than 12 percent of the part of the cost of the capital improvement allocable to the residence or other real property. The preceding sentence does not apply if the increase in monthly rent over the base rent due to the allowable capital improvement rent increase is less than $1 per month, except in those cases in which a substantial capital improvement has been made which directly benefits all residences in a building or complex taken as a whole. For the purposes of this paragraph, "cost" means adjusted basis of the improvement, as determined pursuant to chapter 1, subtitle A, Internal Revenue Code of 1954.

(c) Prior approval requirement. Notwithstanding paragraphs (a) and (b) of this section, in any case in which (1) the capital improvement is not required by local law or by the terms of a mortgage or deed of trust, and (2) the application of those paragraphs would result in an increase of over 10 percent in the monthly rent for the residence or other real property, prior approval for the increase must be obtained from the Internal Revenue Service.

(d) Examples. The following are examples of situations covered by this section:

Example 1. During February of 1972, a swimming pool is constructed on the grounds of a complex for the use of residents. The installation of the pool is not required by local law or the terms of a mortgage or deed of trust. If the application of the rule of the first sentence of paragraph (b) of this section would result in a rent increase which would be over 10 percent greater than that otherwise allowable, the lessor, before imposing the increase on his tenants, must obtain prior permission from the Internal Revenue Service, by application to the Internal Revenue Service.

Example 2. If in example 1 above, the lessor operates the pool for those residents and nonresidents who chose to pay dues, the housing units in the complex would not be considered to be directly benefited by the capital improvement and its costs would not be allocable to the units for purposes of paragraph (a) of this section. Therefore, the lessor may not increase rents because of the installation of the pool.

Example 3. A lessor installed three closets at a cost of $400 in an apartment renting for $200 per month on a month-to-month basis. After proper notice, he wishes to raise the monthly rental payment to $206 per month. It is permissible since the $6 increase is not more than 12 percent of the cost of the capital improvement and does not increase

the monthly rental payment more than 10 percent.

Example 4. A lessor wishes to install central air-conditioning in his building. The pro rata portion of the expense per apartment is $1,600. None of the apartments have monthly rental payments of more than $200 per month. The lessor proposes to increase the monthly rental payment $24 per month. He may not do so without the consent of the Internal Revenue Service since the monthly rental payment increase will exceed 10 percent of the highest monthly rental payment although the dollar amount of proposed increase, $24, is only 12 percent of the pro rata portion per apartment.

§ 301.104

Formula-determined rentals.

General: A lease of a residence or other real property in which the monthly rent is determined by means of a formula specified in the lease agreement may continue with that formula in effect. However, the total dollar amount of the monthly rent determined pursuant to that formula may not exceed the amount which would be otherwise allowable under this subpart.

§ 301.105 Seasonal patterns.

(a) General. Notwithstanding any other provision of this subpart, monthly rents which normally fluctuate in distinct seasonal patterns may be adjusted as prescribed in this section.

(b) District fluctuation. Monthly rents must show a large or otherwise distinct fluctuation at a specific, identifiable point in time. The distinct fluctuation must be an established practice that has taken place in each of the 3 years before the date of the contemplated change. New persons may determine their qualifications from those generally prevailing with respect to persons similarly situated, leasing in the same marketing area. If there are not similar persons in the immediate area, qualification may be established by reference to the nearest similar marketing area.

(c) Time of rent fluctuation. The monthly rent fluctuation referred to in paragraph (b) of this section may not take place at a time other than the time at which that fluctuation took place in the preceding year unless the date of the rent fluctuation is tied to a specific event such as the start of a particular holiday season or other specific season.

(d) Allowable rent. If the requirements of paragraphs (b) and (c) of this section are met, the maximum monthly rent which may be charged by the per

son concerned is the greater of the following:

(1) The base rent determined under subpart C of this part plus the allowable rent increases permitted under §§ 301.102 and 301.103.

(2) The monthly rent charged by that person during the first 30 days of the period following the seasonal monthly rent adjustment in the preceding year plus the allowable rent increases permitted under § 301.103.

(e) Return to nonseasonal rent. Each person who increases a monthly rent under this section shall decrease that monthly rent at the same date or identifiable point in time as the monthly rent was decreased in the previous season. § 301.106 Rent controlled units.

(a) General rule. In the case of a transaction occurring after December 1, 1971, a person may charge a monthly rent in excess of the base rent for a unit of rent controlled residential housing, but only to the extent authorized by a governmental authority which has complied with the requirements of paragraph (c) of this section.

(b) Rent controlled housing defined. For the purposes of this section, the term "rent controlled housing" means a residence for which the monthly rent is established or controlled either

(1) Under a rent control program of general applicability in existence before November 14, 1971, under the laws or regulations of a State or local government, or an agency or instrumentality thereof; or

(2) By (in whole on in part) the Federal Government, a State or local government, or an agency or instrumentality thereof, which has provided financial assistance for the construction or purchase of, but which does not own, the residence.

The term also includes housing provided for students by a school, college, university, or similar institution which owns or controls that housing.

(c) Instructions to governmental authorities. Each person referred to in paragraph (b) of this section shall, except with respect to student housing

(1) Before February 1, 1972, furnish the Price Commission a full description of its methods of rent control, and a copy of each of its laws, regulations, and procedures by which that control is implemented;

(2) Report to the Price Commission each significant change in any of those laws, regulations, or procedures, within 30 days after the date of that change;

(3) Report to the Price Commission, within 30 days after the end of each calendar quarter, on the aggregate percentage rent increases for controlled units under its jurisdiction during that quarter; and

(4) Furnish any further information requested by the Price Commission.

(d) Review. To ensure that the goals of the Economic Stabilization Program are attained, the Price Commission reserves the right to review, limit, or decrease any requested, ordered, or authorized rent increase made pursuant to paragraph (a) of this section, and to impose additional or different requirements on any person reporting under paragraph (c) of this section or a person to whom the last sentence of paragraph (b) applies.

(e) Base rent of decontrolled units. The base rent for a unit of rent controlled housing which became decontrolled as the result of a vacancy occurring after August 14, 1971 (the base rent of which unit, if computed under §§ 301.202 through 301.205, would be based in whole or in part upon a rent controlled by the laws and regulations of the city and State of New York under authorization provided by this section), is the average rent provided in transactions occurring between July 16, 1971, and August 14, 1971, inclusive, of substantially identical decontrolled units in the same building or complex. If such a substantially identical unit was not rented during that period of time, the base rent shall be the average rent of substantially identical units decontrolled during that period located in the nearest marketing area containing such a substantially identical unit. This paragraph does not authorize the collection of any increased rent for any unit for any period before the effective date of this paragraph.

[36 F.R. 25387, Dec. 30, 1971, as amended at 37 F.R. 3829, Feb. 23, 1972]

§ 301.107 Other factors.

Notwithstanding any other provision of this part, in making any determination, the Price Commission will take into account whatever factors it considers relevant to an equitable resolution of the case and considers necessary to achieve the overall goal of holding aver

Notwithstanding any other provision of this part, the Price Commission reserves the right to review and limit or decrease the amount of any rent increase not previously approved by it.

§ 301.109 Exceptions.

Requests for relief from the operation of this part shall be considered by the Price Commission only in cases of extreme hardship under criteria to be specified by the Commission. Any lessor who seeks relief under this section shall, at the time the relief is sought, notify his lessees on a unit-by-unit basis as to the dollar and percentage amount of any adjustment or increase being sought. Section 301.502 applies whenever a lessor is granted a rent adjustment or increase pursuant to this section.

Subpart C-Base Rent

§ 301.201 Base rent.

(a) General. The base rent is the highest monthly rent which may be charged by any person for a residence or other real property, before the rent adjustments allowed under Subpart B of this part, when that residence or other real property becomes occupied after December 28, 1971. The base rent runs with the residence or other real property despite a change in ownership or management.

(b) Computation of base rent. The base rent for any residence or other real property (other than property described in § 301.208) is computed according to §§ 301.201 through 301.206. "Monthly rent" as used in this subpart does not include side payments or discounts, such as those in the examples in § 301.4 or other side payments or discounts, unless the side payment or discount was specifically referred to in the lease or other document which has the status of an enforceable contract.

(c) Conflict between rules. If a residence or other real property qualifies under more than one section of §§ 301.202 through 301.205, the section appearing first in the sequence under which the residence or other real property qualifies controls. If a residence or other real property qualifies under both paragraphs (a) and (b) of the section which controls,

that paragraph will apply which describes the terms under which the residence or other real property was most recently occupied.

§ 301.202 Residences or other real property which became occupied May 16, 1971, through August 14, 1971.

(a) Month-to-month terms or terms of lesser duration. If a residence or other real property became occupied during the period beginning on May 16, 1971, and ending on August 14, 1971, with terms of month to month or terms of lesser duration, the base rent for that residence or other real property is the most recent monthly rent charged during that period.

(b) Terms of greater than month-tomonth duration. If a residence or other real property became occupied during the period beginning on May 16, 1971, and ending on August 14, 1971, with terms of greater than month-to-month duration, the base rent is the most recent monthly rent charged during that period. § 301.203 Residences or other real property which became occupied May 25, 1970, through May 15, 1971.

(a) Month-to-month terms or terms of lesser duration. If a residence or other real property became occupied during the period beginning on May 25, 1970, and ending on May 15, 1971, with terms of month to month or terms of lesser duration, the base rent for that residence or other real property is the rent computed under § 301.207(a).

(b) Terms of greater than month to month duration. If a residence or other real property became occupied during the period before May 15, 1971, with terms of greater than month-to-month duration, the base rent is the average transaction rent calculated under § 301.206.

§ 301.204 Residences or other real property which became occupied August 15, 1971, through November 13, 1971.

(a) Applicability. This section applies only to residences or other real property that did not become occupied during the period beginning on May 25, 1970, and ending on August 14, 1971.

(b) Month-to-month terms or terms of lesser duration. If a residence or other real property became occupied during the period beginning on August 15, 1971, and ending on November 13, 1971, with terms of month to month or lesser duration, the base rent for that residence or other real

property is the highest monthly rent which was charged during that period.

(c) Terms of greater than month-tomonth duration. If a residence or other real property became occupied during the period beginning on August 15, 1971, and ending on November 13, 1971, with terms of greater than month-to-month duration, the base rent is the highest monthly rent which was charged during that period for that residence or other real property.

§ 301.205 Residences or other real property which became occupied November 14, 1971, through December 28, 1971.

(a) Applicability. This section applies only to residences or other real property that did not become occupied during the period beginning on May 25, 1970, and ending November 13, 1971.

(b) Month-to-month terms or terms of lesser duration. If a residence or other real property became occupied during the period beginning on November 14, 1971, and ending on December 28, 1971, with terms of month to month or lesser duration, the base rent for that residence or other real property is the highest monthly rent which was charged during that period.

(c) Terms of greater than month-tomonth duration. If a residence or other real property became occupied during the period beginning on November 14, 1971, and ending on December 28, 1971, with terms of greater than month-to-month duration, the base rent is the highest monthly rent which was charged during that period for that residence or other real property.

§ 301.206 Average transaction rent.

(a) General. The average transaction rent for purposes of determining the base rent of residences under § 301.203(b) is determined under this section.

(b) Eligible transactions. The transactions to be used in the computation of the average transaction rent are those

(1) Which involve a residence in the same building or complex which, before the transaction, had most recently been occupied with terms of greater than month to month;

(2) Which were entered into with the same class of lessees as the class of the intended lessee; and

(3) Which occurred in one of the following periods and the period used shall

be the most recent of the following periods in which a transaction occurred:

(i) July 16, 1971, through August 14, 1971.

(ii) June 16, 1971, through July 15, 1971.

(iii) May 16, 1971, through June 15, 1971.

(c) Computation of the average transaction rent. The average transaction rent is the monthly rent charged, with respect to the residence referred to in § 301.203(b), for the most recent rent payment interval during the period before May 15, 1971, multiplied by a fraction. The numerator of the fraction shall be the sum of all monthly rents charged in all of the eligible transactions (but only for the first rent payment interval after the date possession is acquired under each such eligible transaction). The denominator of the fraction shall be the sum of all monthly rents charged for the rent payment interval immediately preceding the date possession is to be acquired under each such eligible transaction.

(d) No transaction rule. If no eligible transactions exist, the base rent is computed under § 301.207(b).

§ 301.207 Base rents using May 25, 1970 rent.

(a) Base rent for residence or other real property in § 301.203(a). The base rent for a residence or other real property found in § 301.203 (a) is the greater of the following:

(1) The monthly rent charged for that residence or other real property for the rent payment interval which includes May 25, 1970, plus 5 percent of that rent.

(2) The monthly rent charged for that residence or other real property for the most recent rent payment interval before May 16, 1971.

(b) Base rent for residence or other real property in § 301.203(b). Where no eligible transaction exists, as that term is defined in § 301.206(b), the base rent for a residence or other real property referred to in § 301.203(b) shall be the higher of the following:

(1) The monthly rent charged for that residence or other real property for the rent payment interval which includes May 25, 1970, plus 5 percent of that rent.

(2) The monthly rent charged for that residence or other real property for the most recent rent payment interval before August 14, 1971.

§ 301.208

Property not occupied on or after May 25, 1970.

The base rent of a residence which first became habitable as a dwelling before August 16, 1971, but has not been occupied on or at any time after May 25, 1970, is determined under this section. Whether a residence first became habitable before August 16, 1971, is determined under the criteria set forth in § 301.1(b). The base rent of such a residence is determined by a computation based on the average arm's-length monthly rent received by person currently leasing or renting comparable property in the same marketing area. In determining this average price, only a quantity of transactions which is not insubstantial in relation to the total number of transactions involving that comparable property need to be taken into consideration.

§ 301.209 May 25, 1970, limitation date. This part does not require any person to establish a base rent which is lower

than the monthly rent which was received for the residence or other real property during a rental period which included May 25, 1970. In any case in which this section would otherwise apply and the unit residence or other real property was not occupied on May 25, 1970, the nearest date preceding that date on which it was occupied shall be considered to be May 25, 1970, for purposes of this section.

BASE RENT EXAMPLE UNDER SUBPART C

An owner owns a three-story, six-unit building with no elevator, the upper floors have always rented for approximately $5 per month less than the immediate lower floor because of the inconvenience of climbing stairs. There is a two-bedroom and a onebedroom apartment on each floor. During 1970, all units were rented under 1-year leases.

As the 1-year leases expired, the rent records for the building for 1971 show that the following transactions occurred (rounded to the nearest dollar):

Under § 301.203 (b), the lessor must determine the average transaction rent with respect to apartments 1-B and 3-A in order to determine the base rent for such units.

There are two eligible transactions which can be used to determine the average transaction rent, 2B and 3B (both were expiring leases with terms in excess on 1 month). Computation of average transaction rent ($205 + $200) fraction: = 1.05 ($195 + $190)

Computation of average transaction rent The base rent of 1-B = $210 ($200 × 1.05). The base rent of 3-A = $147 ($140×1.05). The base rents for the other units are as follows:

1-A=$158 (month-to-month on August 15, 1971).

·2-A=$152 (lease renewed during the 90 days prior to August 15, 1971).

2-B $205 (lease signed during the base period).

3-B $200 (month-to-month on August 15, 1971).

Subparts D-E [Reserved] Subpart F-Rental Increase Procedure § 301.501 General rule.

No person may increase a rent, with respect to any transaction after December 28, 1971, involving a lease or implied contract of occupancy of a residence or other real property, unless he has complied with this subpart, regardless of