It is important that early in the application process, prospects be advised of the applicable income limits and student requirements for occupancy in a Low-Income Housing Tax Credit (LIHTC) property. Management should explain that the total gross income of all members of the household will be verified and included in income for eligibility purposes. Prospects should also be informed that they may be required to go through this same process on an annual basis. In addition to all the verification forms and affidavits that applicants will be required to deal with as part of the qualifying process, there are three other documents that are critical to the qualification process for LIHTC residents: the rental application, the lease, and required lease riders or addenda.
The Rental Application
A fully completed application is critical to being able to determine tenant eligibility. The information provided on the application is the basis on which eligibility will be determined and must be comprehensive enough to provide all income sources – including assets.
The application must be completed in its entirety, whether it is completed by the applicant or by the manager during the interview process. At a minimum, a comprehensive LIHTC rental application will request the following information:
- The name and age of each person that will occupy the unit (legal name should be required as it will appear on the lease and tenant income certification).
- All sources and amounts of current and known projected annual income expected to be received during the 12-month certification period. Include assets currently owned and determine whether household members disposed of assets for less than fair market value during the prior 24 months.
- The current and anticipated student status of each member of the household during the 12-month certification period.
- A screening procedure such as credit checks, prior landlord checks, criminal record screening, etc. The application should request information on whether the family’s assistance or tenancy has ever been terminated for fraud, nonpayment of rent or failure to cooperate with required recertification procedures.
- Housing history for the two prior years.
- The signature of the applicant and the date the application was completed.
All residents occupying LIHTC units should be certified and under lease no later than the date the household occupies the unit. Leasing guidelines to keep in mind include:
- At a minimum the lease should include, but is not limited to:
- The legal name of all parties to the agreement and all other occupants (live-in aides/caregivers should not be shown on a lease);
- A description of the unit to be rented;
- The date the lease becomes effective;
- Any mandatory charges to the tenant;
- Optional payments being made by the household;
- Use of premises
- The term of the lease (should be at least six months at move-in); and
- The rental amount. It is important that the rental amount not exceed the amount permitted under Section 42 of the Internal Revenue Code (IRC) or stated in the project’s Extended Use Agreement, whichever is lower.
- As noted in (6) above, the term of the initial lease must be at least six months for all LIHTC units (unless the project is Single Room Occupancy or Transitional Housing for the Homeless). Lease renewals are not subject to the six-month minimum.
- It is important that the lease reflect the correct move-in date, or the date the tenant takes possession of the unit. This date should match the move-in date shown on the Tenant Income Certification (TIC).
In addition to a standard lease that meets the applicable requirements of state law, there should be language in the lease or a lease rider/addendum that outlines all the LIHTC requirements per Section 42 of the IRC. Language in this rider/addendum will relate to the rights and obligation of the parties, income requirements, annual certification requirements, and student requirements. Additional clauses will detail requirements relating to:
- Increases in income;
- Utility allowance increase/decreases;
- Income limit increases;
- Rent changes;
- Student restrictions and exceptions; and
- Changes in household composition.
Finally, every lease should contain language relating to the “good cause” protection that is afforded to all households that qualify under the LIHTC program. This language should inform all residents that they may not be evicted or otherwise have their tenancy terminated by the owner or management unless there is “Good Cause” to do so.
The three documents outline here (application/lease/lease rider) are critical elements relating to LIHTC household eligibility and should be reviewed regularly in order to ensure that they meet the requirements of the LIHTC program.