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Commercial Real Estate Glossary
2 min read

LURA: Land Use Restrictive Agreements in Commercial Real Estate

In certain multifamily real estate projects, an owner/developer will give up some of their rights via a Land Use Restrictive Agreement, or LURA, in order to receive tax credits in the future. The LURA will specifically document the restrictions placed upon the property, and typically help guarantee that the project will receive a specific number of LIHTC credits over a specific time period.

In this article:
  1. What are Land Use Restrictive Agreements in Commercial Real Estate? 
  2. How Land Use Restrictive Agreements Work 
  3. How Long Do Land Use Restrictive Agreements Last? 
  4. Questions? Fill out the form below to speak with a commercial real estate loan specialist.
  5. Related Questions
  6. Get Financing
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What are Land Use Restrictive Agreements in Commercial Real Estate? 

In certain multifamily real estate projects, an owner/developer will give up some of their rights via a Land Use Restrictive Agreement, or LURA, in order to receive tax credits in the future. The LURA specifically documents the restrictions placed upon the property and typically helps guarantee that the project receives a specific number of LIHTC credits over a specific time period. 

How Land Use Restrictive Agreements Work 

LIHTC credits depend on a project allotting 40% of the apartment units to tenants making no more than 60% of the area median income (AMI) (the 40/60 test), or allotting 20% of the units to tenants making no more than 50% of the area median income (the 20/50 test). However, LURAs often go further, by limiting unit rents for a larger amount of the project's units or requiring that a certain amount of units go to tenants making even less than 50% of the AMI (i.e. 40%). LURAs follow the land, so if a developer sells a project with a Land Use Restrictive Agreement in effect, that LURA transfers to the new buyer. 

How Long Do Land Use Restrictive Agreements Last? 

LURAs usually have two stages, a 15-year compliance period, which is enforced by the IRS, and a secondary, extended-use period, which is also usually 15 years. The extended-use period is enforced by the state in which a project is located, so the specific nature of that enforcement often varies by location. However, the duration of LIHTC credits does not change just because a project is subject to a LURA. The credits are still spread out over a 10-year period. 

Questions? Fill out the form below to speak with a commercial real estate loan specialist.

Related Questions

What is a Land Use Restrictive Agreement (LURA)?

A Land Use Restrictive Agreement (LURA) is an agreement between an owner/developer and a government entity that documents restrictions placed upon a property in order to receive tax credits in the future. The LURA typically helps guarantee that the project receives a specific number of Low-Income Housing Tax Credits (LIHTC) credits over a specific time period. 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.

Sources:

  • https://multifamily.loans
  • /commercial-real-estate-glossary/lihtc-credits
  • apartment.loans/posts/understanding-land-use-restrictive-agreements-lura

What are the benefits of a Land Use Restrictive Agreement (LURA)?

The main benefit of a Land Use Restrictive Agreement (LURA) is that it helps guarantee that a property receives a specific number of Low-Income Housing Tax Credits (LIHTC) credits over a specific time period. This can be a great way for owners/developers to receive tax credits in the future. Additionally, LURA agreements typically involve an "extended use period" which is often 15 years but can sometimes be longer or shorter, depending on the state of origin. This extended use period helps ensure that the 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.

What are the drawbacks of a Land Use Restrictive Agreement (LURA)?

The main drawback of a Land Use Restrictive Agreement (LURA) is that it limits the owner/developer's rights to the property. This means that the owner/developer may not be able to make certain changes to the property or rent it out at market rates. Additionally, if the owner/developer sells the property, the new buyer will still have to abide by all of the rules of the LURA. This can make it difficult to find a buyer who is willing to accept the restrictions of the LURA.

Source: https://www.commercialrealestate.loans/commercial-real-estate-glossary/lura-land-use-restrictive-agreement and https://apartment.loans/posts/understanding-land-use-restrictive-agreements-lura

How does a Land Use Restrictive Agreement (LURA) affect commercial real estate?

A Land Use Restrictive Agreement (LURA) affects commercial real estate by limiting the rights of the owner/developer in order to receive tax credits in the future. The LURA specifically documents the restrictions placed upon the property and typically helps guarantee that the project receives a specific number of Low-Income Housing Tax Credits (LIHTC) credits over a specific time period.

LURAs usually have two stages, a 15-year compliance period, which is enforced by the IRS, and a secondary, extended-use period, which is also usually 15 years. The extended-use period is enforced by the state in which a project is located, so the specific nature of that enforcement often varies by location. However, the duration of LIHTC credits does not change just because a project is subject to a LURA. The credits are still spread out over a 10-year period.

What are the legal implications of a Land Use Restrictive Agreement (LURA)?

Land Use Restrictive Agreements (LURA) are legally binding documents that require the owner/developer to give up some of their rights in order to receive tax credits in the future. The LURA specifically documents the restrictions placed upon the property and typically helps guarantee that the project receives a specific number of Low-Income Housing Tax Credits (LIHTC) credits over a specific time period. 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.

What are the most common types of Land Use Restrictive Agreements (LURA) in commercial real estate?

The most common types of Land Use Restrictive Agreements (LURA) in commercial real estate are agreements that document the restrictions placed upon the property and typically help guarantee that the project receives a specific number of Low-Income Housing Tax Credits (LIHTC) credits over a specific time period. The LURA usually has two stages, a 15-year compliance period, which is enforced by the IRS, and a secondary, extended-use period, which is also usually 15 years. The extended-use period is enforced by the state in which a project is located, so the specific nature of that enforcement often varies by location. However, the duration of LIHTC credits does not change just because a project is subject to a LURA. The credits are still spread out over a 10-year period.

Source: https://www.commercialrealestate.loans/commercial-real-estate-glossary/lura-land-use-restrictive-agreement

In this article:
  1. What are Land Use Restrictive Agreements in Commercial Real Estate? 
  2. How Land Use Restrictive Agreements Work 
  3. How Long Do Land Use Restrictive Agreements Last? 
  4. Questions? Fill out the form below to speak with a commercial real estate loan specialist.
  5. Related Questions
  6. Get Financing
Categories
  • Commercial Property Loans
  • CRE Loans
Tags
  • Commercial Mortgage
  • commercial real estate loans
  • LIHTC
  • Low Income Housing Tax Credits
  • LURA
  • Land Use Restrictive Agreement

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