PHA May Be Liable for Failing to Conduct Annual Reviews of Utility Allowances

Facts: A group of public housing residents sued their local PHA, claiming that it violated HUD regulations and the state’s contract law by charging them monthly rent above the lawful ceiling and by failing to conduct annual reviews and interim adjustments of residents’ utility allowances. Each resident, in addition to paying rent, has been required to pay a third-party utility provider for various utilities.

At least biennially, the local PHA calculates a tenant’s rent using the household’s adjusted income. To calculate adjusted household income, the PHA obtains the verified annual income of household members and makes deductions pursuant to HUD regulations. Then, under the rent formula, the PHA calculates monthly rent by subtracting a tenant’s utility allowance from 30 percent of the household’s adjusted monthly income.

The PHA last conducted a utility allowance analysis in 1996. It revised its utility allowances for electricity and natural gas in 1997, 1998, 2000, 2004, 2005, and 2007. Since September 2007, electricity and natural gas costs have increased for the residents; in several instances, the month-over-month rate increases have exceeded 10 percent. Despite this, PHA hasn’t increased its utility allowances for public housing residents since 2007.

The PHA has a standard lease agreement with terms applicable to all residents. The lease states that the utility allowance “shall be enough to pay for a reasonable use of utilities by an energy conservative household of modest circumstances consistent with the requirements of a safe, sanitary, and healthy living environment.” Another section of the lease provides that utility allowances are factored into the resident’s rent calculation when the resident pays utilities directly to a third-party utility provider.

The PHA asked the court to dismiss the residents’ claims on the basis that they didn’t adequately allege breach of contract because their complaint admits that they pay no more than 30 percent of their monthly adjusted gross income to the PHA.

Ruling: An Illinois district court refused to dismiss the contracts claim.

Reasoning: The residents alleged that the PHA breached its residential lease agreements with them by charging rent above the lawful ceiling and by failing to establish a utility allowance sufficient “to pay for a reasonable use of utilities by an energy conservative household of modest circumstances consistent with the requirements of a safe, sanitary, and healthy living environment.” Under state law, a breach of contract claim has four elements: (1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) a breach of contract by the defendant; and (4) resultant injury to the plaintiff.

The court ruled that the residents’ allegations that the PHA improperly depressed the utility allowances despite significant increases in utility rates properly states a breach of contract claim.

Also, the complaint alleges that electricity and natural gas rates have, on several instances since the PHA last revised the utility allowances, increased by at least 10 percent month over month. And the residents’ complaint adds that electricity rates in the city “have increased a total of 30% since 2007” and that “gas prices increased dramatically in 2008 and 2014.” The court ruled that enough facts have been given to suggest a right to relief that is beyond the speculative level. Therefore, the court refused to dismiss the breach of contract claim.

• Haywood v. Chicago Housing Authority, September 2016