C. Out of Compliance

• (1) Low-income housing units are considered out of compliance when *gross rent exceeds the maximum gross rent limit. The following examples are errors that may result in noncompliance. *

  • The appropriate utility allowance is not used. *For example, an owner uses a local utility company’s estimate for a HUD-regulated building. *

  • The utility allowance is not properly calculated. *For example, an owner used a PHA schedule to determine the utility allowance for all-electric units but failed to include the cost of electric heating. When the cost of electric heating is added to the utility allowance, gross rent exceeds the limit.

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• The owner failed to update rents for a revised utility allowance after the 90-day period.15

• (2) Example 1: Increased Utility Allowance Causes Gross Rent to Exceed Limit

  • The maximum gross rent limit is $500, but the owner charged $445 rent and a $50 utility allowance for a total of $495. The utility allowance increased to $60 on April 1, 2010, but the owner did not adjust the rent. The owner is charging $445 rent and a $60 utility allowance for a total of $505, which exceeds the gross rent limit of $500. The owner is out of compliance beginning July 1, 2010; i.e., an owner has 90 days to implement new utility allowances.

• (3) Low-income buildings are also considered out of compliance if the owner cannot establish that the rent charged tenants does not exceed the gross rent limit. For the three fact patterns below, there is a presumption that the rent charged the tenant plus the utility allowance will exceed the gross rent limit until otherwise established.

  • Rents are not reduced for a utility allowance when utilities are paid directly by the tenant to the utility provider, even if the rent charged to the tenant is less than the maximum gross rent limit. For example, the gross rent limit is $700. The tenant’s rent is $575 and pays the utilities directly to the provider, but the owner cannot provide documentation of the utility allowance computation. The noncompliance date should be determined based on the facts and circumstances; i.e., when the owner ceased using a utility allowance.

  • The owner did not review the basis on which the utility allowance is established at least once during both the prior and current calendar year; i.e., the utility allowances are not current.16

• (4) Example 2: Owner Failed to Review Utility Allowance Annually

  • An owner reviewed the utility allowance and determined that the allowance was $100 effective May 1, 2009. The owner was still relying on the $100 utility allowance when the state agency reviewed the owner’s compliance in April of 2011.

  • The building is out of compliance because the owner failed to review the utility allowance at least once during calendar year 2010. The noncompliance date is December 31, 2010.

• NOTE: State agencies should be reviewing the most current utility allowance computations. In the example above, had the owner recognized the noncompliance issue and reviewed the utility allowances before the state agency contacted them to schedule its review, then the owner would have been in compliance at the time to the review.

• (5) The owner failed to maintain adequate documentation regarding the computation of utility allowances; without sufficient proof of the amount of the

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allowance and how it was estimated, there is no way to correctly compute the rent.

• (6) Example 3: Insufficient Documentation of Computation

  • An owner reviewed the utility allowance and determines that the utility allowance was $65 for 2009. The allowance was computed by a licensed professional approved by the state agency using an energy consumption model. Upon review by the state agency during a compliance review, the owner presented a one-page letter from the professional. While the utility allowance amount was disclosed in the letter, the letter was not signed or dated. Further, the letter did not describe the factors considered or the data used.

  • The state agency could not reasonably determine that the utility allowance was correct. The noncompliance date is December 31, 2009.