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.
- Charges to tenants for services that are not optional should be included in gross rent.
- A service is considered “optional” when the service is not a condition of occupancy and there is a reasonable alternative.
- If optional, pet fees, laundry room fees, garage and storage fees may be charged in addition to rent.
- 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.)
- Fees for preparing a unit for occupancy must not be charged to the tenant. They are the owner’s responsibility.
- 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.