Cal. Civ. Code § 0770-03-01-.07

(1) Fair Market Rent Limitation.

(a) The initial Gross Rent for any Moderate Rehabilitation unit specified in the Agreement must not
exceed the Moderate Rehabilitation Fair Market Rent applicable to the unit on the date that the
Agreement is executed except by up to 10 percent as provided in Rule 0770-3-1-.07 (2).
Additionally, as provided in Rule 0770-3-1-.07 (4), changes may be made in the Contract Rent
subsequent to the signing of the Agreement which result in Gross Rents which exceed the
Moderate Rehabilitation Fair Market Rent by up to 20 percent. The Fair Market Rent Schedule
for Moderate Rehabilitation will be 120 percent of the Existing Housing Fair Market Rent
Schedule.

(2) Exception Rents.

(a) The Agency may approve initial Gross Rents which exceed the applicable Moderate
Rehabilitation Fair Market Rents by up to 10 percent in the following circumstances:

1. For all units of a given size or type in specified areas where HUD has determined that
median rents for standard units of that size or type in the area are from 10 to 20 percent
higher than the Existing Housing Fair Market Rents. Such a determination by HUD may
be made on a case-by-case basis or by area upon receipt from the Agency of
documentation demonstrating the necessity for exception rents in the area.

2. On a case-by-case basis, where the Agency has made a written determination that the
higher Gross Rent is necessary to meet the needs of families needing four or more
bedrooms, or to provide the physical modifications to a unit and/or structure which are
necessary to meet the needs of the handicapped or disabled.

(3) Determination of Initial Contract Rents.

(a) The Agency must establish a base rent for each unit. This base rent will be the average rent
charged for the unit during the 18 months preceding the date the Owner submitted the proposal
to the Agency plus an adjustment not to exceed the amount obtained by application of the
appropriate annual adjustment factor established by HUD. However, the Owner may request a
higher base rent on the grounds that the base rent is insufficient to allow for adequate
management and maintenance of the unit. The Agency may approve a higher base rent
established by determining the estimated costs to the Owner of owning, managing and
maintaining the rehabilitated unit. This higher base rent will be calculated using a HUD
prescribed formula.

(b) In addition the Agency must determine the monthly per unit cost to the Owner of repaying a
rehabilitation loan to finance the cost of the rehabilitation specified in the Agreement and the
cost of any necessary temporary relocation payments to be made by the Owner to Families to be
assisted under the Program. In making this calculation, the Agency must use the interest rate at
which the Owner proposes to obtain his rehabilitation loan and a loan period as follows:

1. A 15-year term if the total amount of rehabilitation established in the feasibility analysis
equals or exceeds $15,000.

2. The actual term of the rehabilitation loan obtained by the Owner if the total amount of
rehabilitation established in the feasibility analysis is less than $ 15,000.

(c) The initial Contract Rent for the unit must be the lesser of

1. the base rent as established in subsection 3 (a) of this rule plus the monthly cost of
amortization of a rehabilitation loan as established in subsection (3) (b).

2. the Moderate Rehabilitation Fair Market Rent or exception rent for that unit size (see
paragraphs (a) and (b) of this section), minus any applicable Allowance of Utilities and
Other Services attributable to the unit.

(4) Changes in Initial Contract Rents During Rehabilitation.

(a) The contract rents established pursuant to Rule 0770-3-1-.07 (3) will be the Contract Rents on
the effective date of the Contract except under the following circumstances:

1. When, during rehabilitation, work items are discovered which (A) could not reasonably
have been anticipated or are necessitated by a change in local codes or ordinances, and
(B) were not listed in the work write-up prepared or approved by the Agency and (C) will
require additional expenditures which would make the rehabilitation infeasible at the
Contract Rents established in the Agreement. Under these circumstances, the Agency
will:

(i) Approve a change order to the rehabilitation contract, or amend the work write-up
if there is no rehabilitation contract, specifying the additional work to be
accomplished and the additional cost for this work,

(ii) Recomputed the Contract Rents, within the limits specified in these rules, based
upon the revised cost estimate, and

(iii) Prepare and execute an amendment to the Agreement stating the additional work
required and the revised Contract Rents.

2. When the actual cost of the rehabilitation performed is less than that estimated in the
calculation of Contract Rents for the Agreement.

3. When the actual interest rate -or term (if the total cost of the work established in the
feasibility analysis is less than $15,000) of the rehabilitation loan differs from that
anticipated in the calculation of Contract Rents for the Agreement.

4. When the actual relocation payments made by the Owner to temporarily relocated
Families varies from the cost estimated in the calculation of Contract Rents for the
Agreement.

(b) Should changes occur as specified in Rule 0770-3-1-.07 (4) (a) above (either and increase or
decrease), the Agency will recalculate the Contract Rents in accordance with these rules and
amend the Contract or Agreement, as appropriate, to reflect the revised rents.

(c) The Agency must review and approve the Owner’s certification that the rehabilitation costs,
temporary relocation costs, interest rate and term (if the total cost of the work to be performed
under the Agreement is less than $15,000) on which the Contract Rents are based are the actual
costs incurred, interest rate and loan term (where applicable).

(d) In establishing the revised Contract Rents, the Agency must determine that the resulting Gross
Rents do not exceed the Moderate Rehabilitation Fair Market Rent or the exception rent under
paragraph (b) of this section, in effect at the time of execution of the Agreement. The Fair
Market Rent or exception rent, as appropriate, may only be exceeded when the Agency
determines in its calculations that it will be necessary for the revised Gross Rent to exceed the
Moderate Rehabilitation Fair Market Rent or exception rent. Should this determination be made,
the Agency execute a revised Agreement until it receives HUD field office approval of such an
exception. The HUD field office may approve revised Gross Rents which exceed the Fair
Market Rents by up to 20 percent for reasons specified above upon proper justification by the
Agency of the necessity for the increase.

Authority: T.C.A. §13-23-115 (18). Administrative History: Original rule filed July 13, 1982; effective August 12,
1982.