Rules & Regulations of the State of Tennessee
Title 0770 - Housing Development
Chapter 0770-03-01 - Moderate Rehabilitation Program
Section 0770-03-01-.07 - CONTRACT RENTS

Universal Citation: TN Comp Rules and Regs 0770-03-01-.07

Current through September 24, 2024

(1) Fair Market Rent Limitation.

(a) The initial Gross Rent for any Moderate Rehabilitation unit specified in the Agreement must not exceed the Moderate Rehabilitation Fair Market Rent applicable to the unit on the date that the Agreement is executed except by up to 10 percent as provided in Rule 0770-3-1-.07(2). Additionally, as provided in Rule 0770-3-1-.07(4), changes may be made in the Contract Rent subsequent to the signing of the Agreement which result in Gross Rents which exceed the Moderate Rehabilitation Fair Market Rent by up to 20 percent. The Fair Market Rent Schedule for Moderate Rehabilitation will be 120 percent of the Existing Housing Fair Market Rent Schedule.

(2) Exception Rents.

(a) The Agency may approve initial Gross Rents which exceed the applicable Moderate Rehabilitation Fair Market Rents by up to 10 percent in the following circumstances:
1. For all units of a given size or type in specified areas where HUD has determined that median rents for standard units of that size or type in the area are from 10 to 20 percent higher than the Existing Housing Fair Market Rents. Such a determination by HUD may be made on a case-by-case basis or by area upon receipt from the Agency of documentation demonstrating the necessity for exception rents in the area.

2. On a case-by-case basis, where the Agency has made a written determination that the higher Gross Rent is necessary to meet the needs of families needing four or more bedrooms, or to provide the physical modifications to a unit and/or structure which are necessary to meet the needs of the handicapped or disabled.

(3) Determination of Initial Contract Rents.

(a) The Agency must establish a base rent for each unit. This base rent will be the average rent charged for the unit during the 18 months preceding the date the Owner submitted the proposal to the Agency plus an adjustment not to exceed the amount obtained by application of the appropriate annual adjustment factor established by HUD. However, the Owner may request a higher base rent on the grounds that the base rent is insufficient to allow for adequate management and maintenance of the unit. The Agency may approve a higher base rent established by determining the estimated costs to the Owner of owning, managing and maintaining the rehabilitated unit. This higher base rent will be calculated using a HUD prescribed formula.

(b) In addition the Agency must determine the monthly per unit cost to the Owner of repaying a rehabilitation loan to finance the cost of the rehabilitation specified in the Agreement and the cost of any necessary temporary relocation payments to be made by the Owner to Families to be assisted under the Program. In making this calculation, the Agency must use the interest rate at which the Owner proposes to obtain his rehabilitation loan and a loan period as follows:
1. A 15-year term if the total amount of rehabilitation established in the feasibility analysis equals or exceeds $15,000.

2. The actual term of the rehabilitation loan obtained by the Owner if the total amount of rehabilitation established in the feasibility analysis is less than $ 15,000.

(c) The initial Contract Rent for the unit must be the lesser of
1. the base rent as established in subsection 3 (a) of this rule plus the monthly cost of amortization of a rehabilitation loan as established in subsection (3) (b).

2. the Moderate Rehabilitation Fair Market Rent or exception rent for that unit size (see paragraphs (a) and (b) of this section), minus any applicable Allowance of Utilities and Other Services attributable to the unit.

(4) Changes in Initial Contract Rents During Rehabilitation.

(a) The contract rents established pursuant to Rule 0770-3-1-.07(3) will be the Contract Rents on the effective date of the Contract except under the following circumstances:
1. When, during rehabilitation, work items are discovered which (A) could not reasonably have been anticipated or are necessitated by a change in local codes or ordinances, and (B) were not listed in the work write-up prepared or approved by the Agency and (C) will require additional expenditures which would make the rehabilitation infeasible at the Contract Rents established in the Agreement. Under these circumstances, the Agency will:
(i) Approve a change order to the rehabilitation contract, or amend the work write-up if there is no rehabilitation contract, specifying the additional work to be accomplished and the additional cost for this work,

(ii) Recomputed the Contract Rents, within the limits specified in these rules, based upon the revised cost estimate, and

(iii) Prepare and execute an amendment to the Agreement stating the additional work required and the revised Contract Rents.

2. When the actual cost of the rehabilitation performed is less than that estimated in the calculation of Contract Rents for the Agreement.

3. When the actual interest rate -or term (if the total cost of the work established in the feasibility analysis is less than $15,000) of the rehabilitation loan differs from that anticipated in the calculation of Contract Rents for the Agreement.

4. When the actual relocation payments made by the Owner to temporarily relocated Families varies from the cost estimated in the calculation of Contract Rents for the Agreement.

(b) Should changes occur as specified in Rule 0770-3-1-.07(4) (a) above (either and increase or decrease), the Agency will recalculate the Contract Rents in accordance with these rules and amend the Contract or Agreement, as appropriate, to reflect the revised rents.

(c) The Agency must review and approve the Owner's certification that the rehabilitation costs, temporary relocation costs, interest rate and term (if the total cost of the work to be performed under the Agreement is less than $15,000) on which the Contract Rents are based are the actual costs incurred, interest rate and loan term (where applicable).

(d) In establishing the revised Contract Rents, the Agency must determine that the resulting Gross Rents do not exceed the Moderate Rehabilitation Fair Market Rent or the exception rent under paragraph (b) of this section, in effect at the time of execution of the Agreement. The Fair Market Rent or exception rent, as appropriate, may only be exceeded when the Agency determines in its calculations that it will be necessary for the revised Gross Rent to exceed the Moderate Rehabilitation Fair Market Rent or exception rent. Should this determination be made, the Agency execute a revised Agreement until it receives HUD field office approval of such an exception. The HUD field office may approve revised Gross Rents which exceed the Fair Market Rents by up to 20 percent for reasons specified above upon proper justification by the Agency of the necessity for the increase.

Authority: T.C.A. § 13-23-115(18).

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