Earlier this week, the U.S. Department of Housing and Urban Development announced it will be rescinding the form of Annual Contributions Contract (ACC) that HUD had released to housing authorities this past May with instructions that the form of ACC would automatically become effective for housing authorities as each housing authority drew down their first installment of 2018 Capital Funds.

Housing Authority coalitions and lawyers within the affordable housing bar raised significant concerns with HUD over the summer concerning this new form and the lack of transparency that accompanied its development and release.  Some of the concerns are set forth in an alert recently posted by the Public Housing Authorities Directors Association.  Ballard Spahr lawyers, Amy Glassman and Courtney Hunter, participated in meetings with HUD leaders on these issues, as well.

This is a significant development for housing authorities and those who work with housing authorities in revitalizing the nation’s public housing stock. HUD has indicated they will initiate a process for updating the form of ACC and will seek comments from the public as part of that effort.  Ballard Spahr will continue to monitor the issue and keep you informed through the Housing Plus Blog.

 

 

HUD’s Moving to Work (MTW) Office has been busy! Earlier this month, HUD published for public comment a revised Operations Notice that will govern an expanded MTW program. Just a few days ago, HUD published the much-awaited notice inviting the first round of new applicants for the expanded MTW program. Continue Reading HUD Publishes MTW Operations Notice and Request for First Round of New MTW Applicants

Most websites for housing providers and other businesses should be accessible to individuals with disabilities. But how is this enforced? On September 25, 2018, the U.S. Department of Justice issued a letter to a member of the U.S. House of Representatives in which it took the position that “noncompliance with a voluntary technical standard for website accessibility does not necessarily indicate noncompliance with the ADA.” The DOJ’s position, significantly, does not require conformance with the voluntary Web Content Accessibility Guidelines (WCAG) 2.0 to comply with the ADA in all instances. The DOJ expressly allows for flexibility in how individuals with disabilities are provided access to digital and online content, but does not provide guidance in the implementation of such flexibility.

The DOJ’s letter responds to a June 2018 inquiry from members of the House of Representatives from both parties, which asked the DOJ to “state publicly that private legal action under the ADA with respect to websites is unfair and violates basic due process principles” absent clear guidance from the DOJ on website accessibility. In its response, the DOJ noted that for more than 20 years, the DOJ has interpreted the ADA to apply to websites of places of public accommodation. The DOJ’s response also clarified that the absence of a specific regulation does not mean that websites are not subject to the ADA’s accessibility requirements. The DOJ indicated in its letter a willingness to work with Congress on legislative action to address the increased website accessibility litigation risk faced by businesses.

The flexible approach to website accessibility expressed by the DOJ provides businesses with additional opportunities to review ADA accessibility compliance programs, as well as responses to increased litigation risk regarding the accessibility of websites.

Attorneys in Ballard Spahr’s Accessibility Group regularly assist housing providers and other clients in defending against website accessibility demand letters and litigation, and advise clients on ADA accessibility policies and procedures.

 

The Census Bureau, in conjunction with researchers from Harvard and Brown Universities, this week published a national “opportunity atlas” that tracks outcomes for children in adulthood based on nationwide data. The atlas can be used to find, down to the census tract level, information on positive and negative outcomes for children, with information such as earnings, incarceration rates by parental income, race and gender. See also the New York Times discussion of how the Seattle Housing Authority is using the atlas to allow higher housing choice voucher rents in certain neighborhoods.  Pretty interesting data as we start to implement Opportunity Zones, revise the affirmatively furthering fair housing rule, consider small area FMRs for the voucher program, and plan for new affordable housing developments.

A pending lawsuit against HUD challenging its suspension of its local tool for affirmative fair housing assessments has been dismissed.  Earlier this year, HUD first extended the deadlines for, then withdrew, its Affirmatively Furthering Fair Housing (AFFH) Local Government Assessment Tool, which had been the subject of some controversy related to the reporting burden associated with the tool and other criticisms.  The Local Government Assessment Tool is to be used by cities and other entities that receive Community Development Block Grants, HOME Investment Partnerships Program, Emergency Solutions Grants, or Housing Opportunities for Persons with AIDS formula funding from HUD.  Advocates challenged HUD’s actions in a lawsuit.

Last week, the court granted HUD’s motion to dismiss the case. The court found that HUD had authority to withdraw the tool.

The dismissal comes as HUD has reopened the 2015 AFFH regulations for public comment.  Comments are due October 15, 2018, and we encourage all who are interested in this topic to submit comments.

 

As indicated earlier this week, HUD is seeking comments to inform revisions to its Affirmatively Furthering Fair Housing rule. We have been waiting for official publication of the advance notice of proposed rulemaking (ANPR) in the Federal Register to determine when these comments will be due. HUD today published the ANPR.  We now know comments are due October 15, 2018.

Yesterday, HUD announced that it intends to amend its 2015 regulations on affirmatively furthering fair housing, or AFFH. HUD is giving the public 60 days from publication of its advance notice of proposed rulemaking to provide comments on the current AFFH rule.  HUD seeks comments that will help it revise the rule to:

  • “Minimize regulatory burden” while more effectively fulfilling the AFFH requirements
  • Focus on “positive results” rather than “analysis of community characteristics”
  • Allow “greater local control and innovation”
  • Increase housing choice, including greater supply
  • “More efficiently use HUD resources”

This announcement comes after HUD first extended the deadlines for, then withdrew, its AFFH Local Government Assessment Tool, which had been the subject of some controversy related to the reporting burden associated with the tool and other criticisms.  The Local Government Assessment Tool is to be used by cities and other entities that receive Community Development Block Grants, HOME Investment Partnerships Program, Emergency Solutions Grants, or Housing Opportunities for Persons With AIDS formula funding from HUD.  HUD’s announcement also comes while HUD is being sued by advocacy groups related to these actions regarding the assessment tool.

The 2015 AFFH rule contemplated that public housing authorities, states and insular areas would also use a different tool to conduct assessments of fair housing, but those tools have not yet been finalized.

These actions by HUD do not eliminate the Fair Housing Act’s requirements for recipients of HUD funds to affirmatively further fair housing. Indeed, most recipients certify that they further fair housing in connection with various applications for HUD funds and other HUD submissions. Instead, HUD’s actions return most entities to the requirements in effect prior to the 2015 rule, in which they must conduct an analysis of impediments rather than use an assessment tool.

We are working on comments on the AFFH rule, and encourage any entities impacted by the AFFH rule to consider commenting on it.

Ballard Spahr lawyers, Molly Bryson, Doug Fox, Wendi Kotzen and Linda Schakel, recently offered a  presentation regarding the Opportunity Zones established as part of the Tax Cuts and Jobs Act .  As a new program established to encourage capital investment in the over 8,700 Opportunity Zones selected by each of the states, District of Columbia, and U.S. possessions, this new program has the potential to provide investors in Opportunity Funds with deferral of tax on gains rolled over into an Opportunity Fund and potential elimination of tax on the appreciation recognized on the investment in the Opportunity Fund. Opportunity Funds and their investors will be looking to make investments in businesses and property located in Opportunity Zones. Investments in Opportunity Zones could be used in conjunction with the low-income housing tax credit and help bolster affordable housing and community development projects in these neighborhoods.

The linked materials and the session recording provide steps you can take to benefit from this new federal tax program, including:

·        Establishing and qualifying an Opportunity Fund

·        Investing gains into Opportunity Funds

·        Obtaining the maximum benefit of investing in Opportunity Funds

·        Structuring Opportunity Fund investments

·        Locating designated Opportunity Zones

·        Positioning your business or property to qualify as eligible for investment capital from an Opportunity Fund

·        Combining the benefits of an Opportunity Zone with other federal tax programs, such as Low Income Housing Tax Credits (LIHTC), Historic Tax Credits, and New Markets Tax Credits.

Should you have a project that you think could benefit from Opportunity Zones investments or are seeking ways to facilitate investments, please reach out to members of the Ballard Spahr team for guidance and help brainstorming around issues and questions.

On June 15, 2018, the Massachusetts Supreme Judicial Court affirmed a grant of summary judgment by the Massachusetts Superior Court to a nonprofit developer allowing it to exercise its Section 42 right of first refusal (“ROFR”) to acquire an affordable housing project financed with Low Income Housing Tax Credits (“LIHTC”) despite the investor’s claims that the ROFR could not be exercised until a third party bona fide offer was received and accepted by the LIHTC partnership with the approval of the investor and that the exercise of the ROFR in this instance constituted a breach of fiduciary duties and could not be enforced.

In Homeowner’s Rehab Inc. v. Related Corporate V SLP, L.P. (SJC 12441) (Mass. 2018), the court resolved three discrete issues: (1) is a bona fide, third party offer required to trigger the right of first refusal; (2) must the owner of the property accept the third party offer in order to enable the nonprofit entity to exercise the ROFR; and (3) is the general partner of the property owner permitted to accept the third party offer without the consent of the investor. Each of these issues will have implications on the reading of partnership agreements and rights of first refusal in LIHTC housing transactions. It will be interesting to observe whether this Massachusetts case is the beginning of a trend and how the findings here will impact LIHTC partnership negotiations going forward.

First, the court held that an offer need not be “bona fide” in the common law sense to trigger a ROFR. In making this determination, the court provided that the ROFR could not be read in isolation and had to be construed in connection with the partnership agreement, the intent of the parties, the purpose behind the LIHTC program and Section 42(i)(7) of the Internal Revenue Code (“Section 42(i)(7)”). As stated in the preamble of the ROFR in question, the ROFR was granted “in accordance with Section 42(i)(7).” The partnership agreement and the ROFR in question were silent on the specific issue of whether the ROFR can only be triggered by a “bona-fide” offer.

In considering the purpose behind Section 42(i)(7), the court considered the legislative history of Section 42(i)(7) and interpreted it to confirm “that it was intended to facilitate the inexpensive transfer of properties to nonprofit organizations.” See Homeowner’s Rehab Inc. v. Related Corporate V SLP, L.P. (SJC 12441) (Mass. 2018), at 26. The court reasoned that because the ROFR here was granted under Section 42(i)(7) and Section 42(i)(7) allows the nonprofit organization to purchase the property at a price that is often below-market value and less than the price offered by the third-party, a determination that a “bona fide” offer was needed would be inconsistent with the statutory mechanism of Section 42(i)(7). However, the court noted that the third party offer must be “an enforceable offer from the third party.” See id. at 31.

The court also agreed with the lower court that there is nothing in the agreements that bar the general partner from soliciting an offer.

Second, the court concluded the ROFR could not be exercised by the nonprofit developer unless the owner of the property decides to accept an offer from the third party. In making this determination, the court again relied on the terms of the ROFR itself and the legislative intent of the drafters of Section 42(i)(7).

The terms of the ROFR here stated that before the ROFR could be exercised, the partnership must deliver notice of an offer to purchase from a third party to the nonprofit developer. This notice was required to include whether the partnership was willing to accept the offer. In the lower court, the judge interpreted this to mean the partnership did not have to decide to accept the offer in order to trigger the ROFR. Here, the court disagreed stating that the lower court’s interpretation went against the common law distinction between “right of first refusal” and “option to purchase” and the legislative intent of Section 42(i)(7). Congress intended there be a right of first refusal which cannot be exercised until the owner decides to sell. Under the partnership agreement, the court noted that the general partner had the power to decide to sell but the court distinguished that power to accept a third party offer, which triggered the ROFR, from the consummation of the sale which required the limited partner’s consent. The court noted that the decision by the owner to accept the third party offer need not be communicated to the third party and does not constitute an acceptance of the offer.

Third, the court held that the general partner is authorized to trigger the nonprofit developer’s ROFR by soliciting an offer from a third party and, upon receipt of the offer, issuing a disposition notice if the general partner has decided, on behalf of the partnership, to accept the offer. The court stated that “the partnership could not consummate a sale to a third party without the consent of the special limited partner, but that does not mean that the special limited partner must consent to the terms of an offer before the disposition notice can be issued.” See id. at 36.

The court stated that if the limited partner or special limited partner’s consent were needed before the nonprofit developer could exercise its ROFR, “one would expect that the limited partners would withhold their consent unless they were willing to sell the property interest at the § 42 price.” See id. at 33.  If this were the case, then according to the court, the limited partner “would have no reason to wait for a third-party offer to trigger the right of first refusal; they could simply sell to the nonprofit developer at that price.” See id. at 34. The court’s determination was made in part to avoid denying the nonprofit developer the opportunity to acquire the property at the Section 42 price in situations where the limited partner is unwilling to trigger the ROFR.

The limited partner contended that this determination would be contrary to the language of the agreements, but the court disagreed. According to the court, there are only a few instances in which the partnership agreement identifies general partner actions that need to be consented to by the special limited partner. The court states that “section 5.5.B(iv) prohibits the general partner from ‘sell[ing] all or any portion of the property,’ except with the Consent of the Special Limited Partner.” See id. at 35. The court further states that “this prohibition is ‘subject to the provisions contained in Section 5.4,’ which grant the general partner the authority to sell ‘all or substantially all of the assets of the Partnership; provided, however, that except for a sale pursuant to the Option Agreement, the terms of any such sale . . . must receive the Consent of the Special Limited Partner before such transaction shall be binding on the Partnership.’” See id. at 35. The court notes that the “limited partners concede that, under section 5.4, the special limited partner need not consent to the terms of a sale if the sale is pursuant to the option agreement, for example where the nonprofit developer has exercised its right of first refusal,” but “the limited partners nevertheless contend that the special limited partner must consent to the terms of a sale if the sale is to a third party, which is what triggers the right of first refusal, before the general partner can issue a disposition notice.” See id. at 35.

In response to this argument, the court determined that Section 5.4 of the partnership agreement “states only that the special limited partner must consent to the terms of a sale ‘before such transaction shall be binding on the Partnership’” and “[a]s stated, the decision to accept a third-party offer does not itself constitute an acceptance of the offer.” See id. at 35-36. Therefore, the court determined that the issuance by the general partner of a disposition notice does not bind the partnership to sell or to accept the third party offer if the nonprofit developer failed to exercise its ROFR.

The court looked to other provisions of the partnership agreement and determined that there were no restrictions on the general partner’s authority to issue the disposition notice. The only potentially relevant provision was the one relating to the prohibition on any general partner action that would threaten the limited partner’s tax credits. The court determined that “[o]nce the compliance period has ended . . . there is nothing in the partnership agreement that restricts the general partner’s authority to issue a disposition notice, or that requires it to obtain the consent of the special limited partner before issuing such notice.” See id. at 37.

The court was careful to note that in reaching this decision, it was only interpreting the language of the agreements that were executed by the parties here and that it was not “declaring that every partnership participating in the LIHTC program must permit a right of first refusal that can be exercised under these circumstances.” See id. at 38. The case offers that parties in future LIHTC transactions are free to negotiate an agreement that contains different requirements than those set forth in this case.

The Rental Assistance Demonstration (“RAD”) is well known for the option to convert public housing subsidy to a long-term Section 8 Housing Assistance Payments contract (“HAP Contract”) — but RAD also allows owners to convert their Moderate Rehabilitation (“Mod Rehab”) and Moderate Rehabilitation Single Room Occupancy (“SRO”) contracts to a Section 8 HAP Contract.  HUD estimates that there are over twenty thousand units of Mod Rehab and SRO units across the country with no cap on the number of units that can convert through RAD (see database of units here).

Converting Mod Rehab and SRO contracts to long-term Section 8 HAPs through RAD can present advantages to both the owners of the project and the public housing authorities (“PHA”) that administer the existing contracts.  Below are just a few of the possible benefits for owners and PHAs:

Benefits to Owner:
Long-term RAD HAP Contract:

  • Likely higher rents
  • Provides stability
  • Can be used to secure/leverage financing for rehabilitation
  • Preserve affordable housing
Benefits to PHAs:
For Project Based Voucher (PBV) conversions:

  • New vouchers added to PHA’s Annual Contributions Contract (ACC)
  • PHA receives ongoing administrative fee
  • Contract administration responsibilities align with standard PBV program

For Project Based Rental Assistance (PBRA) conversions:

  • HUD administers HAP contract
  • PHA relieved of contract administration

Ballard Spahr recently hosted a webinar with HUD on the RAD conversion process for Mod Rehab and SRO projects.  You can find a recording of the webinar and the associated slides on the Ballard Spahr website.  We are happy to answer and questions you might have on the conversion process.