Use Lease Clause When Households Violate Student Rule Mid-Lease
At this time of year, as the academic year starts, it may be a good time to review student eligibility restrictions for the LIHTC program. You probably know that, in general, you can’t rent a low-income unit at your tax credit site to a household that’s made up of full-time students.
Student status is an important element of eligibility. Applicants of all ages can be students, and it’s not safe to assume that a person is not or will not be a full-time student. The IRS considers a person to be a full-time student if that person attends a school or other educational organization during at least five calendar months of the calendar year in which the owner’s taxable year begins. It’s important to note that the months don’t have to be consecutive or complete. Just one day of the month is enough to be considered the whole month for LIHTC student status purposes.
But screening applicants to avoid renting to ineligible student households isn’t enough. Once you’ve determined that a household is eligible under the student rule at the initial certification, you must check for student rule compliance at the household’s annual recertification. Even for those 100 percent low-income unit sites that are no longer required to perform annual recertifications, you must still verify student status annually.
Many managers confuse student rule eligibility with income eligibility. For 100 percent LIHTC sites, once a household is income eligible, it is always income eligible, but the same is not true of student status. If you determine that a household is ineligible at its first annual recertification or when you become aware of the status change, you must make sure you have the right to take action to protect against tax credit loss.
In other words, if a low-income household violates the student rule at any point during the lease term, that household isn’t eligible to continue occupying a low-income unit at your tax credit site. If it stays in the unit, the owner of your tax credit site can’t continue to claim credits for that unit.
To avoid this problem, you can add a clause to the lease you sign with low-income households that gives you the right to transfer any household that becomes ineligible under the student rule to another unit, raise its rent to market rate, refuse to renew its lease, or end the lease in the middle of the lease term. We’ll give you a Model Lease Clause: Protect Against Problems When Households Violate Student Rule Mid-Lease, which you can adapt and use at your tax credit site for this purpose.
Student Rule Basics
Generally speaking, if all the members of a low-income household are full-time students, that household is ineligible to occupy a low-income unit—even if the household becomes ineligible after its initial certification. But a full-time student household doesn’t violate the student rule if one of the following five exceptions applies:
- The household members are married and have filed a joint tax return;
- The household consists of a single parent with a dependent child (or children), and neither the parent nor the child (or children) is being claimed as a dependent by anyone else;
- At least one household member gets welfare assistance through Title IV of the Social Security Act (i.e., TANF);
- At least one household member is enrolled in a federal, state, or local job training program; or
- At least one member of the household was formerly in foster care. This should be verified by contacting the agency that administered the foster care program.
What Clause Should Say
Your lease clause, like our Model Lease Clause, should say the following:
- The household understands that its eligibility to occupy its low-income unit may end if all its members become full-time students and the household doesn’t fit into any of the student rule’s exceptions;
- If the household violates the student rule mid-lease, you may transfer the household to a different unit, raise the household’s rent to market rate, refuse to renew the household’s lease, or end the lease in the middle of the lease term; and
- You may pursue these options at any time during the lease term and at your sole discretion.
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