What is a Land Use Restrictive Agreement and How Does It Work? 

If you’re a multifamily investor/developer interested in using Low Income Housing Tax Credits (LIHTCs) to fund the construction or rehabilitation of a multifamily property, you will need to agree to limit rents for a certain period of time, as well as to abide by other restrictions. All of these stipulations will be put forth in a contract called a Land Use Restrictive Agreement, or LURA. While LIHTC funds are allocated to states by the federal government, they are disbursed by state housing finance agencies to individual projects. Therefore, the exact nature of a LURA may vary greatly between individual states, and sometimes, even between individual projects. However, there are quite a few aspects that are common between all LURAs.

LURA Rent Restrictions for LIHTC Properties 

All LURAs will contain the standard LIHTC rental restrictions, which include an owner setting aside a minimum 40% of a project’s units to 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 to residents earning 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 generally must last for at least 15 years. 

However, since competition for Low-Income Housing Tax Credits is often fierce (and because states want 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. 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 Timelines for LIHTC Owner/Operators 

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.