(1) In order for lease costs to be considered for allowability, the provider or individual lessee must submit the lease to OPWDD for approval. In deciding whether to approve a lease, OPWDD shall consider whether the lease is in the best interests of the programs and the persons it serves and whether the lease in any way violates public policy. In deciding whether to approve an amount for rent, OPWDD shall consider whether the provider's rate, fee or price, as a whole, including the amount of rent to be approved, would result in payment which is consistent with efficiency and economy.

(2) If an approved lease (see glossary, Subpart 635-99 of this Part) or approved proprietary lease (see glossary, Subpart 635-99 of this Part) is between the provider or individual lessee and a party which is not a related party, allowable lease costs shall be the lesser of contract rent or fair market rent.

(3) If an approved lease or approved proprietary lease is between the provider or individual lessee and a related party, allowable lease costs shall be the least of:

(4) The commissioner may waive the limitations on allowable costs as stated in paragraph (3) of this subdivision upon a showing that such limitations would jeopardize the opening or continued operation of the program or services and that the negotiations for the lease or proprietary lease were conducted as though the parties were not related.

(5) The commissioner may, upon application from a provider, allow lease costs in an amount equal to contract rent and greater than fair market rent if all of the conditions in subparagraph (i) or (ii) of this paragraph are met.

(6) Contract rent incurred pursuant to an approved lease or approved proprietary lease which is renewed pursuant to an option to renew is allowable.

(7) Costs incurred pursuant to an approved lease or approved proprietary lease which is renewed other than pursuant to an option to renew (see glossary, Subpart 635-99 of this Part) shall be allowable as follows:

(1) There shall be an allowable lease cost, exclusive of any ancillary costs, for an entire calendar year. The allowable lease cost, exclusive of any ancillary costs, for a calendar year shall be the base lease amount for such calendar year adjusted by an annual percentage for such calendar year.

(2) Base lease amount. The base lease amount for a calendar year shall be the allowable lease cost calculated in accordance with this section in effect on December 31st of the prior calendar year, exclusive of any ancillary costs (see paragraph [3] of this subdivision).

(3) Ancillary costs. Ancillary costs are those charges identified in a lease in addition to monthly rent. These include but not limited to: special assessments, taxes, co-op or condominium maintenance fees, utility payments assessed by the lessee by the lessor pursuant to the terms of the lease, and lessor-financed renovations billed as additional rent.

(4) For ancillary costs under the terms of the lease to be allowable the lessee must submit an application to OPWDD specifying the nature and amounts of the ancillary costs. OPWDD may approve or disapprove the request or adjust the amount to be reimbursed based on whether the ancillary costs are reasonable and necessary.