format; the determination of the amount of annual contributions; and invitation, evaluation, and selection of developers' proposals and (2) contains prescribed contracts, agreements and other documents.

§ 800.102 Definitions.

(a) Fair market rent and gross rent. Fair market rent is the gross rent (including utilities, ranges and refrigerators, parking, and all maintenance and management services) for dwelling units of varying size (number of bedrooms) and structure type, which, as determined at least annually by HUD, would be required to be paid in each housing market area in order to obtain privately developed and owned, newly constructed rental housing of modest (nonluxury) nature meeting the objectives of the HUD Minimum Property Standards. Gross rent includes all utilities (except telephone) whether or not paid directly to the utility company by the family. In order to allow for the period of construction, the fair market rent, as determined by HUD, will include HUD's estimate of anticipated rent increases during a period of two years from the date of the fair market rent determination.

(b) Gross family contribution. The portion of the rent to owner payable by a family plus the utility allowance established by the LHA for any utilities (except telephone) payable directly by the family. In no event shall the gross family contribution exceed onefourth of the family's adjusted income as defined by HUD.

(c) Utility allowance. An amount, determined by the LHA and approved by HUD as an allowance for the cost of tenant-purchased utilities, which is deducted from the fair market rent for purposes of determining the maximum rent to owner and is included in the gross family contribution.

(d) Annual contributions contract (ACC). A written agreement between HUD and an LHA to provide annual contributions to the LHA for participation in the Housing Assistance Payments Program. (See Appendix X to this part.)

(e) Agreement to enter into housing assistance payments contract (“Agree

ment"). A written agreement between an LHA and an owner/developer that upon satisfactory completion of the housing by the owner/developer pursuant to agreed upon plans, specifications and other requirements as set forth in the Agreement, the LHA will enter into a Housing Assistance Payments Contract with the owner. (See Appendix XI to this part.)

(f) Housing assistance payments contract ("Contract"). A HUD-approved written Contract between an LHA and an owner for the purpose of providing housing assistance payments on behalf of eligible families. (See Appendix XII to this part.)

(g) Eligible families. Those families determined by the LHA to meet the requirements for admission into housing assisted hereunder. Families shall not be eligible for housing assistance payments when the LHA determines that 25 percent of adjusted family income (as defined by HUD) equals or exceeds the gross rent for the unit leased. The ineligibility of such families for housing assistance payments shall not affect the family's other rights under its lease.

(h) Certificate of family participation. The certificate issued by an LHA declaring a family to be eligible for participation in this program and stating the terms and conditions of such eligibility. (See Appendix XIII to this part.)

(i) Lease. An LHA-approved written agreement between a private owner and an eligible family for the leasing of a decent, safe, and sanitary dwelling unit. The lease shall contain the required provisions specified in the Contract.

§ 800.103 Basic policies.

(a) Limitation on use of newly constructed housing. New Construction projects shall be permitted: (1) In those localities where HUD determines that there is not and there is not likely soon to be an adequate supply of existing housing which, with the aid of housing assistance payments provided under this program, can meet the housing needs of lowincome families, or (2) in certain areas in which the proposed housing is re

quired and such projects are specifically approved by HUD in accordance with priorities established from time to time by the Secretary.

(b) Development process—(1) Projects involving 20 percent or less assistance. LHAs may negotiate directly with developers, in accordance with the provisions of § 800.204 of this part, for housing projects in which 20 percent or less of the units will be assisted in a single structure or complex of five or more units.

(2) Projects involving more than 20 percent assistance. For projects which will provide housing assistance under this program to more than 20 percent of the units in a single structure or complex of five or more units, any owner (defined to include a developer) who has a site, a site option or other evidence of site control may submit a proposal to provided housing opportunities for low-income families in newly constructed housing. Such proposals shall be in response to an Invitation for Proposals (see Appendix IV to this part) published by the LHA. If the proposal is acceptable to the LHA and HUD, the LHA will send the developer a Notification of Developer Selection (see Appendix VIII to this part) and will enter into an Agreement with him.

(c) Annual contributions. (1) The maximum total annual contribution that may be contracted for in the ACC for a project shall be: (i) the total of the HUD-approved maximum rents to owner (see § 800.103(e)) plus the utility allowance, if any, for tenant-purchased utilities (see § 800.102(c)) for all the units in the project plus (ii) an allowance for the cost of administration. The allowance for the preliminary costs of administration and an amount for security and utility deposits (see § 800.105) shall be payable out of this total.

(2) A project account, which shall at no time exceed an amount equal to 10 percent of the maximum annual contribution may be established and maintained out of amounts by which the maximum annual contributions for any years are not otherwise payable in such years. This account shall be established and maintained by the

LHA or by HUD, as determined by HUD, as a specifically identified and segregated account, and payment shall be made therefrom, as approved by HUD, only for the following purposes: (i) Increases in housing assistance payments;

(ii) Increases in the allowance for LHA administrative expenses;

(iii) Increases in fund requirements for security and utility deposits; and

(iv) Other expenditures specifically authorized or approved by the Secretary. Any balance in this account after payment of the last annual contribution for the project shall be paid to HUD.

(d) Housing assistance payments. (1) The housing assistance payments will pay the owner the difference between the rent chargeable by the owner as specified in the Contract and that portion of said rent payable by the family.

(2) Housing assistance payments shall be paid to owners only for units under lease by eligible families (except as provided in the Contract). If a family vacates its unit in violation of the provisions of its lease, the owner may continue to receive housing assistance payments with respect to such unit in accordance with the terms of the Contract, not beyond the term of the lease, but only if the owner (i) immediately upon learning of the vacancy, has taken all feasible action to fill it, including, but not limited to, contacting families on his waiting list, requesting the LHA to refer eligible families, and advertising the availability of the unit, (ii) has promptly (within 30 days of the date of the family vacated the unit) notified the LHA of the vacancy and the reasons for the vacancy, and (iii) has not rejected, except for good cause acceptable to the LHA, any substitute family provided by the LHA.

(e) Maximum rents to owners. (1) The rents to owners that may be contracted for pursuant to the HUD-approved Housing Assistance Payments Contract ("Contract") between the LHA and the owner shall not exceed the lesser of:

(i) The HUD-established fair market rents for newly constructed rental

housing for the locality or localities in which the units are located, less any allowance for utilities payable directly by families. These fair market rents may be exceeded by up to 10 percent in establishing the initial Contract rents for a project if the Assistant Secretary for Housing Production and Mortgage Credit determines that higher rents are justified and necessary to provide required special design features for elderly and handicapped persons.

(ii) Rents determined by HUD to be reasonable in relation to the quality, location, amenities, and management and maintenance services of the project.

(2) In addition, in the case of projects financed with HUD-insured mortgages, the rents for units assisted under this program shall not exceed the lower of:

(i) The rents stated in the HUD-approved section 23 proposal, or

(ii) The rent formula rents established by HUD in connection with the mortgage insurance for such projects.

(f) Term of housing assistance payments contract. The LHA and owner may enter into a Contract for a maximum initial term of five years, with an option in the owner to renew for an additional term(s) of not more than five years each, provided that the total Contract term, including renewals, shall not exceed twenty years. (If the project is accepted in stages, the dates for the initial and the renewal terms shall be separately related to the units in each stage. However, the total Contract term for the units in all stages may not exceed 22 years from the beginning of the first fiscal year under the ACC.) However, the LHA may notify the owner that it will not agree to renew if it determines that the owner is in default under the terms of the Contract.

(g) Rent adjustments. Contract rents shall be adjusted, subject to the limitations contained in paragraphs (g)(4) and (5) of this section, as follows:

(1) Automatic annual adjustments. (i) On each anniversary date of the Contract, the latest monthly rents shown in the Contract shall be adjusted automatically by applying, as an

adjustment factor, the HUD-determined percentage change in the fair market rent for existing housing for the market area in which the project is located; provided that the adjustment factor determination is not more than one year old.

(ii) The percentage change in fair market rent for existing housing will be determined annually on the basis of intervening change in the Bureau of Labor Statistics (BLS) index of rents for those localities for which BLS publishes rent indices. For all other localities, adjustment factors will be the averages of changes in BLS rent indices for reporting cities within the respective census regions of the localities. Note: Any local adjustments in existing housing fair market rents, made in accordance with HUD procedures, due to local market conditions or other local factors not reflected in BLS rent indices will be excluded in determining the change in the existing housing fair market rent to be used herein.

(iii) Rents may be adjusted upward or downward, as may be appropriate; however, in no case shall the adjusted rents be less than the rents set forth in the Contract on the date of execution of the Contract.

(2) Special additional adjustments. Special additional adjustments may be granted when approved by the Secretary for substantial, general increases in property taxes and/or utility rates but only if and to the extent that the owner clearly demonstrates that such general increases have caused in

creases in the owner's operating costs which are not adequately compensated for by automatic annual adjustments.

(3) Renegotiations. The then current rents contained in the Contract may only be renegotiated to become effective at the beginning of the sixth, eleventh, and sixteenth years of the Contract (if the Contract is renewed for that length of time), whether or not such effective date of renegotiation coincides with the beginning of a renewal term. Rents may be renegotiated above the rents which would be permitted by the automatic annual adjustment, if the owner submits to HUD financial statements which clear

ly support the increase. HUD shall review such statements and may approve rents which reflect reasonable amounts for project operation and return on investment in comparison with comparable rental projects of the same age. Renegotiated rents shall not be applied retroactively.

(4) Projects financed with HUD-insured mortgages. Notwithstanding any other provisions of this part, in no case may rents for projects financed with HUD-insured mortgages exceed the rent formula rents established by HUD in connection with the mortgage insurance for such projects.

(5) Limitation. The LHA will make housing assistance payments in increased amounts commensurate with rent adjustments or renegotiations under this paragraph, but only to the extent possible within the limits of the maximum total amount of annual contributions payable under section 1.3(b)(1) of Part I of the ACC. No commitment is made by the LHA or HUD that such maximum total amount of annual contributions will be increased by reason of any such rent adjustments or renegotiations. However, the owner may select eligible families in light of this limitation so that his total receipts (family rents and housing assistance payments) would be commensurate with the adjusted or renegotiated Contract rents.

(h) Eligible agencies. (1) All legally constituted local housing authorities created pursuant to State housing authorities laws are eligible to participate in this program. In addition, under the terms of the U.S. Housing Act, a "public housing agency" may include any State, county, municipality or other governmental entity or public body which is authorized by State law to engage in the development or administration of low-income housing or slum clearance and may, therefore, be eligible to participate in this program. The abbreviations "LHA" or "LHAs" as used herein include any governmental entity or public body as described in this paragraph.

(2) LHAS may, by agreement, cooperate with each other in carrying out their respective functions, and State laws typically provide that a locality

which has no LHA can invite another LHA within the State to function within its borders.

(3) In addition to the few States that have created statewide LHAS, many more have state departments or agencies authorized to administer housing and urban development legislation which qualifies them as public housing agencies under the U.S. Housing Act and authorizes them to carry out this function or to act through LHAS or other entities.

(i) Local governing body approval. HUD cannot approve an application for a section 23 new construction project unless the governing body of the locality in which the units are to be located has, by resolution, approved the application of the provisions of section 23 to the locality. Once such a resolution has been enacted, it may satisfy this approval requirement for all subsequent section 23 leasing projects, including new construction projects. The terms of the resolution as enacted must be examined by the LHA and HUD to determine whether it contains any restrictive language (e.g., limits the number of dwelling units, limits the program to locations which would have the effect of denying equal housing opportunities, or authorizes only the leasing of existing housing) which would require that a new resolution be passed to enable HUD to approve the proposed project.

(j) Types of housing to be developed. The LHA may utilize newly constructed single-family houses, row houses, or multifamily structures. In addition, congregate housing may be developed for elderly or handicapped families and individuals. Single room occupant (SRO) housing planned specifically as a relocation resource for single persons (who quality for low-rent public housing) may also be developed under the new construction program. (See the appropriate HUD requirements for guidelines and standards applicable to congregate and SRO housing.) Highrise elevator projects for families with children may not be utilized unless HUD determines there is no practical alternatives. Mobile homes may not be utilized in the new construction program. Generally, housing to be devel

oped for use in this program should correspond to the predominant housing patterns of the locality in terms of structure type and density.

(k) Limitation on number of units in single structure. (1) Section 23 (c) of the U.S. Housing Act provides that no more than 10 percent of the units in any single structure shall be assisted unless the LHA, because of the limited number of units in the structure or for any other reason, determines that such limit should not be applied. Where the LHA determines that the 10 percent limitation should not be applied, a record of its determination shall be maintained in the LHA's permanent file, and the LHA shall notify HUD of its action.

(2) However, in approving applications for assistance HUD will give priority to those applications which would provide for housing assistance for 20 percent or less of the units in a single multifamily structure or complex of five or more dwelling units. However, applications for (i) housing to be specifically designed for occupancy by the elderly or handicapped or (ii) programs of 25 or fewer units shall be considered for approval without regard to such priority.

(1) Relocation requirements. No Agreement shall be executed for housing which is to be constructed on a site which has occupants unless (1) the owner voluntarily undertakes liability for and provides for the funding of all relocation costs (see section 7 of the Agreement) or (2) other commitments, satisfactory to HUD, have been made for the funding of such costs.

(m) Equal opportunity and other requirements. Participation in the section 23 Housing Assistance Payments Program-New Construction requires compliance by all participants with (i) Title VI of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, Executive Orders 11063 and 11246, section 3 of the Housing and Urban Development Act of 1968, and the National Environmental Policy Act; and (ii) all rules, regulations, and requirements issued pursuant thereto.

(n) Methods of finance. (1) The following types of financing may be utilized:

(i) Conventional loans from commercial banks, savings banks, savings and loan associations, pension funds, insurance companies or other financial institutions;

(ii) Market rate HUD-insured mortgage loans under sections 207, 220, 221(d)(3) (use of this section is limited to nonprofit sponsors), 221(d)(4), and 231 of the National Housing Act;

(iii) Section 515 of the Housing Act of 1949, administered by the Farmers Home Administration (provided that a family receiving the benefit of housing assistance payments may not also receive the benefit of interest reduction payments); and

(iv) Financing by bonds or other obligations of State housing or development agencies which are authorized to participate in the Section 23 Housing Assistance Payments Program; State Agency Participation (see Notice of Proposed Rulemaking, 39 FR 10262, March 19, 1974) or which participate in HUD programs for Non-Insured Assisted Projects by State and Local Governments.

(2) The following types of financing shall not be utilized:

(i) All of the unnamed remaining mortgage insurance programs under the National Housing Act;

(ii) Direct or indirect financing by bonds or other obligations of an LHA (except State housing or development agencies as permitted in subparagraph (1)(iv) above);

(iii) Direct or indirect financing by an organization or entity on behalf of an LHA or other public body, or by an organization or entity which is an agency or instrumentality of an LHA or other public body, or by an organization or entity which has an identity of interest with an LHA or other public body.

(0) Security and utility deposits. Generally, families shall be expected to obtain the funds to pay security deposits (not to exceed one month's total rent to owner) and/or utility deposits, if required, from their own and/or other private or public sources. In hardship cases where families are unable to obtain funds to pay the required amounts, the LHA may pay on behalf of the families the necessary