National Housing Law Project Housing Law Bulletin

In what appears to be a case of first impression, a Minnesota appellate court has held that an owner of a Low Income Housing Tax Credit (LIHTC) project may not terminate a resident’s lease at the end of a term without good cause./1/ The decision struck down a lower court ruling in favor of the owner.

The case arose in 1998 when the owner of a project financed pursuant to the LIHTC program authorized by Section 42 of the Internal Revenue Code (IRC)/2/ terminated the tenant’s lease at the end of a one-year term without good cause. The owner prevailed in District Court, arguing successfully that good cause was not required to terminate the lease in a LIHTC project, and the tenant appealed.

The issue on appeal was the proper construction of two sections of the IRC. The first is 26 U.S.C. § 42(h)(6)(B)(i) (West 1999), which defines the term "extended low-income housing commitment" and reads:

For purposes of this paragraph, the term "extended low-income housing commitment" means any agreement between the taxpayer and the housing credit agency–

(i) * * * which prohibits the actions described in subclauses (I) and (II) of subparagraph (E)(ii).

The second section is the cross-referenced subclause (E)(ii),/3/ which reads:

(ii) Eviction, etc. of existing low-income tenants not permitted

The termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination--

(I) the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any low-income unit, or

(II) any increase in the gross rent with respect to such unit not otherwise permitted under this section.

The tenant argued that the plain language of Section 42(h)(6)(B)(i), with its specific cross reference to subclause (E)(ii)(I), prohibits all evictions governed by the extended commitment agreement except for good cause. The landlord, on the other hand, argued that Section 42(h)(6)(B)(i) incorporates by reference not only subclauses (I) and (II) but all of subparagraph (E)(ii) and that when subclause (I) is read in the context of the prefatory language of subparagraph (E)(ii) it only prohibits evictions without good cause during the three years immediately following a premature termination of a qualified low-income building.

The Court of Appeals rejected the landlord’s arguments for three reasons:

• First, it found the landlord’s reasoning flawed in that by extension it would require the court to read 26 U.S.C. § 42(h)(6)(E) as a whole and § 42(h)(6)(B)(i) simply does not require that it be read that way./4/

• Second, it found that the landlord’s reading of the statute is specifically prohibited by Section 7806(b), governing the rules of construction for provisions of the IRC, which reads:

No inference, implication, or presumption of legislative construction shall be drawn or made by reason of the location or grouping of any particular section or provision or portion of this title./5/

• Third, relying on the plain language of the statute, the court concluded that Section 42(h)(6)(B)(i) specifically cross references to subclauses (I) and (II) and not subparagraph (E)(ii). The court further concluded that such a reading requires a finding that subclause (I), which prohibits evictions except for good cause, applies during the entire period of an extended commitment agreement./6/

The Court stated that it need not consider the statute’s legislative history because it is unambiguous. Nonetheless, it buttressed its conclusion by noting that the Revenue Reconciliation Act of 1989/7/ inserted the good cause prohibition in subparagraph (E)(ii), and that the Revenue Reconciliation Act of 1990/8/ inserted the cross reference to subclauses (I) and (II) of subparagraph (E)(ii) into subsection (h)(6)(B)(i). Based on these facts, the Court concluded that if Congress intended the prohibition on eviction without good cause to apply only in cases of premature termination of the qualified low-income restriction, there would have been no reason to reference subclause (I) and (II) of subparagraph (E)(ii) in 1990 because the necessary language to accomplish that goal was put into place in 1989. According to the Court, the addition of the reference to the action described in subclauses (I) and (II) suggests that Congress was not satisfied with the result of the 1989 legislation./9/ The Court found further corroboration for that conclusion in a document produced by the Joint Committee on Taxation which states:

that the extended low-income housing commitment must prohibit the eviction or termination of tenancy (other than for good cause) of an existing tenant of a low-income unit./10/

The Court thus reversed the District Court’s grant of summary judgment in favor of the landlord and remanded the case.

Notes

1    Cimarron Village Townhomes Ltd., v. Washington, C3-99-118 (Minn. App., July 27, 1999) (unpublished). There are two other cases that have held that good cause is required to evict a tenant from a LIHTC project at the end of the lease term. In both cases, however, it appears that that the tenants were receiving tenant-based Section 8 assistance and that the holding in both cases was predicated at least in part on that fact. Bowling Green Manor v. Kirk, No. 1995 WL 386476 (Ohio Ap. 6 Dist., June 30, 1995)(unpublished); Bowling Green Manor v. LaChance, 1995 WL 386496 (Ohio App. 6 Dist.)(unpublished).

2    26 U.S.C.A § 42 (West 1999).

3    Section 42(h)(6)(E)(ii). [or 26 U.S.C. § 42(h)(6)(E)(ii)]

4    Cimarron Village Townhomes Ltd., v. Washington, C3-99-118, slip op. at 4 (Minn. App., July 27, 1999). [Blue book at page 68]

5    Id.

6    Id. at 4. The court also rejected a policy argument made by the landlord, namely that applying the prohibition on evictions effectively creates an endless lease and discourages landlord’s from participating in the tax credit program. It found that landlords may terminate tenancies for good cause and that such a restriction protects the statutory objective that the housing be provided for low income residents.

7    Pub. L. No. 101-239, §7108, 103 Stat. 2106, 2309-10(1989).

8    Pub. L. No. 101-508, §11,701, 104 Stat. 1388, 1388-1506 (1990).

9    Cimarron Village Townhomes Ltd., v. Washington, C3-99-118, slip op. at 5 (Minn. App., July 27, 1999).

10    Id. (citing to Joint Committee on Taxation, Description of H.R. 5454 (The Technical Corrections Act of 1990)(JEC-25-90)(Aug. 3, 1990).