Crefcoa Connect with Crefcoa Twitter Facebook

CREFCOA Knowledge Center

Land Use Restriction Agreement (LURA)

Nav
How Can We Help
How can we help?
Call, email or request an online quote. It's your choice. We're here to help.
Call Today Give us a call 1-844-359-6413
Contact Us Contact us online or by email
Request a Quote Request an online quote
Brd
Apartment Loans
Brd
Knowledge Center Articles
Knowledge Center Articles

Commercial Real Estate Loan Resources

Brd
Nav
Brdr

Multifamily Housing - Land Use Restrictive Agreement (LURA) LIHTC

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).

Brd
Brdr
  Page 1 of 1  
Brd
Brdr

This article is protected under the copyright laws of the United States (title 17 U.S. Code). Any unauthorized use is strictly prohibited. If you would like to reprint this article for use on a commercial website, please contact Crefcoa for more information. Visit Crefcoa's home page to learn more about all of our commercial real estate loan and apartment loan programs.

Brd
Brd