Did PHA Improperly Deny Owners Rent Adjustments?

Facts: The owners of multifamily housing sites sued the Maine Housing Authority for failing to automatically increase their Section 8 rental subsidies on an annual basis pursuant to their housing assistance payments (HAP) contracts. The housing authority asked the court to dismiss the case against it.

Decision: The court denied the housing authority's request.

Reasoning: The court noted that the owners explained that HUD published Automatic Annual Adjustment Factors in the Federal Register that are supposed to be used to adjust contract rents. However, the owners asserted, Congress amended the statute governing the Section 8 program in 1994 and dramatically altered the manner in which contract rents at Section 8 sites would be adjusted in order to reduce expenditures for Section 8 rental assistance. According to the 1994 amendment, rent adjustments would not take place automatically if a site's maximum monthly rent “exceeds the fair market rental for an existing dwelling unit in the market area,” unless and “only to the extent that the owner demonstrates that the adjusted rent would not exceed the rent for an unassisted unit of similar quality, type, and age in the same market area, as determined by the Secretary.”

Based on the 1994 amendment, HUD issued Notice H 95-12, which requires owners to submit an “Estimate of Market Rent by Comparison” on Form HUD-92273 at least 60 days prior to a HAP contract anniversary date if an annual rent adjustment is desired, the court pointed out.

In addition to placing conditions on the availability of automatic annual adjustments, the 1994 amendment directs HUD to reduce the annual adjustment factor for sites with rents eligible for adjustment by 0.01 “for any unit occupied by the same family at the time of the last annual rental adjustment.” The owners alleged harm resulting from this provision as well, claiming that since Notice H 95-12 was issued, the housing authority has applied the reduced factors to non-turnover units at the sites.

The court concluded that this argument was persuasive. As a consequence of the 1994 amendment and Notice H 95-12, the housing authority may have denied the owners automatic annual adjustments for the sites; therefore, the case should not be dismissed.

Finally, the court reasoned, although the Section 8 program does not explicitly give owners a right to sue for the breach of a HAP contract, federal law is the driving force behind the authority's alleged breach, so the owners can proceed with this lawsuit.

• One and Ken Housing Group v. Housing Authority of Baltimore, October 2010