What happened to the first two months of 2015? I had an opportunity to look at the calendar today and realized we are getting ready to close out the month of February. It seems like just yesterday I was putting my holiday decorations away for another year! I am sure that most of you have been as busy as we have been preparing and submitting annual state reporting and completing annual financial reports.
The first quarter of the year is always a little hectic, but we are getting really close to seeing the light at the end of the tunnel. I figured now that we have little bit more breathing room, it was time to kick off our first Compliance Corner article for 2015.
We have received several phone calls and emails in the recent months regarding what you can and cannot do with community facilities in a Low Income Housing Tax Credit (LIHTC) project.
These facilities include, but are not limited to: Remote offices, community rooms, playgrounds, laundry facilities and basketball courts. Basically, a community space would be an area built with funds obtained through the LIHTC project.
We sometimes refer to this as included in eligible basis, which in layperson’s terms means built with tax credit dollars.
The best way to determine if a project contains a community space or facility is to refer to the documents that were drafted during the application or construction phase of the project. A few examples of these documents would be the tax credit application, land use restriction agreement (LURA), limited partnership agreement (LPA) and the investor closing documents.
For example, let’s say you discover that your project has a community space. This space can be attached to a multi-family building or it could be a stand-alone building or a feature in or near the project. Here are few basic rules to remember when dealing with a community space:
- The room, building or feature must remain open and accessible to the tenants in the project during normal business hours. This includes gates constructed around the facility. The definition of “open and accessible” can vary from state to state. Some states may even define what they consider normal business hours to be. Our recommendation would be to contact your state agency or your compliance consultant to determine what this definition is.
- You can never charge rent for the use of the room or building. Charging tenants to use the facility will result in a compliance finding that cannot be corrected and will most likely result in a credit recapture situation. A charge for the facility would be any non-optional and non-refundable fee charged in order to use the facility. If you have a community room that you allow tenants to use, but are concerned about having to clean up after them, you can charge a fully refundable cleaning/damage deposit to ensure that they clean up after themselves. This type of deposit needs to be documented separate from their tenant-paid rent. If asked about the cleaning deposit policy during an audit, a report should be furnished for review that includes the date the room was used, amount of deposit, if the deposit was refunded and, if not, a detailed explanation as to why the deposit was not refunded along with pictures to support your claim.
- Laundry facilities are another community space that we commonly see added to multi-family buildings. It is important to specify the intent to offer either coin-operated laundry facilities in the application and not just assume that it is acceptable to charge tenants for the use of the machines. Stating your intent to offer laundry facilities in the tax credit application may imply to the state agency that the laundry facilities are being provided free of charge to the tenants. If you currently have these facilities, and the tax credit application does not clearly indicate the intent of the services to be provided, clarification from your state agency or compliance consultant might be warranted.
- Any community space or facility that is included in eligible basis will be inspected by the state agency during a site visit and must pass all health and safety tests. Furthermore, the building or facility will be held to the same level of repair as a residential unit. This means that the Uniform Physical Conditions Standards (UPCS) guidelines will be used during the inspection.
All of the items noted above could possibly result in non-compliance findings during an inspection or audit if not handled correctly. In addition to the rules noted above, your state agency may have additional regulations that must be followed. It is recommended that your policies and procedures include clear and concise directives as to what can and cannot be done with these types of buildings, rooms or facilities.
Your state agency or compliance consultant will be able to provide the guidance that is needed in order to ensure that you do not inadvertently create a non-compliance situation.
As always if you have questions about this information or need further assistance, please feel free to call us at 816-994-8970 or email us at assetmanagement@travois.com.