CREFCOA Knowledge Center

What is a Land Use Restrictive Agreement (LURA)
A Land Use Restrictive Agreement (LURA) subjects the multifamily real estate to a land use restriction agreement (LURA), in which the 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. The land use restrictions are documented in the LURA, which is recorded in the public record and runs with the land (i.e. deed restricted). Since the LURA runs with the land, in the event a multifamily housing property is sold during the term of the agreement, the LURA's restrictions are binding upon the buyer. The purpose of a LURA is to provide affordable housing to low-income households by limiting the the maximum rent that can be charged for a unit and by requiring that some or all of the units be made available only to households with incomes below a percentage (e.g. 40%, 60%, 80%) of the Average Median Income.

Multifamily Financing Implications
Properties with a LURA or other regulatory agreement (HAP contract) that restrict rents and/or income are underwritten and processed differently than traditional market rate properties. Further, loan terms, costs and interest rates may differ from those of a market rate property. Most multifamily lenders process properties with a restrictive agreement in place under an Affordable Housing program where a dedicated team of professionals specially trained in affordable housing will underwrite, process and close the loan.

The Restriction Period
The restrictions set forth in the LURA can be defined by the compliance period and the extended use period. For example, the compliance period is set at 15 years with an additional 15 years for the extended use period. The initial 15 year compliance period is enforced by IRS regulations, HUD or other housing authority, and any additional extended use period is enforced by the actions of the individual states housing authority where the multifamily property is located.

LIHTC Tax Credits
In exchange for submitting to the land use restrictions, the LIHTC multifamily property owner 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. The tax credits flow to the owner solely by virtue of its ownership in the eligible property. Tax credits can't be individually separated from the property, i.e. you can't sell tax credits. Since tax credits stay with the property, an interest in the property can be sold resulting in the buyer receiving the tax credits.

Termination of the LURA under LIHTC
During the restriction period of the LIHTC program, the land use restrictions stay in place, limiting the operations of the multifamily housing property. The specific length of time that the restrictions stay in place is specified in the LURA. The LURA's restrictions terminate in one of three ways: 1) through the qualified termination process; 2) through lender foreclosure proceedings; 3) through the natural expiration of time (30 years or more).