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Apartment Loans Secrets
Last updated on Feb 19, 2023
3 min read
by Content Team

Understanding Land Use Restrictive Agreements (LURA)

In this article:
  1. What is a Land Use Restrictive Agreement?
  2. LURA and Low-Income Housing Tax Credits (LIHTC)
  3. LURA Extended Use Periods
  4. Related Questions
  5. Get Financing
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What is a Land Use Restrictive Agreement?

If you’re a multifamily investor/developer interested in using Low Income Housing Tax Credits (LIHTCs) to fund the construction or rehabilitation of an apartment property, you will be required to agree to set rent limits for a certain period of time, as well as to abide by other restrictions and requirements of the program. All of the program stipulations are combined in a contract called a Land Use Restrictive Agreement, or LURA. While funding for the LIHTC program is allocated to states by the federal government, they are disbursed to by state housing finance agencies to individual projects. In that regard, the exact nature of each LURA may vary greatly between individual states and even between individual projects from time to time. Even so, there are quite a few aspects that are common between all LURAs.

LURA and Low-Income Housing Tax Credits (LIHTC)

All LURAs, regardless of the state of origin, will contain the standard LIHTC rental restrictions, which includes the owner setting aside a minimum of 40% of a project’s units for residents earning less than or equal to 60% of the area median income (AMI), or setting aside at least 20% of the project’s units for residents who earn less than 50% of the area median income. These are respectively referred to as the 40/60 test and the 20/50 test. These restrictions (and LURAs in general) are typically meant to stay upheld for a period of least 15 years.

However, since competition for Low-Income Housing Tax Credits is often fierce (and because it behooves states to maximize the ability of the program to house low-income families), LURAs will sometimes require project owners to allocate more affordable units for low-income tenants than what is required. For instance, a LURA might require an owner to set aside 60-70% of a project's units for residents earning less than 50% of the area median income.

LURA Extended Use Periods

Along with the basic requirement that a property meets the 40/60 test or the 20/50 test and is able to maintain rents at these levels for at least 15-years, LURA agreements typically involve an "extended use period". The extended use period is often 15 years but can sometimes be longer or shorter, depending on the state of origin. It’s important for any investors to realize that if an owner sells a property and the LURA is still active, the new buyer will still have to abide by all of its rules.

Related Questions

What is a Land Use Restrictive Agreement (LURA)?

A Land Use Restrictive Agreement (LURA) is a contract between a multifamily investor/developer and a state housing finance agency that outlines the restrictions and requirements of a Low Income Housing Tax Credit (LIHTC) program. These restrictions typically include rent limits for a certain period of time, as well as other requirements. The exact nature of each LURA may vary between states and individual projects, but there are some common aspects between all LURAs. For example, a property must meet the 40/60 test or the 20/50 test and must maintain rents at these levels for at least 15-years. Additionally, LURA agreements often involve an "extended use period" which is often 15 years but can sometimes be longer or shorter, depending on the state of origin.

What are the benefits of a LURA?

The primary benefit of a LURA is that it allows a property owner/developer to receive tax credits in the future. Specifically, a LURA helps guarantee that the project receives a specific number of Low-Income Housing Tax Credits (LIHTC) credits over a specific time period. The LIHTC credits are spread out over a 10-year period. Additionally, LURAs involve an extended use period, which is often 15 years but is sometimes longer or shorter, depending on the state. This extended use period is enforced by the state in which a project is located.

Sources:

  • LURA: Land Use Restrictive Agreements in Commercial Real Estate
  • LURAs: Land Use Restrictive Agreements and the LIHTC Program

What are the drawbacks of a LURA?

The main drawback of a LURA is that it limits the owner/developer's rights to the property. The owner/developer must abide by the restrictions outlined in the LURA in order to receive the tax credits, and if they fail to do so, they may be subject to penalties. Additionally, the LURA is binding even if the property is sold, so the new owner must also abide by the restrictions. Finally, the LURA may limit the owner/developer's ability to make changes to the property, such as increasing rents or making renovations.

How does a LURA affect the financing of a commercial real estate project?

A LURA can affect the financing of a commercial real estate project in a few ways. First, it can affect the amount of LIHTC credits a project receives. A LURA can also affect the terms of the loan, as lenders may require that the project adhere to the restrictions outlined in the LURA in order to receive financing. Finally, a LURA can affect the amount of rent that can be charged for certain units, which can affect the cash flow of the project and the amount of financing a lender is willing to provide.

What are the legal implications of a LURA?

The legal implications of a LURA are that the owner/developer must abide by the restrictions placed upon the property in order to receive tax credits in the future. The LURA specifically documents the restrictions placed upon the property and typically helps guarantee that the project receives a specific number of LIHTC credits over a specific time period. Along with the basic requirement that a property meets the 40/60 test or the 20/50 test and keeps rents at these levels for at least 15-years, LURA agreements also involve an extended use period, which is often 15 years but is sometimes longer or shorter, depending on the state. It’s important to realize that if an owner sells a property and the LURA is still active, the new buyer will still have to abide by all of its rules.

For more information, please visit:

  • LURA: Land Use Restrictive Agreements in Commercial Real Estate
  • LURAs: Land Use Restrictive Agreements and the LIHTC Program
In this article:
  1. What is a Land Use Restrictive Agreement?
  2. LURA and Low-Income Housing Tax Credits (LIHTC)
  3. LURA Extended Use Periods
  4. Related Questions
  5. Get Financing
Tags
  • LURA
  • Land Use Restrictive Agreement
  • Apartment Loans
  • Apartment.loans
  • FAQ
  • Glossary
  • Blog
  • Apartment Finance

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