State & Local Preservation Initiatives

Initiatives / July 6, 2018

As Congress has left funding or policy gaps in the preservation framework for privately owned, federally assisted properties, state and local governments have enacted a variety of restrictions and incentives to fill the gaps. The restrictions include notice and purchase opportunity laws, relocation protections, or generally applicable rent controls. Incentives include property tax relief, or preferential access to state or locally controlled financing. Other programmatic initiatives, such as planning requirements or data collection, are not included here, but some are summarized in this article from NHLP’s Bulletin. The regulatory initiatives are compiled and summarized below.

Note: Certain jurisdictions have generally applicable rent control laws that cover federally-assisted housing units when they emerge from federal regulation. See, for example, the Los Angeles summary below. Such laws may provide disincentives to owners considering exiting federally-subsidized programs.

States

California

California law (CAL. GOV’T CODE §§ 65863.10, 65863.11, 65863.13) extends the “right to make a purchase offer” to tenant associations, local and national nonprofits and public agencies, as well as to profit-motivated organizations, so long as the “qualified entity” is capable and committed to maintaining the low-income use, including renewal of available rent subsidies, for at least thirty years. The statutory rights are triggered by the owner’s decision to take any action that would terminate the federal assistance, or by the lapse of federal, state or local restrictions. Furthermore, the owner is prohibited from selling the property within five years of being eligible to prepay or end participation in a federal, state or local subsidy program, without having extended this right to qualified entities. Owners must give a notice of any proposed termination of subsidies or restrictions to both tenants and specified public entities at least 12 months prior to the anticipated date of termination, and additional information is required at least six months prior. Owners must also provide a separate notice of the right to make a purchase offer to qualified entities that have directly contacted the owner or are on a list maintained by the state. Owners filing a conversion notice may not accept, during the following 180 days, any purchase offers from non-qualified entities, and where a qualified purchaser makes an unaccepted offer during this 180-day period, the owner must provide the qualified entity with a right of first refusal to match the terms of any other sale offer accepted during a second 180-day period. However, the law imposes no general duty on an owner to sell. The law also provides that owners must, upon request, allow all qualified entities to access information about the project’s rent rolls, vacancy rates, operating expenses, capital improvements, project reserves and financial and physical inspection reports. The initial notice of purchase opportunity must state that such information is available upon request. This law is in effect until January 1, 2011, unless the state legislature extends it.

California land use planning law (CAL. GOV’T CODE §§ 65580-65589.8) also contains some provisions that encourage preservation. For example, local governments are required to produce a housing element that analyzes the local assisted housing stock and identifies resources available to help preserve the affordability of the housing.

Colorado

Colorado law (COLO. REV. STAT. §§ 24-32-701 – 24-32-721) provides, in part, that the state should “encourage” owners to submit a notice to the state 120 days before converting publicly-assisted rental housing. The statute also requires the state to maintain a database of properties filing notice and authorizes it to “explore options for preserving the affordable housing resources.”

Connecticut

Connecticut state law (CONN. GEN. STAT. § 8-68c) requires owners of federally-assisted multifamily rental housing to provide a one-year notice to tenants, the state and the local government prior to the expiration or termination of any rental subsidy, a mortgage prepayment or the sale, transfer or lease of the property, where such action will result in a reduction or elimination of subsidies or regulatory agreements. The state agency must post the notice on its website within ten days and send an email notification to a list of persons who have registered to receive such notice.

Illinois

The Illinois Federally Assisted Housing Preservation Act (310 ILL. COMP. STAT. 60/1-60/10.1) requires that owners provide at least 12-months’ notice to the tenants, local government, PHA and the state housing agency, prior to any sale or other proposed conversion. In addition, the law gives tenant associations (representing at least a majority of the affected tenants) and their chosen non-profit or private partners the right to purchase any assisted housing development that is ending its participation (by sale, disposition or any other conversion) in a specified federal subsidy program. Covered programs include project-based rental assistance under Section 8; Sections 221(d)(3), 236 and 202 of the National Housing Act; rent supplement assistance under Section 101 of the HUD Act of 1965; Sections 514 and 515 of the Housing Act of 1949; and Section 42 of I.R.C. The tenants have 60 days from the date of the 12-month notice to notify the owner that they have formed a tenant association. The owner then has 60 days to submit in return a bona fide offer of sale to the association, containing the essential terms of the sale. The association must respond within 90 days with a written notice of intent to purchase. If the parties cannot agree on a price, each party is to hire an independent appraiser. If the appraisers do not agree, the parties can either take their average or jointly hire a third, binding appraiser. Note that the association must agree to close on the sale within 90 days of signing the purchase contract. Procedural protections provide that, upon request, the owner must provide the tenants access to the project’s rent rolls, vacancy rates, operating expenses, capital improvements, project reserves and financial and physical inspection reports.

A separate provision of Illinois law (20 ILL. COMP. STAT. 3805/8.1) governs the prepayment of mortgages for developments financed by the issuance of Illinois Housing Development Authority bonds and not covered by the Low-Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA). In order to be permitted to prepay such a mortgage, the owner may enter into an agreement with the Authority to extend the affordability restrictions to the full term of the original mortgage or to create a comparable number of new low-income units. However, if the owner declines to enter into such an agreement, the law prohibits the Authority from accepting a prepayment prior to the owner giving the tenants a nine-month notice, as well as extending to the tenants a right to purchase the housing that is similar to that of the Illinois Federally Assisted Housing Preservation Act as described above. Tenants do not under this law have mandatory access to project information.

Maine

Maine law (ME. REV. STAT. tit. 30-A, §§ 4971-4978) invests the Maine State Housing Authority with the “right of first refusal to purchase” certain properties that are both subject to federal or state income eligibility restrictions and where the rents within the projects are controlled, regulated or assisted by a federal or state agency pursuant to a regulatory or rental assistance agreement. This right appears to effectively operate as a preemptive option, not a right of first refusal. The statute defines the trigger for the right as “the sale, transfer, or other action that would result in termination of the financial assistance.” Owners must give 90-days’ notice to the tenants, the State Housing Authority and the local PHA. If the housing authority responds in writing within the 90-day period that it intends to exercise its right, it gains an additional 90 days to “buy or produce a buyer for the property.” The statute also imposes a civil penalty of at least $2,500 for any entity that fails to give the requisite notice before selling or converting a subsidized property.

Maryland

Maryland’s Assisted Housing Preservation Act (MD. CODE, HOUS & CMTY. DEV. §§ 7-101 – 7-501) creates a “right of first purchase” (the functional equivalent to a right of first refusal) in local housing authorities, local jurisdictions, state-registered groups representing tenants, registered non-profit low-income developers and other registered persons with low-income housing experience that are unrelated to the owner. The right of first purchase is triggered only by a proposed sale or transfer; however, notice rights and other procedural protections are more broadly triggered by a proposed prepayment or other termination as well. In executing its right of first purchase, a qualifying entity must commit the property to specified extended use terms equal to the original use restrictions for at least the greater of 20 years or the remaining term of the mortgage or rental assistance agreement. The statute also provides that the property must be appraised at fair market value and contains dispute resolution steps. However, if another potential buyer makes a bona fide offer higher than fair market value, then the qualified entity must match the higher price in order to exercise its right of first purchase.

Massachusetts

Chapter 40T of the General Laws (LAWS. ch. 40T, §§ 1-10) requires owners of publicly-assisted housing to provide 24 and 12 month notices to the tenants, tenant organization, municipality, state technical finance corporation and state housing department, prior to terminating an “affordability restriction” relating to rent or income limits. Where an owner seeks to sell publicly-assisted housing, the law also grants the state housing department or its designee an opportunity to submit an offer to purchase the property as well as a right of first refusal. The owner must notify the department prior to a sale, after which the department has 90 days to submit a purchase offer, though the owner is under no obligation to sell. Upon the expiration of the 90-day offer period, but not later than two years after the original notice to the department, the owner may execute a purchase contract with a third party. However, within seven days of execution, the owner must submit the third-party purchase contract, along with a separate proposed purchase contract to the department, containing substantially the same terms and conditions, which the department has 30 days to accept. Both the opportunity to submit an offer and the right of first refusal are exempt from certain situations, including: eminent domain; forced sale pursuant to or deed-in-lieu of foreclosure; a sale to a purchaser that preserves affordability as determined by the department; sales of projects with only project-based Section 8 assistance in which the buyer agrees in a regulatory agreement to renew in whole all such contracts or successor program; a sale to an owner affiliate not deemed to be a termination; a sale of publicly-assisted housing that is still 15 years from its first scheduled termination date; and a sale pursuant to a purchase contract in effect on the effective date of Chapter 40T. The purchase rights continue to apply for four years after the last termination event. Furthermore, for three years following a termination, the rent charged to a low-income tenant who does not receive an enhanced voucher may be increased annually by no more than the consumer price index plus three percent. For the same three-year period, any tenant who resided in the housing as of the termination date may not be evicted except for good cause.

Minnesota

Minnesota state law (MINN. STAT. §§ 471.9997, 504B.255) requires owners of federally-subsidized rental housing to give tenants a one-year written notice of an intended mortgage prepayment, the termination or non-renewal of Section 8 contracts or mortgages or the termination of other housing subsidy programs. The owner must also, at the same time, submit a statement of impact to tenants, the state, and if located within the Twin Cities metropolitan area (as defined by statute), to the Metropolitan Council. The impact statement must identify the number of units that will no longer be subject to rent restrictions, the estimated non-restricted rents and “actions the owner will take to assist displaced tenants in obtaining other housing.”

Ohio

An Ohio state law (OHIO REV. CODE § 3767.41) authorizes cities, neighbors, tenants and nonprofit corporations to bring an action alleging that a federally-subsidized building is a public nuisance and seeking relief in the form of an injunction and, if necessary, the appointment of a receiver. Prior to commencement of the action, the opposing party must give the owner 60-days’ notice of the defective conditions that constitute a public nuisance. If the nuisance is not abated within that period, a judge may find that the building constitutes a public nuisance and may issue an injunction requiring the owner to abate the nuisance within 30 days. Alternatively, if the judge determines that the owner already has been afforded a “reasonable opportunity” to abate the nuisance and has failed to do so, the judge is required to offer any mortgagee, lienholder or other interested party (in order of priority of interest in title) the opportunity to abate the nuisance. If no interested party is willing or able to do this, then the judge may appoint a receiver (including potentially a nonprofit that originally brought the action) to take possession and control of the building. The receiver must receive judicial approval of an abatement plan and the judge may empower the receiver to, among other things, manage the building, establish and collect rents, lease units and evict tenants, pay all operating expenses, enter into contracts, obtain financing necessary for the abatement of the property and collect a receiver’s fees. The statute applies to properties receiving rental assistance under a variety of federal project-based programs. Public nuisance is defined as housing that fails to meet standards set forth in relevant federal rules and the law provides that in no case will nuisance be found where HUD’s real estate assessment center has issued a score of seventy-five or higher within the last 12 months and there has been no significant change in the property’s condition.

Rhode Island

Rhode Island’s Affordable Housing Preservation Act (R.I. GEN. LAWS §§ 34-45-1 – 34-45-12) creates purchase rights for tenant associations, the state housing agency, the local housing authority and the local municipality (in that order of priority) in any instance where an owner seeks to terminate assistance or restrictions on certain federally insured or assisted housing. Owners must give a two-year notice of any intent to sell, lease, otherwise dispose of or prepay the mortgage on any covered subsidized property to the tenants association, state housing agency, local PHA and the municipality. For terminations of Section 8 assistance, owners must similarly provide a two-year notice, but only to the state agency, which must then promptly post it in the development and provide it to the tenants association. The offer of sale with detailed terms must be provided at least one year before termination of the Section 8 contract; for a prepayment or sale, the offer must be provided at an unspecified time prior to the conversion event. The price can be no higher than the fair market value, as determined by the average of two independent qualified appraisals, with one appraiser drawn from the state agency’s list.

Texas

Texas state law (TEX. GOV’T CODE § 2306.185) provides that any owner of a housing project intending to sell, lease, prepay a loan financed with HUD subsidies, opt-out of the Section 8 program, or otherwise dispose of the property must give the state housing department notice one year in advance of any proposed sale or other action that would terminate the subsidy. The statute simply gives the state time to “attempt to locate a buyer who will conform to the development restrictions.” Thus, while the law has a broad trigger for its notice requirement, it creates no direct purchase right.

A separate provision of state law (TEX. GOV’T CODE § 2306.805) establishes a housing preservation incentives program to provide loans, loan guarantees, and grants for the acquisition and rehabilitation of certain affordable multifamily housing developments.

Washington

Washington state law (WASH. REV. CODE §§ 59.28.010-902) requires owners of federally-assisted housing to serve a written notice to each household, local government, PHA and the state at least 12 months prior to a prepayment or anticipated expiration of rental assistance.

Cities

Chicago

The city of Chicago passed the Affordable Housing Preservation Ordinance (CHICAGO, ILL., MUN. CODE § 2-44-111) in 2007 to supplement the Illinois Federally Assisted Housing Preservation Act. The local ordinance requires owners of federally-assisted housing to notify the city department of housing in addition to the notifications that must be sent under the state law upon prepayment, termination or an intended disposition of the property. Furthermore, where a tenant association has not exercised its purchase rights under the state law, owners must still give qualified entities the right of first refusal prior to sale of the property to a non-qualified entity, unless an affordability preservation agreement has been entered into extending for a period of at least ten years. The right of first refusal operates such that an owner may enter into a contingent sales agreement with a non-qualified entity that must then be submitted to the city housing commissioner. The commissioner is then required to make the agreement immediately available to all qualified entities, which then have 120 days to make a bona fide offer of purchase on terms that are “economically substantially identical” to the terms in the contingent sales agreement. If the qualified entity agrees to close on the sale within 120 days then the owner must sell to the qualified entity and enter into an affordability preservation agreement. If no qualified entities make such a bona fide offer, or if one fails to close within 120 days, then the owner may sell to the non-qualified entity identified in the contingent sales agreement under terms that do not substantially deviate from the original agreement. Any aggrieved person, including tenants, may enforce these provisions.

Denver

Denver municipal code (DENVER, COLO., MUN. CODE §§ 27-45 – 27-52) contains both notice and purchase offer rights for the city, which are triggered by an owner’s decision to opt-out of a project-based Section 8 contract, as well as by owner actions to terminate other state and local affordability arrangements. Owners must give, to both tenants and the city, one-year notice of pending Section 8 contract expirations, 210 days’ notice of the intention to opt-out of long-term contracts and 150 days of the intention to opt-out of one-year contract extensions. For local preservation arrangements, a 90-day notice is required any time the owner “takes action which will make the affordable housing no longer affordable.” The code prevents owners from taking any action during the required notice period that would “preclude the city or its designee from succeeding to the contract or negotiating with the owner for purchase.” The code also provides for an unspecified civil penalty for failure to comply with its provisions, with all fines payable into a housing replacement fund established and run by the city.

Los Angeles

As part of plans for a comprehensive preservation program, the city of Los Angeles convened a Notice Ordinance Working Group which issued recommendations to the city in February 2004. While portions of the preservation plan were instituted (such as hiring a preservation coordinator), the city failed to enact a notice ordinance (see here for the Report of the City of Los Angeles Notice Working Group). Some of the key recommendations of the working group included: extending state preservation provisions to the much broader set of properties covered under the local rent control ordinance; requiring relocation payments to tenants displaced by a conversion event; requiring the acceptance of any Section 8 or successor form of rental assistance if it provided a reasonable rent equivalent to the other non-subsidized units; instituting a series of graduated rent increases for tenants not receiving further federal rental assistance; imposing fines for flagrant violations of the ordinance; granting standing to housing advocates to enforce the law against non-compliant owners; and, issuing required form notices with multi-lingual addendums.

Note that the Los Angeles Rent Stabilization Ordinance (LARSO) provides generally applicable rent increase limitations and eviction protections (see L.A., CAL., MUN. CODE §§ 151.00-151.29). While LARSO excludes housing accommodations that are “specifically exempted from municipal rent regulation” under state or federal law, the ordinance covers buildings as they emerge from certain federal programs and thus no longer fall under the relevant federal exemption provisions. Furthermore, the maximum rent charged for such formerly exempt buildings is limited to the last charged rent while the building was exempt, thus preventing steep rent increases immediately upon the exit from a federal program. LARSO does not apply to buildings for which a certificate of occupancy was issued after October 1, 1978.

New York City

A New York City ordinance (N.Y., N.Y., ADMIN. CODE §§ 26-801 – 26-813) grants the rights of first purchase and first refusal to tenant associations and other “qualified entities” experienced in the management of affordable housing if designated by at least 60 percent of the residents. The ordinance covers all situations where owners seek to terminate assistance or restrictions, and requires owners to provide a 12-month notice to tenants of any proposed action that would result in the conversion of the assisted rental housing. The notice must advise tenants of their purchase rights, as established by other sections of the law. Owners must also notify tenants of any proposed purchase offers to which the owner intends to respond, so that tenants can exercise their rights of first refusal to purchase. After the tenants or their designee have given notice of their intent to purchase, the city will convene a panel consisting of an appraiser selected by the owner, another by the tenants and a third by mutual agreement, or by the city if there is no mutual agreement, which then determines the property’s appraised value.

A state court ruled the law unenforceable as preempted by federal law in the Mother Zion case.

Portland

An owner’s decision to opt-out of a project-based Section 8 contract, as well as any owner action to terminate other state and local affordability arrangements, triggers notice rights. Like Denver, the Portland ordinance (PORTLAND, OR., CODE §§ 30.01.010-110) requires owners to provide to the city and tenants a one-year notice of pending Section 8 contract expirations, 210-days’ notice of an intention to opt-out of a long-term contract and 150-days’ notice of an intention to opt-out of one-year contract extensions. The ordinance applies to properties with project-based rental assistance, including properties with assistance or insurance under a variety of HUD programs. It also prevents owners from taking any action during the required notice period that would “preclude the city or its designee from succeeding to the contract or negotiating with the owner for purchase.”

Sacramento

Owners of federally-assisted housing are required by law (SACRAMENTO, CAL., CODE §§ 5.148.010-100) to submit one-year and six-month notices to affected tenants and the Sacramento Housing and Redevelopment Agency (SHRA) in order to terminate, opt-out or prepay. In all such cases, owners may not evict tenants except for good cause for 180 days after the expiration of rental restrictions if the SHRA has arranged for payments of the monthly subsidy that the owner had been receiving. During the 180 days following the one-year notice, an owner may not sell to or solicit offers from non-qualified entities. During the second 180-day period, an owner may negotiate with any potential purchaser, but any sales agreement is made contingent upon qualified entities right of first refusal. Any such contingent agreement must be immediately provided to the SHRA which in turn must make it available to qualified entities. These entities then have 60 days to offer to purchase the property on terms that are economically substantially identical—if no such offer is made, the owner may sell the property pursuant to the terms of the original agreement. Any aggrieved person may enforce the provisions of this law.

San Francisco

San Francisco’s Assisted Housing Preservation Ordinance (S.F., CAL., ADMIN. CODE §§ 60.1-14) gives the city, tenant associations and affiliated nonprofit groups the equivalent of a right of first refusal when an owner proposes to sell or transfer any HUD-subsidized housing. A proposed prepayment or Section 8 contract termination triggers other procedures and protections, whereas a Section 8 contract expiration or opt-out at its original expiration date triggers no purchase rights. The ordinance requires 18-months’ notice of prepayments or mid-term Section 8 terminations, and 12-months’ notice of Section 8 contract expirations at the end of their term. Information about tenants’ rights must be made available to any interested parties at least 14 days prior to a required public hearing, which is held no later than 45 days after the owner gives notice of intent to prepay or terminate prematurely. The ordinance also uses a complex formula to reach a “fair return price” that may not exceed the appraised value based on the highest and best use, creates civil remedies for violations and provides that owners pay relocation fees of up to $5,250 to very low-, low- or moderate-income tenants who are displaced by a conversion, according to a set formula.

The San Francisco Rent Ordinance (S.F., CAL., ADMIN. CODE §§ 37.1-15) also provides generally applicable rent increase limits and eviction protections. The Rent Ordinance generally does not apply to “dwelling units whose rents are controlled or regulated by any government unit, agency or authority, excepting those unsubsidized and/or unassisted units which are insured by the United States Department of Housing and Urban Development.” However, upon the expiration or termination of Section 8 project-based HAP contracts, the units would come under the scope of the Rent Ordinance and the base rent is set at the contract rent immediately in effect prior to expiration or termination. Likewise, upon the prepayment or expiration of a HUD-insured mortgage, the units become subject to the ordinance and the base rent is set to equal the basic rental charge in effect immediately prior to prepayment or expiration. The Rent Ordinance only applies to buildings for which a certificate of occupancy was issued before June 13, 1979.

Santa Cruz

City law (SANTA CRUZ, CAL., MUN. CODE §§ 21.05.010-090) covers all multifamily rental buildings which receive “any public subsidy” including a mortgage loan, mortgage interest subsidy, mortgage insurance or rental subsidy from a federal, state or local governmental body and that has rent levels restricted to affordable levels. Owners seeking to terminate affordable housing restrictions are required to give a 12-month notice to the city director of planning and development. Within 14 days of receiving this notice, the director may send a written “Request for Information and Access” which the owner has 21 days to respond to certifying that, among other things, the owner consents to a reasonable walk-through inspection of the property. Three months prior to offering to sell the property to anyone, the owner must give notice of such intent to the director. If an owner receives an offer from a qualified entity during this three month period, the owner must make a reasonable effort to negotiate and must allow the qualified entity a reasonable amount of time to obtain necessary financing and government approvals. Within 12 months following receipt of an offer by a qualified entity, an owner may not accept an offer that is equal to it or less so long as the qualified entity’s offer remains outstanding.

Seattle

In addition to Washington state notice laws, the city of Seattle has enacted a Tenant Relocation Assistance Ordinance (SEATTLE, WASH., MUN. CODE §§ 22.210.010-180) which entitles tenants to 90-days’ notice in cases of displacement caused by demolition, change of use, substantial rehabilitation or removal of a use restriction. Furthermore, low-income tenants, defined as tenants making no more than 50 percent of median income in Kings County, are eligible for a relocation assistance payment of $2,000, half of which is paid for by the landlord and the other half paid for by the city. The ordinance excludes units owned by the Seattle Housing Authority, condominium conversions, or in cases where tenants are entitled to other relocation payments under federal, state or other law.

District of Columbia

City code in the District of Columbia (D.C. CODE §§ 42-3404.01-13) provides a general right of first purchase for tenants, triggered by a proposed sale or transfer of interest by the owner, regardless of whether the property is subsidized or not. The code requires that each offer of sale include a summary of the tenants’ rights and sources of technical assistance, as published by the city. The notice must further state that the owner will promptly make available to the tenant a floor plan of the building, an itemized list of monthly operating expenses, utility consumption rates, capital expenditures for each of the two preceding calendar years, the most recent rent roll, list of tenants and list of vacant apartments.

A separate D.C. law (D.C. CODE §§ 42-2851.01-08) requires owners of federally-assisted housing who intend to discontinue participation in the federal assistance program to give a one-year notice to the assisted tenant household, the city, the state, the housing authority and the Department of Consumer and Regulatory Affairs. The law also deems any such owner to have consented to a reasonable inspection of the housing by the city. Furthermore, the law prohibits the sale of federally-assisted housing prior to extending the city an assignable first right of refusal in the same manner as the above-described general D.C. tenant right of purchase. This right may not be exercised by the city unless the owner’s plans to sell the property would result in the discontinuance of federal assistance or in the termination of any low-income residency requirements.