Section 7.14 Allowance of Interest

(Amended October 4, 1994; amended Subsection (b)(2) and adding Subsection (b)(3), January 19, 1999; Amended April 1, 2003)

A landlord who expends funds for capital improvements or rehabilitation work shall be entitled to a reasonable rate of interest. Any allowance of interest, whether imputed or real, in favor of a landlord pursuant to this section shall be limited to no more than ten (10) percent and shall be amortized over a period equal to the amortization period of the improvement. The following rules shall apply to any request for the allowance of interest.

(a) Allowance of Actual Interest Incurred. The landlord has the burden of proof to establish the actual rate of interest. To meet this burden, the landlord must submit, at a minimum, either the applicable loan agreement, promissory note or other admissible documentary evidence substantiating the rate of interest. In addition, the landlord has the burden to show that the actual rate of interest for which an allowance is sought is reasonable under the circumstances.

(b) Allowance of Imputed Interest. In cases where the landlord does not incur or prove in accordance with subsection (a) any actual interest expense on funds used for capital improvements or rehabilitation work, the landlord shall be entitled to an allowance of imputed interest. The rate of imputed interest shall be determined in accordance with the following rules:

(1) On March 1 of each year, in accordance with subparagraph (b)(2), the Board shall publish four rates of imputed interest. Subject to the ten (10) percent limitation contained in the first paragraph of this rule, the published rates shall constitute the rates of imputed interest to be allowed on petitions filed on or after March 1 through February 28 (or February 29, as the case may be) of the following year.

(2) The first rate shall be the average of the twelve most recent monthly rates (rounded to the nearest tenth) as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for seven-year Treasury Securities and shall apply to certified capital improvement costs amortized over a seven-year period in accordance with Section 7.12(c).

The second rate shall be the average of the twelve most recent monthly rates (rounded to the nearest tenth) as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for ten-year Treasury Securities and shall apply to certified capital improvement costs amortized over a ten-year period in accordance with Section 7.12(c).

The third rate shall be the average of the twelve most recent monthly rates (rounded to the nearest tenth) as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for twenty-year Treasury Securities and shall apply to certified capital improvement costs amortized over a twenty-year period in accordance with Section 7.12(c).

The fourth rate shall be the average of the ten-year and twenty-year rates (rounded to the nearest tenth) and shall apply to certified capital improvement costs amortized over a fifteen-year period in accordance with Section 7.12(c).

(3) These rates shall be calculated by December 15th of each year using the average of the twelve most recent monthly rates posted by the Federal Reserve for seven and ten-year maturity Treasury Securities as of this date.

(c) Government Subsidies or Guarantees. Notwithstanding subparagraphs (a) and (b) of this Section, if the interest is less than 10 percent due to governmental or any other subsidy or guarantee, the landlord shall only be entitled to the actual rate of interest incurred.

(d) This Section was amended on March 18, 2003 and is effective for petitions filed on or after November 14, 2002. The Board shall publish the applicable rate of interest for petitions filed between November 14, 2002 and February 28, 2003 before February 21, 2003.