Demonstration or Preservation Projects
Option 5 is split into two different options, Option 5a Portfolio Reengineering Demonstration and Option 5b Preservation Projects.
Option 5a, Demonstration projects
This option covers any project that has completed the Demo program, as evidenced by a recorded Use Agreement. If the owner entered into the Demo program but did not execute and record a Demo Use Agreement, it is not eligible to renew under Option 5.
Option 5b, Preservation Projects
Preservation Project renewals consist of Section 236 and 221d3 BMIR properties whose owners entered into Long-term Use Agreements with HUD under either Title II Emergency Low Income Housing Preservation Act of 1987 (ELIPHA), or Title VI, Low-income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA).
Properties can only renew under Option 5 if they are already in an Option 5 contract. No new properties may submit paperwork to renew under this option.
Option 5 Renewal Rent Adjustments Methods
The rent adjustment method available to you will be listed in the individual project’s Plan of Action (POA) and/or Use Agreement.
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 5 Checklist here for a detailed list of Option 5a or 5b submission requirements, or download it along with our Option 5 Resource Bundle below.
Download this document for free using the button below.
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.
A great quick reference guide for your desk that breaks down when and what you should be gathering for your next contract renewal/rent adjustment.