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What is a Land Use Restriction Agreement?
A Land Use Restrictive Agreement (LURA) is a legal document in which the property owner gives up some of their rights of the land use in exchange for the promise of future tax credits, tenant income restrictions, unit set asides to be rented to lower income tenants and other affordability restrictions. LURA documents the land use restrictions in a public record and runs with the land, which simply mean that the rights in the real estate deed remain with the land despite change in ownership.
Here is more on land use restriction agreements .
How Land Use Restriction Agreements Work
The purpose of a LURA is to provide affordable housing to low-income households by limiting the maximum rent that can be charged for a unit. The LURA documents the restrictions placed upon the property and guarantees that the project receives a specific number of low income housing tax credits over a specific time period. Low Income Housing Tax Credits, or LIHTC, are federal tax credits designed to encourage private businesses to invest in affordable housing.
Low Income Housing Tax Credits depend on a project providing 40% of the apartment units to tenants making no more than 60% of the area median income or allotting 20% of the units to tenants making no more than 50% of the area median income. Since LURA set the restrictions on a property, even if a developer sells the property which has a Land Use Restrictive Agreement in effect, it will transfer to the new buyer.
If the new buyer wants to develop a mixed-use project, the LIHTCs might be overly restrictive. However, there are ways to overcome this problem while maintaining the LIHTCs. One can create a master lease where a developer signs a lease to take over the commercial space. The developer thus becomes a tenant and pays a specific set rent under the income restriction back to the owner of the project. The developer can rent out the commercial space to businesses or individuals to make a profit.
The buyer can also break the mixed-use project into different pieces like a condominium's units–each owned by separate people. The developer is the sole owner of the commercial part of the project but it remains separate from the residential part of the project where the LIHTC applies.
You can read more on working with a property that has a land use restriction agreement in place, here .
Common Terms in a LURA
The LURA has some common sections such as definitions and property details. There are some common sections and topics that are present in all LURAs.
- Multifamily Financing Implications : Properties with a LURA restrict rents are underwritten and processed differently than traditional market rate properties. For instance, Loan terms, costs and interest rates may differ from those of a market rate property. Properties with a restrictive agreement in place are processed under an Affordable Housing program often. A dedicated team of professionals trained in affordable housing will underwrite, process and close the loan.
- The Restriction Period : The restrictions period is also known as the compliance period and is set forth in the LURA. For instance, the compliance period is set at 15 years with an additional 15 years for the extended use period.
- LIHTC Tax Credits : For submitting to the land use restrictions the owner of the multifamily property 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.
- Termination of the LURA under LIHTC : While the restriction period of the LIHTC program is in place the land use restrictions also stay in place. This can limit the operations of the multifamily housing property. The specific length of time that the restrictions stay in place is specified in the LURA as the compliance period. The LURA's restrictions can terminate through the qualified termination process, through lender foreclosure proceedings or through the natural expiration of time which can be 30 years or more.
You can read more on components of a LURA here .
Land Use Restriction Agreement Compliance Period
The compliance period is the period between the effective date of the agreement and the expiration of the agreement. Generally, the compliance period is set at 15 years with an additional 15 years for the extended use period. The IRS regulations, HUD or other housing authority set the initial 15-year compliance period. Additional extended use period is enforced by the actions of the individual states housing authority where the property is located.
Here is a sample LURA .
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Meet some of our Land Use Restriction Agreement Lawyers
Benjamin W.
I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!
Rebecca L.
I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.
Don G.
Texas licensed attorney specializing for 20 years in Business and Contract law. My services include General Business Law Advisement; Contract Review and Drafting; Legal Research and Writing, including Motion Practice; Business Formation; Article or Instructive Writing; and more. For more insight into my skills and experience, please feel free to visit my LinkedIn profile or contact me with any questions.
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Creative, results driven business & technology executive with 24 years of experience (13+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. My engagements often include legal consultation & advisory roles, drafting of NDAs, TOS & Privacy Policies, contracts and corporate law, business strategy advice & consulting, in-house counsel, Founder & entrepreneur guidance and other roles as needed by my clients. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.
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Ema T.
I am a NY licensed attorney experienced in business contracts, agreements, waivers and more, corporate law, and trademark registration. My office is a sole member Law firm therefore, I Take pride in giving every client my direct attention and focus. I focus on getting the job done fast while maintaining high standards.
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David B.
A twenty-five year attorney and certified mediator native to the Birmingham, Alabama area.
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