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.