Non-Optional Charges Are Part of the Gross Rent

Written by Harold Tucker, Spectrum Enterprises

Treasury Regulation (Treas. Reg.) 1.42-11

Treasury regulation 1.42-11 states, “Charges to low-income tenant for services that are not optional generally must be included in gross rent.”

I recently received a call from a manager, in a 100% straight LIHTC deal, that asked if they could require that tenants to obtain renter’s insurance before they move-in.

What do you think? Can they require a tenant to obtain renter’s insurance as a condition of occupancy?

The answer: YES

However, if the owner requires renter’s insurance as a condition of occupancy then the monthly premium paid by the tenant must be included in the tenant’s rent.  In addition, the Owner may recommend a company to the tenant and if the premium of the owner’s recommended company is $15 per month that is the highest figure that the owner needs to use in the gross rent calculation. If the tenant obtains a higher insurance rate (i.e. $20 premium) the owner may use their recommended companies’ $15 premium amount.

Tips to remember when it comes to Fees in rent.

  1. Charges to tenants for services that are not optional should be included in gross rent.
  2. A service is considered “optional” when the service is not a condition of occupancy and there is a reasonable alternative.
  3. If optional, pet fees, laundry room fees, garage and storage fees may be charged in addition to rent.
  4. Refundable fees with renting an LIHTC unit are not included in the rent calculation. (i.e. security deposits and fees paid for prematurely terminating a lease.)
  5. Fees for preparing a unit for occupancy must not be charged to the tenant. They are the owner’s responsibility.
  6. Application fees may be charged to cover the actual cost. The fee is limited to recovery of the actual out-of-pocket cost by the owner. 

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