HUD recently issued Notice 2018-10 that details best practices to help ensure guest suite use is consistent with National Housing Act prohibitions against transient or hotel use of multifamily properties. HUD acknowledges guest suites as an amenity may contribute to the marketability of certain multifamily projects. In assessing whether guest suites comply with the prohibition on the rental for transient or hotel purposes, HUD will take the following factors into consideration:

  1. Rental charges are not imposed, and except for the charge described in item two, the project does not derive income from any guest suite.
  2. To prepare the guest suite for the next guest’s stay, a one-time cleaning and laundering fee may be charged to the resident that reserves the guest suite, at cost, for services provided after the conclusion of the guest’s stay. Guests are not responsible for or directly charged any fees for use of the guest suite.
  3. The project does not provide cleaning, linens or other customary hotel services to the guest during their stay in the guest suite.
  4. Use of any guest suite is limited to residents’ friends and family. Guest suites are not available to the public.
  5. Only project residents are permitted to reserve the guest suite; the project does not independently rent the guest suite.
  6. Residents are limited to two reservations within a one-year period, and up to a maximum of seven reservation days per resident.
  7. The number of guest suites are no more than two percent of the total number of units in the project. This will ensure that the operation of the property is not skewed in such a way as to affect its statutorily required residential character

The best practice guidance is effective immediately for all new and existing FHA-insured and HUD-held multifamily properties with a HUD Regulatory Agreement containing the transient use prohibition. HUD plans to incorporate the practices into the next versions of the MAP Guide and HUD Asset Management Handbook 4350.1.