Lease Nonrenewal Procedure: Don't Expose Yourself to a Lawsuit

An all-too-common scenario in tax credit site management is the household that becomes uncommunicative at recertification time. You've probably encountered such households before: Multiple notices to make an appointment for a recertification interview are shrugged off and ignored.

While you want to make every effort to work with qualified households and maintain a long-lasting relationship, it's also your job to make sure that residents who are no longer eligible do not jeopardize the owner's tax credits.

Failure to recertify is one of the most common reasons for not renewing a tax credit household's lease. The nonrenewal procedure is a necessary step to ensure that the unit stays in compliance, but it can be a sensitive issue for all concerned. Households may feel that they're being discriminated against or wrongfully evicted. It's important to take the proper legal precautions to ensure that you don't expose yourself to a lawsuit.

Protect Your Rights with Lease Language

The best safeguard against objections to lease nonrenewal can be found in the lease itself.

“Under the federal tax credit regulations, residents are under no statutory obligation to recertify; therefore, the responsibility to supply income certification must be clearly specified in the lease,” says Chris Evans, managing partner of the Los Angeles office of Kimball, Tirey & St. John. “In California, you cannot evict residents for noncompliance with the tax credit regulations.” In addition to the federally mandated lease provisions, Evans recommends that tax credit leases include language or an addendum that specifically states the grounds to terminate the tenancy, including tax credit-specific grounds, such as:

Recertification. State that approximately 120 days prior to the expiration of the lease term, the owner will ask the resident to report his household income and provide information regarding the household and to supply any other information necessary for the owner to comply with IRS Section 42 requirements and the Low Income Housing Tax Credit (LIHTC) Compliance Rules and Regulations. The lease language should state that the resident agrees to provide accurate statements of this information and to do so by the date specified in the owner's request. Also state that the owner will verify the information supplied and use the verified information for LIHTC compliance purposes.

Failure to comply with requests for information. The lease should state that if a resident who occupies a tax credit unit does not submit the required recertification information in a timely manner as requested, or submits false information, the owner may immediately terminate the lease agreement, and the resident will vacate the premises.

Student status. The lease should state that:

• The LIHTC program provides for specific qualification restrictions with respect to occupancy of tax credit units by full-time students;

• If the resident occupies a tax credit unit, he acknowledges that qualification to remain as a resident is at all times dependent upon the members of the resident's household meeting all student status requirements; and

• If the resident or his household fails to meet all student requirements, the resident will be deemed an unqualified tenant and will be subject to immediate eviction.

Income increases. At sites where less than 100 percent of the units are designated as LIHTC, the lease should state that if the resident's income increases to 140 percent of the current applicable income limit, the owner reserves the right to do any of the following: (1) non-renew the resident's lease with a 30-day written notice; (2) increase the rent to the applicable market rent with a 30-day written notice; or (3) transfer the resident to the next available non-tax credit unit.

PRACTICAL POINTER: You can reinforce tax credit lease compliance with a household orientation letter that highlights the most important requirements, such as annual recertification. Distribute the letters during resident orientation sessions or mail them to households on the day they move in so that they don't get lost or overlooked among other household papers.

What Is Good Cause for Nonrenewal?

Generally, “anything that the resident has done that has violated the terms and conditions of lease can be grounds for a nonrenewal,” explains Evans. But “in the tax credit program, you have to have ‘good cause’ grounds.”

The IRS published its Revenue Ruling 2004-82 in August 2004 to protect residents against evictions and lease terminations for reasons other than good cause, which can include serious or repeated violations of the lease, failing to provide eligibility or recertification information, nuisance activity, destruction of property, nonpayment of rent, and engaging in illegal activity. The specific grounds that constitute good cause for lease nonrenewal vary depending on the state and city ordinances, says Evans. Your attorney and state agency will be able to provide more information on the requirements for your location.

It's important to ensure that your staff fully understand the issues regarding good cause and what your policy is, and that they document every lease violation with as much detail as possible, says Gianna Solari, vice president of operations for Solari Enterprises, a full-service property management firm with numerous tax credit sites in California.

Editor's Note: To read about good-cause lease violations for HUD's Tenancy Addendum for Section 8 Tenant-Based Assistance Housing Choice Voucher Program, see “What Constitutes ‘Good Cause’ for Termination?” Insider, January 2009, p. 1.

Send Nonrenewal Notice

Once you have decided that you have good cause for not renewing a lease, you will need to inform the household in writing. “Depending on the reasons for the termination, we try to give households a 60-day notice so that they have plenty of time to find a new place to live,” says Solari. “We don't want them to feel like they're being immediately pushed out.” She points out that residents who are given a short time frame for vacating their unit may decide that it's better to hunker down and fight the eviction than to be rushed out the door.

Giving the household the maximum amount of time allowed under the law to vacate the unit (typically, 60 days) is a good practice, says Evans. “It will make you look good to a judge, and it helps to cut down on the instances in which you have to evict, because if you give them enough time to relocate, they're probably going to find alternative housing.”

The nonrenewal notice should be concise and businesslike. Some states require that the notice state the grounds for termination, including specific violations that occurred and the dates. See our Model Form: Send Nonrenewal Notice for Failure to Recertify, for an example of a notice that complies with California law.

After the notice has been delivered, it's okay to follow up with the household regarding move-out procedures, but do not issue additional notices. “You don't want to further threaten their tenancy,” Evans says. “You simply want to give them the time to relocate.”

PRACTICAL POINTER: Make sure that you have proof that the nonrenewal notice was sent or delivered to the household. If you typically hand-deliver notices at your site, have the staff member who delivers it sign and date a copy of when it was delivered to keep on file. Also, be sure to send a copy to the household via certified mail with return receipt requested.

Insider Sources

Chris Evans: Kimball, Tirey & St. John, LLP; (800) 338-6039; Chris.Evans@KTS-LAW.com; http://www.kts-law.com.

Gianna Solari: Vice President, Operations, Solari Enterprises, Inc.; (714) 282-2520; gianna@solari-ent.com; http://www.solari-ent.com.

Search Our Web Site by Key Words: lease nonrenewal; nonrenewal notice; recertification; good cause