How to Notify Households of a Rent Increase

by Daniel Bagliore

As a manager, you have a fiduciary—that is, legal—responsibility to the property owner to ensure that tenant rent is accurately calculated and that residents are given appropriate notice of an increase in their portion of the rent, while simultaneously complying with the HUD regulations. Failure to provide proper notice of a rent increase in certain cases is a violation of the HUD requirements and can have a detrimental financial impact on the property.

     HUD requires owners to provide households with at least 30 days’ notice of a rent increase (that is, the tenant rent, which is the tenant’s portion of the rent) if the following conditions are met during the annual recertification process:

• The tenant rent is increasing since the previous certification; and
• All adult household members commence the recertification process on or before the 10^thday of the 11^thmonth (the cutoff date) [HUD Handbook 4350.3, par. 7-8 (C)].

     When these conditions are met, the owner must provide to the resident 30 days’ notice of the increase in tenant rent, which is effective on the annual recertification date. As long as the household commenced the annual recertification by the cutoff date, the burden is on the owner to complete all income/asset/allowance verification efforts in a timely fashion to ensure that 30-day notice is provided to the household.

     Example: All adult household members commence the recertification process for their Dec. 1, 2012, annual recertification on Oct. 8, 2012, prior to the cutoff date. The owner completes verification of income/assets/allowances on Oct. 25, 2012, and discovers that tenant rent is increasing. As such, the owner must notify the household of the tenant rent increase by Nov. 1, 2012, 30 days prior to the Dec. 1, 2012 annual recertification date.

     In this example, since the 30-day notification of the tenant rent increase was required and provided to the household, the owner is entitled to receive the higher tenant rent as of Dec. 1, 2012.

If Proper Notice Isn’t Given

When 30-day notice of a tenant rent increase is required but not provided to the household, the owner has run afoul of HUD rules and is prohibited from charging the higher tenant rent until the 30-day notification period is met. This will result in a financial loss to the property.

     Example: The resident commences the Dec. 1, 2012, annual recertification on Oct. 10, 2012 (the cutoff date), and verification efforts determine that the monthly tenant rent will be increasing from $100 to $575; as such, 30 days’ notice is required. However, the resident is notified of the new tenant rent on Nov. 3, 2012. Since the resident was not provided with 30 days’ notice, the resident may not be charged the new tenant rent of $575 until the first of the month following the 30-day notification period, which, in this case, is Jan. 1, 2013. Since the owner may collect only $100 for December 2012, this represents a $475 ($575 - $100) loss to the property for that month!

If Household Recertifies Late or Rent Isn’t Increasing

If the tenant rent is not increasing since the last certification, or if the household commences the recertification process after the cutoff date, the owner/agent is not obligated to issue a 30-day notification [HUD Handbook 4350.3, par. 7-8 (C)(2)]. However, the annual recertification must still be completed prior to the recertification date.

     Example: The resident commences the recertification process for his Dec. 1, 2012 annual recertification on Oct. 11, 2012, after the cutoff date. The household is not entitled to a 30-day notice of a rent increase, if applicable. Therefore, the owner/agent must conclude the verification process and ensure the proper execution of the HUD-required paperwork, such as the 50059 form, by Nov. 30, 2012. (You submit the 50059 form to HUD through the TRACS system to calculate the housing assistance payment for a unit and the household’s share of the rent. HUD requires you to revise this form and the accompanying worksheet to reflect the changes in the rent for each unit when you implement rent increases.)

     Example: The resident commences the recertification process for her Dec. 1, 2012, annual recertification on Oct. 1, 2012, prior to the cutoff date. However, the income calculation results in a rent decrease. The rent increase notification requirement is not applicable to this case. Therefore, the owner/agent must conclude the verification process and ensure the proper execution of the HUD-required paperwork (that is, the 50059 form) by Nov. 30, 2012.

How to Notify Resident

The owner must retain proof that the resident was properly notified of the tenant rent increase. Notification may be accomplished in the following manner:

• The resident executes/dates the 50059 form at least 30 days in advance of the recertification date; or
• A notification letter identifying the new, higher tenant rent and effective date is received by the resident at least 30 days in advance of the recertification date.

     As long as the 50059 form is executed within the aforementioned time frame, it is considered adequate notification of the rent increase and separate, written notification of the higher rent is unnecessary. Please note that, in all cases, regardless of tenant rent notification requirements, as long as the recertification is completed by the deadline date, the owner is entitled to receive the full assistance payment as of the annual recertification effective date.

     We’ve provided a Model Letter: Provide Resident with 30-Day Notice of Rent Increase, that you may use and tailor to your circumstance. Like our letter, your letter should explain the basis of the rent increase, give the effective date, and give details of the rent increase. Make sure to keep a copy in the household file.

     The signed and dated 50059 form and/or rent increase notification letter are your proof that you complied with HUD requirements. Should an auditor discover that you failed to provide (or keep proof of) the required 30-day notification of a rent increase, your management review rating will suffer and a significant financial loss will accrue to the property.

Daniel Bagliore is Director of Compliance, Unithree Investment Corp., 240 Parkhill Ave., Staten Island, NY 10304.