Cedar Point: One Household at 149% of the Limit and Two Vacancies
Cedar Point is a 40-unit, 100% low-income housing tax credit property placed in service in 2014, with a 60% AMI set-aside, a 15-year compliance period, and a 30-year extended use agreement. Unit 204, a two-bedroom, recertifies June 1 with household income of $71,500. The county's 60% AMI limit for a two-person household is $47,880. The manager has one vacancy: Unit 118, a one-bedroom (60% limit for a two-person household: $41,340), vacant since June 15. An applicant household earning $52,000 wants Unit 118 and can move in July 1. The manager's memo says: 'The household in 204 is at 149% of the limit. We should non-renew them and re-rent 204 at market rent. And we cannot afford to hold 118, so lease it to the $52,000 household before the state agency visit.' The waiting list has three households, all also over the one-bedroom limit. The annual owner certification is due March 1.
1. What is the compliance status of Unit 204 now that the household has recertified at 149% of the income limit, and what must the manager do?
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Unit 204 has not become noncompliant simply because the household is over income. The LIHTC income limit is tested at initial occupancy and at each new lease; there is no continuing income test that forces an existing household out.
So: do not non-renew, do not refuse to recertify, and do not plan to move them.
What is triggered. Because income exceeds 140% of the current limit ($67,032), the Available Unit Rule applies: the next available unit of comparable or smaller size in the building must be leased to an income-qualified household. Unit 204 remains a qualified low-income unit as long as the AUR is satisfied and the unit stays rent-restricted at or below the maximum gross rent.
Documentation. Complete the recertification, record the 140% computation in the file, and be prepared to show the state agency how the next available units were leased. Notify the compliance department so the annual owner certification reflects the AUR. The mistake to avoid is treating over-income status as a lease violation; it is a compliance trigger that changes how the next vacancy must be filled.
2. What happens if the manager leases Unit 118 to the $52,000 applicant? Walk through the consequences.
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Leasing to that household fails two separate tests.
Initial occupancy test. $52,000 exceeds the one-bedroom 60% limit of $41,340. At move-in the household is not income-qualified, so Unit 118 is not a low-income unit. The applicable fraction drops to 39/40 for that period, reducing the credit attributable to the building.
Available Unit Rule. Unit 118 is the next available unit of comparable or smaller size to over-income Unit 204, so the AUR requires it to go to a qualified household. Renting it to an over-income household breaks the AUR, and Unit 204 then also loses its status. The applicable fraction falls to 38/40 until the noncompliance is corrected.
Consequences. The state agency will likely issue a Form 8823 (or state equivalent) citing both units, with credit loss for the affected period and possible recapture of the accelerated portion. The 15-year compliance period and 30-year extended use agreement do not give any cushion here; extended use adds obligations, it does not relax the income test.
Correct action. Hold Unit 118 vacant and market it, or work the waiting list and referral sources for a household at or below $41,340. Two months of vacancy loss is almost always cheaper than losing credit on two units.
3. What rent may the owner charge in Unit 204, and what changes if the household's income drops below 140% at a later recertification?
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Rent. The unit stays rent-restricted. Rent may be increased only up to the maximum gross rent for a two-bedroom at 60% of AMI, with gross rent including the utility allowance. Market rent is unavailable for a low-income unit even at 149% of AMI; charging market rent would itself be a separate noncompliance. The owner may move the tenant toward that ceiling, subject to the lease and applicable state notice rules, but no further.
Later recertification. If income falls below 140% of the limit, the Available Unit Rule stops applying on account of that unit, and the owner is no longer required to hold the next available comparable or smaller unit for a qualified household because of Unit 204. In a 100% building, however, every new lease must still go to an income-qualified household regardless.
Do not do. Avoid the temptation to skip or delay recertifications to keep the household under the radar. Failing to recertify annually is noncompliance in its own right and usually surfaces during a state agency file review, converting one over-income household into a multi-year finding.