RAD HAP contracts receive an Operating Cost Adjustment Factor (OCAF) rent adjustment annually on the contract anniversary date. In addition to the OCAF adjustment, many RAD HAP contracts are subject to the Maximum Rent application that was introduced in 2015 but made retroactive to the first RAD conversions.
All RAD Component I contracts are subject to a Maximum Rent using 140% of the Fair Market Rent (FMR) in their calculation. Language describing this application is below:
2.8 RENT ADJUSTMENTS.
- Operating Cost Adjustment Factor. Contract Rents will be adjusted annually by HUD's Operating Cost Adjustment Factor (OCAF) at each Anniversary of the HAP Contract, subject to the availability of appropriations for each year of the HAP Contract term and provided that the OCAF-adjusted rent potential shall not exceed the Maximum Rent. The Maximum Rent is equal to the greater of (i) 140% of the Fair Market Rent (FMR) potential based on the FMRs in effect at such time for the FMR area in which the project is located, less Utility Allowances: or (ii) the comparable market rent potential for the market area, as demonstrated by a Rent Comparability Study (RCS) prepared in accordance with HUD requirements and procured and paid for by the Owner. If the Maximum Rent exceeds the OCAF-adjusted rent potential, the Contract Rents shall be adjusted by the OCAF. If the OCAF-adjusted rent potential exceeds the Maximum Rent, the adjusted rents shall be limited by the Maximum Rent.
- Exception to Application of Maximum Rent. When an RCS has been used to establish the initial Contract Rents or to justify an OCAF-adjusted rent potential in excess of 140% of the Fair Market Rent potential any time during the term of the HAP Contract, for the next four annual rent adjustments, the Maximum Rent shall not apply and the Contract Rents shall be adjusted by the OCAF.
Similarly, RAD Component II contracts may be subject to Maximum Rent calculations which may vary depending upon the formula used to set the initial rents at conversion. Owners/Agents will need to refer to their HAP contracts in Part II under Rent Adjustments for the Maximum Rent percentages to apply in their calculation and be aware of any RAD Supplemental Notices that may be issued that may supersede the previous Maximum Rent provisions in your contract.
Submitting Rent Adjustment Requests:
Owners/Agents must submit their completed OCAF Rent Adjustment Worksheets to their CA 120-days to 150 days prior to the contract anniversary date. This allows the CA time to process and approve the rent adjustments, and utility analysis’ if applicable, and return to the Owner/Agents by the contract anniversary date.
- The OCAF Rent Adjustment Worksheet HUD Form 9625 MAX Rent Tool and Instructions for completing the Worksheet can be located here.
Note: RCSs are prepared by state certified Appraisers in the state the property is located and typically take one or more months to complete.
Utility Analysis Requirements
Owners of multifamily housing properties that receive subsidy assistance, and for which HUD provides a utility allowance to tenants, are required to adjust their properties’ utility allowances every year at the time of the annual adjustments of contract rents. Utility adjustments must be supported by a utility analysis using the methodology described in Housing Notice 2015-04. The methodology and requirements used my MFH differs from that of PIH’s requirements and cannot be waived. As required by 24 CFR 245.405(a) and 245.410, a minimum of 30-day’s notice must be provided to tenants for any utility allowance decrease.
Guidance for completing an utility analysis is located in here under 15-04. FAQs are provided to answer questions.
Last Updated 7/25/2023