(2) Vacancies during rent-up. If a Contract unit is not leased as of the effective date of the Contract, the Owner shall be entitled to housing assistance payments in the amount of 80 percent of the Contract Rent for the unit for a vacancy period not exceeding 60 days from the effective date of the Contract, provided that the Owner (i) commenced marketing and otherwise complied with Sec. 1277.215, (ii) has taken and continues to take all feasible actions to fill the vacancy, including, but not limited to, contacting applicants on his waiting list, requesting the PHA and other appropriate sources to refer eligible applicants, and advertising the availability of the unit, and (iii) has not rejected any eligible applicant, except for good cause acceptable to HUD or the PHA, as the case may be.

(3) Vacancies After Rent-up. (i) If an Eligible Family vacates its unit (other than as a result of action by the Owner which is in violation of the Lease or the Contract or any applicable law), 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; provided, however, that if 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. (See also Sec. 1277.103 (a).) The Owner shall not be entitled to any payment under this paragraph (e) (3) (i) unless he: (A) immediately upon learning of the vacancy, has notified HUD or the PHA, as the case may be, of the vacancy or prospective vacancy and the reasons for the vacancy, and (B) has taken and continues to take the actions specified in paragraphs (e) (2) (ii) and (e) (2) (iii) of this section.

(ii) If the Owner evicts an Eligible Family, he shall not be entitled to any payment under paragraph (e) (3) (i) of this section unless the request for such payment is supported by a certification that (A) he gave such Family a written notice of the proposed eviction, stating the grounds and advising the Family that it had 10 days within which to present its objections to the Owner in writing or in person and (B) the proposed eviction was not in violation of the Lease or the Contract or any applicable law.

(4) The Owner shall not be entitled to housing assistance payments with respect

to vacant units under this paragraph (e) 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 § 1277.103 (r).)

(f) Initial maximum rents to Owners. (1) The sum of the initial Contract Rents and any Allowances for Utilities and Other Services shall not exceed the Fair Market Rents for newly constructed rental housing, except that such Fair Market Rents may be exceeded (i) by up to 10 percent if the field office director determines that special circumstances warrant such higher rents and the higher rents meet the test of reasonableness in paragraph (f) (2) of this section, or (ii) by up to 20 percent, where the Assistant Secretary for Housing Production and Mortgage Credit determines that special circumstances warrant such higher rents, or that such higher rents are necessary to the implementation of a local Housing Assistance Plan, or that such higher rents meet the test of reasonableness in paragraph (f) (2) of this section.

(2) The Contract Rents as proposed must be determined by HUD to be reasonable in relation to the quality, location, amenities, methods and terms of financing, and management and maintenance services of the project, and proposed rents shall be subject to reduction if they are found to be higher than such reasonable rents.

(3) In addition, for projects financed with HUD-insured mortgages, initial Contract Rents for units assisted under this Contract shall not exceed the rents approved by HUD in connection with the mortgage insurance for such projects.

(g) Term of housing assistance payments contract. (1) A Contract may be for an initial term of not more than five years, with an option solely in the Owner to renew for additional terms of not more than five years each, provided that the total Contract term, including renewals, shall not exceed 20 years for any dwelling unit.

(2) In the case of a Contract under which housing assistance payments are made with respect to a project owned by, or financed by a loan or loan guarantee from, a State or local agency, the total Contract term may not exceed 40 years for any dwelling unit.

(3) Notwithstanding the maximum total allowable term per unit stated in

(2) Vacancies during rent-up. If a Contract unit is not leased as of the effective date of the Contract, the Owner shall be entitled to housing assistance payments in the amount of 80 percent of the Contract Rent for the unit for a vacancy period not exceeding 60 days from the effective date of the Contract, provided that the Owner (i) commenced marketing and otherwise complied with Sec. 1277.215, (ii) has taken and continues to take all feasible actions to fill the vacancy, including, but not limited to, contacting applicants on his waiting list, requesting the PHA and other appropriate sources to refer eligible applicants, and advertising the availability of the unit, and (iii) has not rejected any eligible applicant, except for good cause acceptable to HUD or the PHA, as the case may be.

(3) Vacancies After Rent-up. (i) If an Eligible Family vacates its unit (other than as a result of action by the Owner which is in violation of the Lease or the Contract or any applicable law), 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; provided, however, that if 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. (See also Sec. 1277.103 (a).) The Owner shall not be entitled to any payment under this paragraph (e) (3) (i) unless he: (A) immediately upon learning of the vacancy, has notified HUD or the PHA, as the case may be, of the vacancy or prospective vacancy and the reasons for the vacancy, and (B) has taken and continues to take the actions specified in paragraphs (e) (2) (ii) and (e) (2) (iii) of this section.

(ii) If the Owner evicts an Eligible Family, he shall not be entitled to any payment under paragraph (e)(3)(i) of this section unless the request for such payment is supported by a certification that (A) he gave such Family a written notice of the proposed eviction, stating the grounds and advising the Family that it had 10 days within which to present its objections to the Owner in writing or in person and (B) the proposed eviction was not in violation of the Lease or the Contract or any applicable law.

(4) The Owner shall not be entitled to housing assistance payments with respect

to vacant units under this paragraph (e) 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 § 1277.103 (r).)

(f) Initial maximum rents to Owners. (1) The sum of the initial Contract Rents and any Allowances for Utilities and Other Services shall not exceed the Fair Market Rents for newly constructed rental housing, except that such Fair Market Rents may be exceeded (i) by up to 10 percent if the field office director determines that special circumstances warrant such higher rents and the higher rents meet the test of reasonableness in paragraph (f) (2) of this section, or (ii) by up to 20 percent, where the Assistant Secretary for Housing Production and Mortgage Credit determines that special circumstances warrant such higher rents, or that such higher rents are necessary to the implementation of a local Housing Assistance Plan, or that such higher rents meet the test of reasonableness in paragraph (f) (2) of this section.

(2) The Contract Rents as proposed must be determined by HUD to be reasonable in relation to the quality, location, amenities, methods and terms of financing, and management and maintenance services of the project, and proposed rents shall be subject to reduction if they are found to be higher than such reasonable rents.

(3) In addition, for projects financed with HUD-insured mortgages, initial Contract Rents for units assisted under this Contract shall not exceed the rents approved by HUD in connection with the mortgage insurance for such projects.

(g) Term of housing assistance payments contract. (1) A Contract may be for an initial term of not more than five years, with an option solely in the Owner to renew for additional terms of not more than five years each, provided that the total Contract term, including renewals, shall not exceed 20 years for any dwelling unit.

(2) In the case of a Contract under which housing assistance payments are made with respect to a project owned by, or financed by a loan or loan guarantee from, a State or local agency, the total Contract term may not exceed 40 years for any dwelling unit.

(3) Notwithstanding the maximum total allowable term per unit stated in

paragraph (g) (1) or (g) (2) of this section, a shorter term shall be determined by HUD where appropriate, taking into account the nature and extent of the required rehabilitation, the amount of the capital expenditures reasonably required under the proposal, the reasonable period and rate of amortization for the financing, and the approved rents to the Owner.

(4) 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; provided, however, that the total Contract term for the units in all the stages, counting from the effective date of the Contract with respect to the first stage, may not exceed the overall maximum term allowable for any one unit, plus two years.

(h) Rent Adjustments.—(1) funding of adjustments. Housing assistance payments will be made in increased amounts commensurate with Contract Rent adjustments under this paragraph, up to the maximum total annual housing assistance payments committed under the Contract. The provisions of the Contract or the ACC, as the case may be, are designed (by providing for maximum total annual commitments in excess of the amounts required at the time of the initial rental of dwelling units and by setting aside such excess amounts in a project reserve) to assure that housing assistance payments will be increased on a timely basis to cover increases in Contract Rents or decreases in Family incomes. In addition, the Contract or the ACC, as the case may be, will provide that HUD will take such additional steps authorized by section 8 (c) (6) of the Act as may be necessary to carry out this assurance, including (as provided in that section) "the reservation of annual contributions authority for the purpose of amending housing assistance contracts or the allocation of a portion of new authorizations for the purpose of amending housing assistance contracts."

(2) Automatic annual adjustments. (i) Automatic Annual Adjustment Factors will be determined by HUD at least annually; interim revisions may be made as market conditions warrant. Such Factors and the basis for their determination will be published in the FEDERAL REGISTER. These published Factors will be reduced appropriately by HUD where utilities are paid directly by Families.

(ii) On each anniversary date of the Contract, the Contract Rents shall be

adjusted by applying the applicable Automatic Annual Adjustment Factor most recently published by HUD. Contract Rents may be adjusted upward or downward, as may be appropriate; however, in no case shall the adjusted rents be less than the Contract Rents on the effective date of the Contract.

(3) Special additional adjustments. Special additional adjustments may be granted, when approved by HUD, to reflect increases in the actual and necessary expenses of owning and maintaining the Contract units 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 automatic annual adjustments. The Owner shall submit to HUD financial statements which clearly suport the increase.

(4) Overall limitation. Notwithstanding any other provisions of this Part, adjustments as provided in this paragraph (h) shall not result in material differences between the rents charged for assisted and comparable unassisted units, as determined by HUD.

(i) Types of housing and property standards. (1) Existing structures of various types may be appropriate for this program including apartment hotels, single-family houses, or multi-family structures. Hotels or office buildings may be suitable for conversion under this program to housing designed for elderly or handicapped families and individuals, including congregate housing. Single room occupant housing planned specifically as a relocation resource for eligible single persons may also be developed. Units in highrise elevator buildings may not be used for Families with children unless HUD determines there is no practical alternative. Mobile homes may not be utilized in this program.

(2) No section 8 assistance may be provided for any unit occupied by an Owner; however, cooperatives are considered rental housing for this purpose.

(3) Participation in this program requires compliance with (i) HUD Minimum Design Standards for Rehabilitation for Residential Properties, (ii) in the case of congregate or single room occupant housing, the appropriate HUD

guidelines and standards, (iii) HUD requirements pursuant to section 209 of the HCD Act for projects for the elderly or the handicapped, (iv) HUD requirements pertaining to noise abatement and control, (v) HUD regulations issued pursuant to the Lead Base Paint Poisoning Prevention Act, 42 USC 4801, and (vi) applicable State and local laws, codes, ordinances, and regulations.

(j) Site and neighborhood standards. Proposed sites for substantial rehabilitation projects must be approved by HUD as meeting the following standards:

(1) Adequate utilities (water, sewer, gas and electricity) and streets shall be available to service the site.

(2) The site and neighborhood shall be suitable from the standpoint of facilitating and furthering full compliance with the applicable provisions of Title VI of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, Executive Order 11063, and HUD regulations issued pursuant thereto.

(3) The site shall promote greater choice of housing opportunities and avoid undue concentration of assisted persons in areas containing a high proportion of lower-income persons.

(4) The site shall be free from serious adverse environmental conditions, or there shall be evidence that any such conditions will be corrected by the time the rehabilitation is completed.

(5) The site shall comply with any applicable conditions in the Local Housing Assistance Plan, approved by HUD.

(6) The housing shall be accessible to social, recreational, educational, commercial, and health facilities and services, and other municipal facilities and services that are at least equivalent to those typically found in neighborhoods consisting largely of unsubsidized, standard housing of similar market rents.

(7) Travel time and cost via public transportation or private automobile, from the neighborhood to places of employment providing a range of jobs for lower-income workers, shall not be excessive. (While it is important that elderly housing not be totally isolated from employment opportunities, this requirement need not be adhered to rigidly for such projects.)

(8) If the housing to be rehabilitated has occupants, the relocation requirements referred to in Sec. 1277.103 (k), must be met.

(9) Housing may not be rehabilitated in an area that has been identified by

HUD as having special flood hazards and in which the sale of flood insurance has been made available under the National Flood Insurance Act of 1968, unless the project is covered by flood insurance as required by the Flood Disaster Protection Act of 1973, and it meets any relevant HUD standards and local requirements.

(k) Relocation. (1) In the evaluation or selection of Preliminary Proposals, consideration shall be given to whether there are occupants who would have to be displaced, whether there is a feasible plan for relocation of such occupants, the degree of hardship which displacement might cause, and the availability of funding for relocation payments. Greater weight shall be given to proposals which do not require displacement, or, where displacement is required, which will involve the least amount of hardship.

(2) In the case of a PHA-Owner Project, no Agreement shall be executed with respect to occupied units which involve substantial rehabilitation requiring that the units be vacated unless the Agreement provides (i) the PHA undertakes liability for and provides the funding of all relocation payments under section 202, 203, and 204 of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, or (ii) other commitments, satisfactory to HUD, have been made for the funding of such payments. (In the case of a Private-Owner Project or a Private-Owner/PHA Project, the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 is inapplicable.)

(1) Equal opportunity requirements. Participation in this program requires compliance with (1) Title VI of the Civil Rights Act of 1964, Title VIII of the Civil Rights Act of 1968, Executive Orders 11063 and 11246, and section 3 of the Housing and Urban Development Act of 1968; and (2) all rules, regulations, and requirements issued pursuant thereto.

(m) National Environmental Policy Act. Participation in this program requires compliance with the National Environmental Policy Act and all rules, regulations, and requirements issued pursuant thereto.

(n) Clean Air Act and Federal Water Pollution Control Act. Participation in this program requires compliance with the Clean Air Act and the Federal Water Pollution Control Act and all rules, reg