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What is a Land Use Restrictive Agreement (LURA)
A Land Use Restrictive Agreement (LURA) subjects the multifamily
real estate to a land use restriction agreement (LURA), in which the
owner gives up some of their rights of the land use in exchange for
the promise of future tax credits. The land use restrictions are
documented in the LURA, which is recorded in the public record and
runs with the land (i.e. deed restricted). Since the LURA runs with
the land, in the event a LIHTC multifamily housing property is sold
during the term of the agreement, then the LURA’s restrictions are
binding upon the buyer. The purpose of a LURA is to provide
affordable housing to low-income households by limiting the the
maximum rent that can be charged for a unit and by requiring that
some or all of the units be made available only to households with
incomes below a percentage (e.g. 40%, 60%, 80%) of the Average
Median Income.
Multifamily Financing Implications
Properties with a LURA or other regulatory agreement (HAP contract)
that restrict rents and/or income are underwritten and processed
differently than traditional market rate properties. Further, loan
terms, costs and interest rates may differ from those of a market
rate property. Most multifamily lenders process properties with a
restrictive agreement in place under an
Affordable Housing
program where a dedicated team of professionals specifically trained
in affordable housing will underwrite, process and close the loan.
The Restriction Period
The restrictions set forth in the LURA can be defined by the
compliance period and the extended use period. The compliance period
is set at 15 years with an additional 15 years for the extended use
period. The initial 15 year compliance period is is enforced by IRS
regulations, and any additional extended use period is enforced by
the actions of the individual states where the multifamily property
is located.
The Tax Credits
In exchange for submitting to the land use restrictions, the LIHTC
multifamily property owner receives a series of tax credits that
provide dollar-for-dollar reductions in its federal income taxes.
LIHTC properties receive the tax credits annually during the first
10 years of the agreement. The tax credits flow to the owner solely
by virtue of its ownership in the eligible property. Tax credits
can’t be individually separated from the property, i.e. you can’t
sell tax credits. Since tax credits stay with the property, an
interest in the property can be sold resulting in the buyer
receiving the tax credits.
Termination of the LURA
During the restriction period of the LIHTC program, the land use
restrictions stay in place, limiting the operations of the
multifamily housing property. The specific length of time that the
restrictions stay in place is specified in the LURA. The LURA’s
restrictions terminate in one of three ways: 1) through the
qualified termination process; 2) through lender foreclosure
proceedings; 3) through the natural expiration of time (30 years or
more).
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