Legal Alert

Section 8 Participation

Nadav Y. Zohar, Esq.

June 2025

California landlords continue to face challenges when dealing with tenants who participate in the Section 8 Housing Choice Voucher Program. While the law prohibits landlords from rejecting vouchers as a source of income, many housing authorities in practice make participation in the program financially unsustainable.

Mandatory Source of Income Protection

State law makes it unlawful to decline to rent to a tenant simply because they have a Section 8 voucher. This prohibition applies statewide and effectively requires landlords to accept Section 8 voucher holders. There has been an increase in fair housing complaints filed against landlords since mandatory participation took effect in 2020 for both refusing to rent to Section 8 voucher applicants or denying a Section 8 voucher holder’s application due to allegations that the voucher holder does not qualify for tenancy. As a reminder, there are specific requirements related to income qualifying a Section 8 voucher holder and the use of a Section voucher applicant’s credit when evaluating rental applications. For more information and assistance, KTS’s Fair Housing Department can assist.

Rent Increases

There has been an increase in the number of landlords reporting challenges related to increasing rental rates in accordance with California law for residents participating in the Section 8 program. The Section 8 regulations require that landlords provide the housing authority with notices of a proposed rent increase when the lease is set to expire. Many housing authorities are currently rejecting rent increase requests, and in some cases even attempting to reduce the current contract rent upon renewal, despite evidence of rising market values. This undermines the statutory promise of “reasonable rents” which the housing authority is supposed to agree to and leaves landlords without the ability to adjust rents consistent with the market and consistent with what other non-voucher residents are paying.

How “Reasonable Rent” Is Determined Under HUD Guidelines

The U.S. Department of Housing and Urban Development (HUD) requires that all rents approved under the Section 8 Housing Choice Voucher (HCV) program be “reasonable” compared to similar unassisted units in the same market. The process is governed by federal regulations and detailed in the HUD HCV Guidebook.

Key Points from the HUD Guidebook:

• Comparable Units: Housing authorities must compare the contract rent for the assisted unit to rents for comparable, unassisted units in the private market. Importantly, units subject to rent control or other government restrictions are not to be used as comparables.

• Factors Considered: The comparison must account for location, quality, size, unit type, age, amenities, housing services, and maintenance.• 10% Exception: While the general rule is that the gross rent for a voucher unit should not exceed the payment standard, the housing authority may approve a rent that is up to 10% above the Fair Market Rent (FMR) if justified by market comparables and program rules. It is important for landlords to keep this in mind when a Section 8 applicant applies and the payment standard is less than the rental rate offered by the landlord. Since exceptions can be made, landlords should never discourage an applicant from applying for this reason.

• Documentation: Landlords are encouraged to provide their own market comparables and supporting documentation when requesting a rent increase or appealing a denial.

Landlord Rights Regarding HAP Contracts:

• No Obligation to Sign Initial HAP Contract: Landlords are not required to sign the initial Housing Assistance Payment (HAP) contract if the housing authority does not approve the requested rent which the landlord is offering for the premises. If the proposed rent is not accepted, the landlord may decline to participate in the program for that particular tenancy.

 • Negotiation and Appeal: Before signing, landlords may negotiate with the housing authority and should inquire about any appeal or grievance procedures if the rent determination appears inconsistent with market data or HUD guidelines.

Takeaway Regarding Determination of “Reasonable Rent”

Landlords should be proactive in gathering and presenting evidence of reasonable market rents and should not feel compelled to accept below-market rates or sign a HAP contract that does not reflect the fair value of their property for Section 8 applicants. If you have questions about the rent reasonableness process or need assistance with negotiations or appeals, our office can help.

Limitations on Lease Terminations

To make matters worse, some local “just cause” eviction ordinances (including in Los Angeles City and County) prohibit ending a tenancy simply because the housing authority will not approve a legitimate rent increase that complies with state and local rent control laws. As a result, landlords remain locked into leases where they are receiving below-market rental rates for Section 8 tenants even though all other non-Section 8 residents are paying an increased rental rate. As a result, the Housing Authority is essentially imposing another layer of “rent control” on landlords.

Restrictions on Exiting HAP Contracts

Some housing authorities have gone even further by refusing to recognize an owner’s right to terminate Housing Assistance Payment (HAP) contracts. This effectively forces owners to remain perpetual participants in the Section 8 program which will continue to limit a landlord’s ability to collect a reasonable rental amount based on market factors, raising serious questions about fairness and property rights concerns.

Legal and Practical Guidance

Landlords confronted with these issues may consider the following options:

• Appeal the Decision to Reject the Requested Rent Increase – Landlords can ask the housing authority to reconsider the proposed rent increase. Under the Section 8 regulations, the onus is on the landlord to demonstrate that the proposed rental rate is “reasonable.” Moreover, the Housing Assistance Payment (HAP) Contract does not allow the housing authority to pay a higher rental rate compared to the rental rate of other similar units in the community. If you can obtain comps of not only your units but of units in other communities in the area, this can be helpful when appealing a rent increase rejection.

• Serve a Lease Termination Notice – It is important to note that the HAP contract already allows for lease termination after the initial lease term for “Other Good Cause” whichincludes, “A business or economic reason for termination of the tenancy such as sale of the property, renovation of the unit, the owner’s desire to rent the unit for a higher rent.” However, The HAP contract also states, “The examples of other good cause in this paragraph do not preempt any State or local laws to the contrary.” There are many areas in the state that do not have any local laws that would prevent a landlord from terminating the lease. For properties that are subject to the Tenant Protection Act (AB 1482), it is unclear whether the landlord can terminate a Section 8 voucher tenancy due to the housing authority’s refusal to agree to a reasonable rent increase. Landlords who are interested in exploring this option should consult with the KTS office where their property is located for more information.

• Demanding release from HAP contracts – Owners can formally demand that the housing authority acknowledge their right to terminate below-market contracts and demand from the housing authority to terminate the contract and issue a termination of subsidy letter.

• Pursuing declaratory relief in court – Where housing authorities refuse to recognize termination rights, landlords may pursue declaratory relief actions asking courts to interpret HAP contracts as containing an implied termination clause for owners, consistent with basic principles of contract law.

Bottom Line

This is a statewide issue that continues to generate significant questions and legitimate concerns from landlords. While accepting Section 8 tenants is legally required, landlords should not have to suffer a financial hardship as a result of a housing authority’s refusal to accept a reasonable rent increase which complies with all rent control laws. Owners should evaluate their portfolios, track rent comparables, and consider their contractual rights – whether through eviction, administrative demands or litigation..

 

This article is for general information purposes only. These courtesy notifications are not meant to be exhaustive and do not take the place of legislative services or membership in trade associations and should not be relied upon as a complete report of all new changes in local, state, and federal laws affecting property owners and managers. Laws may have changed since this article was published. Before acting, be sure to receive legal advice from a trusted legal professional

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