Options for Renewing Your Project-Based Section 8 HAP Contract

Options for Renewing Your Project-Based Section 8 HAP Contract

If you are an owner of affordable rental properties (especially if you already have an existing Section 8 HAP contract), you may be interested in learning about renewal options for your HAP contract.

Here are contract renewal options for you to consider:

Section 8 HAP Contract Renewal Options

Applicability:

This document applies to all multi-family housing projects with expiring non-MAHRA and MAHRA project-based Section 8 assistance contracts, unless otherwise noted.

Affordable-Housing-Financing-Gap-Options BIZ TIP: Affordable Housing: Financing Gap Options

Owner Options:

Generally, an owner may renew the contract under any option in which the project is eligible at the time of renewal (i.e., the expiration date of the existing contract or, if applicable, the date of termination by mutual agreement of the existing contract).

At the time of renewal, an owner must choose among any of six renewal options.

      1. Mark-Up-To-Market (MUTM)
      2. Contract renewals with existing rents that are adjusted by Operating Cost Adjustment Factor (OCAF) or based on budget
        1. When expiring contracts have rents that are at or below market; or
        2. A project owner who has a contract that has language allowing discretionary comparability adjustment within the 5-year term and the project is determined exempt from Recap restructuring with above-market rent requests that have project rents reduced to market
      3. Recap referral for processing, because the project has contract rents that are greater than market rents, and the project has HUD-insured or HUD-held mortgage
      4. Contract renewal for “exception” projects under MAHRA Section 524(b)(1). “Exception” projects are exempt from debt-restructuring based on MAHRA Section 514(h) or are not an “eligible multifamily housing project”, according to MAHRA Section 512(2)
      5. Renewal contracts for:
        1. Portfolio Reengineering Demonstration projects that have:
          • A Mortgage Restructuring Demo Program Use Agreement; or
          • Budget-Based Without Mortgage Restructuring Demo Program Use Agreement
        2. Preservation projects under either:
          • Title II, Emergency Low-Income Housing Preservation Act of 1987 (ELIHPA); or
          • Title VI, Low-Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA)
      6. Opt-out of the Section 8 contract

sva-certified-public-accountants-biz-tip-twinning-9-percent-and-4-percent-low-income-housing-tax-credits BIZ TIP: Twinning 9% and 4% Low-Income Housing Tax Credits In the Same Development

Key Considerations:

  • An owner must submit the Contract Renewal Request Form (Form HUD-9624) and required supporting documentation to the HUD Account Executive (AE) or the Contract Administrator (CA) at least 120 days, but no earlier than 180 days, before the Section 8 contract expiration. Copies of MAHRA renewal contracts for the six renewal options can be found on HUDCLIPS.
  • HUD will allow early termination of non-MAHRA contracts and MAHRA contracts (excluding MUTM contracts) if certain requirements are met.
  • There are certain renewal options that require one or more of the following: Rent Comparability Study (RCS), OCAF Rent Adjustment Worksheet (Form HUD-9625), budget-based rent increase request prepared within the requirements of Section 2-15 of the Section 8 Renewal Policy, and RHS approved budgets be submitted to the AE/CA. The submitted forms should then be reviewed by the AE/CA within 30 days of submission.
  • The new regulation Section 8 contracts set limitations on an owner’s right to distributions.
  • HUD allows waivers, but they require “good cause” determination and can only be for non-statutory regulatory requirements.
  • HUD believes that multiyear contracts (maximum of 20 years) assist in preserving affordable housing and, because of this, the Regional Center Director’s approval is not required on a renewal request for a multiyear term.
  • HUD no longer allows Section 8 contract “extensions”.

There are multiple renewal options and considerations to take into account when looking to renew your Section 8 contracts. Which option is best for you?

If you are not sure, contact one of our professionals at SVA. They have the expertise and knowledge to help you seamlessly renew your Section 8 contract.

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Biz Tip Topic Expert: Nicholas Bartel

Nicholas Bartel

Nic is a Staff Accountant with SVA Certified Public Accountants with focus in the real estate and employee benefit plan industries. In his role, he performs audits for owners of affordable multifamily housing projects receiving Section 42 Low-Income Housing Tax Credits as well as projects that receive financing through the United States Department of Housing and Urban Development (HUD).

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