Finance Agency Must Pay Rent Increases for Below Market-Rent Units

Facts: An owner and the Ohio Housing Finance Agency (OHFA) are parties to a HUD-approved housing assistance payments (HAP) contract under which Section 8 subsidies are applied to rents at the site. The owner sued OHFA for breach of contract, alleging that OHFA failed to pay a series of “automatic” annual rent increases due under the HAP contract. OHFA claimed that changes to federal law and applicable HUD regulations excused payment of the rent increases under the HAP contract. In particular, OHFA pointed to a pair of significant changes enacted in 1994 by Congress in an effort to limit the rising costs of the Section 8 program. This legislation addresses some aspects of the annual rent adjustments and the “material difference” cap on rent.

The trial court granted OHFA a judgment without a trial in its favor. The owner appealed.

Ruling: The trial court's judgment was reversed as to the owner's units renting below market rate and was otherwise upheld.

Reasoning: The appeals court found that not all classes of the housing units at issue are identically affected by the 1994 amendments enacted by Congress. The appeals court ruled that, as to units renting below market, the amendments didn't conflict with the parties' contract, because they didn't apply, so OHFA wasn't entitled to a ruling in its favor.

As to units renting above market, OHFA wasn't liable for any breach due to the amendments because the subsidy rates are decided by the federal government. HUD set the annual adjustment factors and OHFA's contractual obligations don't supersede its duty to comply with federal law.

• Arlington House Partners v. Ohio Housing Finance Agency, March 2012