1. Affordability Requirements
- Income limits: Check that the lease specifies tenant income thresholds aligned with either the 20/50 (20% of units at ≤50% AMI) or 40/60 (40% of units at ≤60% AMI) test. Some agreements may use income averaging (≤60% AMI average with no unit exceeding 80% AMI).
- Rent restrictions: Ensure rent is capped at 30% of the applicable AMI threshold (e.g., 30% of 50% AMI) and does not include utilities unless the owner pays them separately (utilities must be excluded from gross rent calculations).
2. Compliance Documentation
- Third-party income verification: The lease should reference requirements for written third-party income documentation during initial certification (e.g., pay stubs, tax returns).
- Annual recertification: Confirm tenants must reverify eligibility annually, with third-party verification mandatory for mixed-income projects every year and self-certification allowed after the first year in 100% income-restricted projects.
3. Unit Designation
- Tax credit unit identification: Lease addendums often explicitly state the unit is part of the LIHTC program, with restrictions lasting 15–30 years.
- Public use clause: Ensure the unit is designated for the general public and not reserved for specific groups (e.g., students, employees).
4. Lease Addendum Language
- Tenant acknowledgment: Look for clauses where tenants acknowledge income/rent limits and agree to provide documentation upon request.
- Utility allowances: If utilities are tenant-paid, the lease must specify separately calculated utility allowances (not included in gross rent).
5. Non-Compliance Provisions
- Lease termination: Verify consequences for tenants who exceed income limits during occupancy or fail to recertify.
- Owner obligations: Check for requirements that the owner monitor compliance and report non-compliant units to housing agencies.
For existing tenants, ensure the agreement includes move-in date tracking, as annual recertifications are based on the initial occupancy anniversary.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-should-i-look-for-in-a-lease-agreement-to-confirm-the-tax-credit-is-applied/
