What to Do When HUD & State Laws Conflict

June 12, 2020

U.S.-style federalism allows for federal and state laws to exist side by side. In the context of federally assisted housing, leases and landlord-tenant relations are governed by HUD rules even though they’re located on property subject to state regulation. Nevertheless, it can also get confusing at times, particularly in eviction cases.

U.S.-style federalism allows for federal and state laws to exist side by side. In the context of federally assisted housing, leases and landlord-tenant relations are governed by HUD rules even though they’re located on property subject to state regulation. Nevertheless, it can also get confusing at times, particularly in eviction cases.

The Case of the Unconscionable Rent Increase

Consider this scenario: A resident has been living in the same two-bedroom apartment since 1980. One day, the owner notifies him that the rent is increasing from $1,460 to $2,724 per month, effective immediately.

Under state law: If the two-bedroom apartment was in New Jersey, the resident would have a strong case for getting a state court to block the owner from evicting him for not paying the increase. That’s because the New Jersey Anti-Eviction Act bans owners from evicting residents for not paying “unconscionable” rent increases. And the resident could make a compelling argument that an increase from $1,460 to $2,724 is unconscionable. 

Under federal law: If that same two-bedroom apartment was part of a Section 8 HUD project, the resident would probably have to pay the rent increase. That’s because Section 8 rent increases are governed not by state but HUD rules. Contract rent is the maximum rent an owner can charge a Section 8 resident who pays 30 percent of his household income; HUD then pays the balance of the rent directly to the owner.

This scenario comes from an actual case in which the Housing Assistance Payment (HAP) contract between HUD and the owner allowed for contract rent increases based on capital repairs, and the New Jersey Anti-Eviction Act unconscionability limits didn’t apply.

In Summit Plaza Assocs. v. Kolta, a New Jersey family moved into a Section 8 two-bedroom in 1980. In 2002, the son got a well-paying job, causing the family’s household income to exceed the limits for federal housing assistance. Rather than move out, the family stayed in the apartment at the 2002 contract rate, because the owner didn’t pass along the HUD-approved raises for subsequent years.

But that was about to come to an end. In December 2017, HUD approved another contract rent increase for all 480 of the property’s units, including $2,724 for two-bedrooms. The owner raised the family’s rent to the full $2,724. The family claimed the increase was unconscionable and refused to pay it, setting the stage for an eviction suit.

The residents’ best chance to win was by arguing that the eviction was barred by the New Jersey Anti-Eviction Act. HUD contract rent increase rules don’t apply to us, they contended, because we no longer qualify for Section 8 financial assistance. The owner claimed that the state law didn’t apply.  

How the Court Ruled

The court sided with the owner, ruling that the federal Section 8 rent regulations preempted the state law. Key factors:

  • Language from the HUD regulations expressly preempts conflicting state laws: “Compliance with [any state or local law, ordinance, or regulation] shall not be required as a condition of, or prerequisite to, the remedy of eviction” at Section 8 projects” [Regs., Section 246.1(b)];
  • There was express language in the lease in which the residents acknowledge the possibility that “a tenant might not get any subsidy” and agree to be subject to the HUD regulations, whether they qualified for a subsidy or not; and
  • The residents continued to benefit from below-market Section 8 rents and protections against eviction even after they no longer qualified for Section 8 subsidies [Summit Plaza Assocs. v. Kolta, 2020 N.J. Super. LEXIS 20, 2020 WL 826405].

Takeaway

Federally regulated assisted housing projects must comply with the laws of their state—such as those regarding tax, zoning, recycling, etc.—as long as they don’t have to commit a HUD violation or give up a HUD right in the process. The key to the Kolta case is that the state unconscionability law interfered with Section 8 owners’ rights to pass along legitimate rent increases approved under HUD rules and processes.

Moral: While you should always try to comply with both state and federal laws, if you ever find yourself in a situation of conflict, recognize that at federally assisted housing sites, the HUD leasing rules are the law of the land.

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