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 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.
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 will transfer 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 can vary by location. However, the duration of LIHTC credits does not change just because a project is subject to a LURA; the credits will still be spread out over a 10-year period.