of age, handicap, or other reasons, are unable to locate approvable units and shall provide such assistance where the Family alleges that discrimination is preventing it from finding a suitable unit, any such assistance to be in accordance with the PHA's approved equal opportunity housing plan.

(b) Annual Contributions.

(1) The maximum total annual contributions that may be contracted for in the ACC for Existing Housing shall not exceed: (i) the total of the Fair Market Rents for all the units plus (ii) a fee for the regular costs of PHA administration. HUD-approved preliminary costs shall be payable out of this total.

(2) A project account will be established and maintained, in an amount as determined by the Secretary consistent with his responsibilities under section 8 (c) (6) of the Act. This account shall be established and maintained by HUD as a specifically identified and segregated account, and payment shall be made therefrom only for the following purposes:

(i) Housing assistance payments; (ii) The amount of the fee for regular PHA costs of administration; and

(iii) Other costs specifically authorized or approved by the Secretary.

(3) In addition, the ACC will provide that HUD will take such additional steps authorized by section 8 (c) (6) of the Act as may be necessary to assure availability of funds to cover increases in housing assistance payments payments on a timely basis as a result of increases in Contract Rents or decreases in Family incomes.

(c) Housing Assistance Payments to Owners-(1) General. Housing assistance payments shall be paid to an Owner in accordance with his Contract for the dwelling unit under lease by an Eligible Family. These housing assistance payments will cover the difference between the Contract Rent and the portion of said rent payable by the Family as determined in accordance with HUD-established schedules and criteria.

(2) Vacated Units.

(i) If an Eligible Family vacates its unit in violation of the provisions of the Lease or tenancy agreement, the Owner shall receive housing assistance payments in the amount of 80 percent of the Contract Rent for a vacancy period not exceeding 60 days or the expiration or other termination of the Lease or tenancy agreement, whichever comes first; provided, however, that if

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the Owner collects any of the Family's share of the rent for this period in an amount which, when added to the 80 percent payments, results in more than the Contract Rent, such excess shall be payable to HUD or as HUD may direct; and provided further, that if the vacancy is the result of action by the Owner, the Owner shall not receive any payment under this paragraph if his action was in violation of the Lease or the Contract or any applicable law or if the Owner failed to comply with § 1275.207(o).

(ii) The Owner shall not be entitled to any payment under this paragraph (c) (2) unless he: (A) Immediately upon. learning of the vacancy, has notified the PHA of the vacancy or prospective vacancy, (B) has taken and continues to take all feasible actions to fill the vacancy including, but not limited to, contacting applicants on his waiting list, if any, requesting the PHA and other ap propriate sources to refer eligible applicants, and advertising the availability of the unit and (C) has not rejected any eligible applicant, except for good cause acceptable to the PHA.

(iii) The Owner shall not be entitled to housing assistance payments with respect to vacant units under this paragraph (c) (2) to the extent he is entitled to payments from other sources (for example, payments for losses of rental income incurred for holding units vacant. for relocatees pursuant to Title I of the HCD Act or payments under §1275.103 (j)).

(d) Maximum Rents to Owner.-(1) Initial Maximum Rents. (i) For any Existing Housing unit, the sum of the Contract Rent and any Allowance for Utilities and Other Services shall not exceed the applicable Fair Market Rent except that such Fair Market Rent may be exceeded by up to 10 percent if the PHA certifies that such higher rent meets the test of reasonableness in paragraph (d) (1) (ii), specifies the factor(s) on which the certification is based, and HUD approves. Upon request by the PHA, the Fair Market Rent may be exceeded by up to 20 percent in a designated area, where the Assistant Secretary for Housing-Production and Mortgage Credit determines that special circumstances, such as prevailing rents for modest housing, in a designated area, warrant such higher rents or determines that such higher rents are necessary to the implementation of a Local Housing Assistance Plan..

(ii) In addition, the PHA shall determine and so certify that the Contract Rent does not exceed a rent that is reasonable in relation to the location, quality, amenities, facilities, and management and maintenance services of the dwelling unit.

(2) Subsequent Adjustments. Contract Rents shall be adjusted as provided in paragraphs (d) (2) (i) and (ii) upon request to the PHA by the Owner, provided that such request is accompanied by a certification signed by the Owner and the Family that the unit is in Decent, Safe, and Sanitary condition and that the Owner is otherwise in compliance with the terms of the Lease.

(i) An adjustment as of any anniversary date of the Lease not to exceed the percentage of change in the applicable published Fair Market Rent (with appropriate reduction in the adjustment where utilities are paid directly by the Family), provided that the Owner has the legal right to terminate the tenancy as of such anniversary date.

(ii) A special adjustment, subject to HUD approval, effective as of the date when the Owner has the legal right to terminate the tenancy, to reflect increases in the actual and necessary expenses of owning and maintaining the unit which have resulted from substantial general increases in real property taxes, utility rates, or similar costs (i.e., assessments, and utilities not covered by regulated rates), but only if and to the extent that the Owner clearly demonstrates that such general increases have caused increases in the Owner's operating costs which are not adequately compensated for by the annual adjustments provided for in paragraph (d) (2) (i). The Owner shall submit financial statements to the PHA which clearly support the increase.

(iii) Notwithstanding any other provisions of this Part, adjustments as provided in this paragraph (d) (2) shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by the PHA (and approved by HUD, in the case of adjustments under paragraph (d) (2) (ii)).

(e) Term of ACC. The term of the ACC shall be for five years, as provided in Appendix I.

(f) Term of Lease and of Housing Assistance Payments Contract. The Lease shall be for not less than one year nor more than three years but may contain a

provision permitting termination upon 30 days advance written notice by either party. The term of the Contract shall be for the term of the Lease, provided that if a Family continues in occupancy after the expiration of the term on the same terms and conditions as the original Lease (or changes thereto which have been approved by the PHA and incorporated in the Contract where appropriate), the Contract shall continue in effect for the duration of such tenancy subject to the limitations in the next sentence. The specified Contract and Lease term, including specified renewal options, if any, and any continuation of tenancy beyond the Lease term shall in no case exceed three years or extend beyond the term of the ACC pertaining to the Contract and the Lease. This limitation shall not preclude the execution of a new Lease and Contract for the dwelling unit.

(g) Housing Quality Standards. Housing used in this program shall meet the Performance Requirements set forth in this paragraph (g). In addition, the housing must meet the Acceptability Criteria (set forth in this paragraph (g)) except for such variations as are proposed by the PHA and approved by HUD. Local climatic or geological conditions or local codes are examples which may justify such variations.

(1) Sanitary Facilities-(i) Performance Requirement. The dwelling unit shall include its own sanitary facilities which are in proper operating condition, can be used in privacy, and are adequate for personal cleanliness and the disposal of human waste.

(ii) Acceptability Criteria. A flush toilet in a separate, private room, a fixed basin with hot and cold running water, and a shower or tub with hot and cold running water shall be present in the dwelling unit, all in proper operating condition. These facilities shall utilize an approved public or private disposal system.

(2) Food Preparation and Refuse Disposal-(i) Performance Requirement. The dwelling unit shall contain suitable space and equipment to store, prepare, and serve foods in a sanitary manner. There shall be adequate facilities and services for the sanitary disposal of food wastes and refuse, including facilities for temporary storage where necessary.

(ii) Acceptability Criteria. A cooking stove or range, a refrigerator of appropriate size for the unit, and a kitchen sink with hot and cold running water

shall be present in proper operating condition within the unit. The sink shall drain into an approved public or private system. Adequate space for the storage, preparation and serving of food shall be provided. There shall be adequate facilities and services for the sanitary disposal of food wastes and refuse, including facilities for temporary storage where necessary (e.g., garbage cans).

(3) Space and Security-(i) Performance Requirement. The dwelling unit shall afford the Family adequate space and security.

(ii) Acceptability Criteria. A living room, kitchen area, and bathroom shall be present; and the dwelling unit shall contain at least one sleeping room or living/sleeping room of appropriate size for each two persons. Exterior doors and windows accessible from outside the unit shall be lockable.

(4) Thermal Environment.-(i) Performance Requirement. The dwelling unit shall have and be capable of maintaining a thermal environment healthy for the human body.

(ii) Acceptability Criteria. The dwelling unit shall contain safe heating and/ or cooling facilities which are in proper operating condition and can provide adequate heat and/or cooling to each room in the dwelling unit appropriate for the climate to assure a healthy living environment. Unvented room heaters which burn gas, oil or kerosene are unacceptable.

(5) Illumination and Electricity.—(i) Performance Requirement. Each room shall have adequate natural or artificial illumination to permit normal indoor activities and to support the health and safety of occupants. Sufficient electrical sources shall be provided to permit use of essential electrical appliances while assuring safety from fire.

(ii) Acceptability Criteria. Living and sleeping rooms shall include at least one window. A ceiling or wall type light fixture shall be present and working in the bathroom and kitchen area. At least two electric outlets, one of which may be an overhead light, shall be present and operable in the living area, kitchen area, and each bedroom area.

(6) Structure and Materials-(i) Performance Requirement. The dwelling unit shall be structurally sound so as not to pose any threat to the health and safety of the occupants and so as to protect the occupants from the environment.

(ii) Acceptability Criteria. Ceilings, walls and floors shall not have any serious defects such as severe bulging or leaning, large holes, loose surface materials, severe buckling or noticeable movement under walking stress, missing parts or other serious damage. The roof structure shall be firm and the roof shall be weathertight. The exterior wall structure and exterior wall surface shall not have any serious defects such as serious leaning, buckling, sagging, cracks or holes, loose siding, or other serious damage. The condition and equipment of interior and exterior stairways, halls, porches, walkways, etc., shall be such as not to present a danger of tripping or falling. Elevators shall be maintained in safe and operating condition.

(7) Interior Air Quality—(i) Performance Requirement. The dwelling unit shall be free of pollutants in the air at levels which threaten the health of the occupants.

(ii) Acceptability Criteria. The dwelling unit shall be free from dangerous levels of air pollution from carbon monoxide, sewer gas, fuel gas, dust, and other harmful air pollutants. Air circulation shall be adequate throughout the unit. Bathroom areas shall have at least one openable window or other adequate exhaust ventilation.

(8) Water Supply-(i) Performance Requirement. The water supply shall be free from contamination.

(ii) Acceptability Criteria. The unit shall be served by an approved public or private sanitary water supply.

(9) Lead Based Paint-(i) Performance Requirement.

(A) The dwelling unit shall be in compliance with HUD Lead Based Paint regulations, 24 CFR Part 35, issued pursuant to the Lead Based Paint Poisoning Prevention Act, 42 U.S.C. 4801, and the Owner shall provide a certification that the dwelling has been treated in accordance with such HUD regulations.

(B) If the property was constructed prior to 1950, the Owner shall provide a certification that the Family upon occupancy will receive the notice required by HUD Lead Based Paint regulations and procedures regarding the hazards of lead based paint poisoning, the symptons and treatment of lead poisoning and the precautions to be taken against lead poisoning and a certification that records showing receipt of such notice by each tenant will be maintained for at least three years.

(ii) Acceptability Criteria. Same as Performance Requirement.

(10) Access-(i) Performance Requirement. The dwelling unit shall be useable and capable of being maintained without unauthorized use of other private properties, and the building shall provide an alternate means of egress in case of fire.

(ii) Acceptability Criteria. The dwelling unit shall be useable and capable of being maintained without unauthorized use of other private properties. The building shall provide an alternate means of egress in case of fire (such as fire stairs or egress through windows).

(11) Site and Neighborhood-(i) Performance Requirement. The site and neighborhood shall be reasonably free from disturbing noises and reverberations and other hazards to the health, safety, and general welfare of the occupants.

(ii) Acceptability Criteria. The site and neighborhood shall not be subject to serious adverse environmental conditions, natural or manmade, such as dangerous walks, steps, instability, flooding, poor drainage, septic tank back-ups, sewage hazards or mudslides; abnormal air pollution, smoke or dust; excessive noise, vibration or vehicular traffic; excessive accumulations of trash; vermin or rodent infestation; or fire hazards.

(12) Sanitary Condition-(i) Performance Requirement. The unit and its equipment shall be in sanitary condition.

(ii) Acceptability Criteria. The unit and its equipment shall be free of vermin and rodent infestation.

(13) Congregate Housing. The foregoing standards shall apply except for the requirement that food preparation and serving facilities be included within the dwelling unit. All units shall contain a refrigerator of appropriate size. The central dining facility (and kitchen facility, if any) shall contain suitable space and equipment to store, prepare and serve food in a sanitary manner, and there shall be adequate facilities and services for the sanitary disposal of food wastes and refuse, including facilities for temporary storage where necessary (e.g., garbage cans).

(h) Types of Housing.

(1) Any type of Existing Housing may be utilized under this Part except as set forth below.

(2) No section 8 assistance may be provided with respect to any Owner-oc

cupied unit; however, cooperatives are considered rental housing for this purpose.

(3) Congregate Housing may be utilized or eligible elderly, handicapped, disabled or displaced families and individuals. The Fair Market Rent for Congregate Housing shall be the same as for 0- and 1-bedroom units (as appropriate) of the same structure type, and the Contract Rent shall not include the cost of providing and serving food.

(4) Existing FHA insured, section 202 direct loan, Farmers Home Administration insured or direct loan, or VA guaranteed properties, or properties held by the Secretary or properties sold by the Secretary on which he has taken back a purchase money mortgage, may be utilized under this Part; provided, however, that in any section 221(d) (3) below market interest rate (BMIR), section 202, or section 236 project, (i) units receiving assistance under section 23 and/or rent supplement programs may continue to receive such assistance; and (ii) units not receiving such assistance may receive section 8 assistance only after approval by the Assistant Secretary for Housing Production and Mortgage Credit and the Assistant Secretary for Housing Management on a case by case basis, and in such cases the number of units assisted under section 8 (together with any section 23 and/or rent supplement units), will generally be limited to 20 percent of the units in each such project. The housing assistance payment shall be the amount by which the rent payable by the Eligible Family is less than the subsidized rent (which subsidy shall not be reduced by the section 8 payment). In no event may any occupant receive the benefit of more than one of the following: rent supplement, section 23 housing assistance, or section 8 housing assistance.

(i) Equal Opportunity Requirements. Participation in this program requires compliance with Title VI of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, Executive Order 11063 and all rules, regulations, and requirements issued pursuant thereto. The PHA shall comply with section 3 of the Housing and Urban Development Act of 1968 and all applicable rules, regulations, and requirements.

(j) Security and Utility Deposits. (1) An Owner may require Families to pay a security deposit in an amount equal

to the amount payable by the Family toward one month's Gross Rent. If a Family vacates the unit, the Owner may utilize the deposit as reimbursement for any unpaid rent or other amount owed under the Lease. If the Family has provided a security deposit, and it is insufficient for such reimbursement, the Owner may claim reimbursement from the PHA, not to exceed an amount equal to the remainder of one month's Contract Rent. If a family vacates the unit owing no rent or other amount under the Lease, or if such amount is less than the amount of the security deposit, the Owner shall refund the full amount or the unused balance, as the case may be, to the Family.

(2) In those jurisdictions where interest is payable by the Owner on security deposits, the refunded amount shall include the amount of interest payable. The Owner must comply with all State and local laws regarding interest payments on security deposits.

(3) Families shall be expected to obtain the funds to pay security and utility deposits, if required, from their own resources and/or other private or public

sources.

(k) Establishment of Income Limit Schedules. HUD will establish schedules of income limits for defining LowerIncome Families and Very Low-Income Families.

(1) 30 Percent of Assisted Families To Be Very Low-Income Families. Each PHA shall so administer its Existing Housing program under this Part, including the issuance of a sufficient number of Certificates to Very Low-Income Families, so that at least 30 percent of the Families for whom Leases are approved by the PHA are Very Low-Income Families; Provided, however, That in connection with periodic reexamination of Family income, the PHA shall ascertain whether at least 30 percent of all the assisted Families are Very Low-Income Families; and where the percentage is lower than 30 percent, the PHA shall thereafter use its best efforts in connection with subsequent issuance of Certificates of Family Participation to achieve at least a 30 percent level.

(m) Establishment of Amount of Housing Assistance Payments. The amount of Housing Assistance Payment on Behalf of an Eligible Family, to be determined in accordance with schedules and criteria established by HUD, will

equal the difference between (1) no less than 15 percent nor more than 25 percent of the Family's gross income and (2) the Gross Rent, taking into consideration the income of the Family, the number of minor children in the household, and the extent of medical or other unusual expenses incurred by the Family, except that, in the case of a large Very Low-Income Family or a very large Lower-Income Family or a Family with exceptional medical or other expenses, the amount of the housing assistance payment shall be the difference between 15 percent of the Family's gross income and the Gross Rent. The term large Family means a Family which includes six or more minors (other than the head of the Family or spouse). The term very large Family means a Family which includes eight or more minors (other than the head of the Family or spouse). The amount of the housing assistance payment shall be adjusted, where appropriate, to reflect the shopping incentive credit pursuant to paragraph (n) of this section.

(n) Shopping Incentive-Family Credit for Savings of Government Assistance Payments. (1) As an incentive to Families to find the most economical housing suitable to their needs and approvable under this Part, if a Family selects a unit (other than a unit receiving the benefit of Federal, State or local subsidy) for which the Owner's proposed Contract Rent plus any applicable Allowance is below the applicable Fair Market Rent, the Family will be given credit (Shopping Incentive Credit) by a reduction in its required monthly Gross Family Contribution.

(2) The amount of the monthly Shopping Incentive Credit shall be the dollar amount equal to that percentage of the Gross Family Contribution which the Rent Saving is of the Fair Market Rent. The Rent Saving is the amount by which the Fair Market Rent (i) exceeds the approved Contract Rent (plus any applicable Allowance), or (ii) exceeds the initially proposed Contract Rent (plus any applicable Allowance), if that be higher than the approved Contract Rent (plus any applicable Allowance).

(0) Responsibilities of the PHA. In administering its ACC with HUD, the PHA (subject to review or audit by HUD) shall be responsible for the following:

(1) Publication and dissemination of information concerning the availability