• Affordable Housing Preservation Law Imposes New Notice Requirements, Right of First Refusal and Right of First Offer
  • February 11, 2010 | Author: Elizabeth Lintz
  • Law Firm: Goulston & Storrs, A Professional Corporation - Boston Office
  • Owners of publicly-assisted housing in Massachusetts are subject to new requirements under a recently enacted law aimed at preserving affordable housing. The law creates purchase rights in favor of the Massachusetts Department of Housing and Community Development (“DHCD”) when an owner decides to sell publicly assisted housing.  In addition, the law requires owners to notify DHCD and others when a property’s affordability restrictions are approaching termination—even if the restrictions are ending simply because the owner elects not to renew a subsidy contract or the property’s government assistance is expiring in the ordinary course.  Owners whose properties have affordability restrictions ending before November 23, 2011 must deliver the required notices no later than February 21, 2010.

    The law, entitled An Act Preserving Publicly Assisted Housing, is also known as Chapter 40T.

    Properties Covered by Chapter 40T

    Chapter 40T applies to housing receiving a wide range of federal and state government subsidies including, among others, section 8 project-based rental assistance, federal or state low-income housing tax credits, mortgage insurance under sections 221(d)(3) and 221(d)(4) of the National Housing Act, interest rate reduction payments under section 236 of the National Housing Act, state project-based rental vouchers, and alternative tax arrangements under chapter 121A if the housing is subject to affordability restrictions entered into in connection with the 121A agreement. 

    Notice Requirements

    Under Chapter 40T, an owner of publicly-assisted housing must deliver two notices to tenants, tenant organizations, the chief executive officer of the town or city in which the housing is located, the Community Economic Development Assistance Corporation, and DHCD before the termination of the affordability restrictions affecting the housing.  The owner must deliver the first notice no less than two years, and the second notice no less than one year, before the restrictions terminate.  The statute defines what circumstances constitute “termination,” which include, among others, non-renewal of a subsidy contract and expiration of restrictions under government assistance programs.  It also specifies the delivery methods owners may use for the notices and the information that the notices must contain. 

    Chapter 40T provides a special deadline for owners who cannot meet the two-year or the one-year notice deadlines described above because their properties’ affordability restrictions expire sooner than the two-year anniversary, or sooner than the one-year anniversary, of the law’s effective date, November 23, 2009.  Such owners can comply with Chapter 40T’s notice requirements by providing the prescribed notice by February 21, 2010.  Therefore, owners whose properties have restrictions expiring in the period between November 23, 2010 and November 23, 2011 must give the two-year notice by February 21, 2010, and owners whose properties have restrictions expiring in the period between November 23, 2009 and November 23, 2010 must give the one-year notice by February 21, 2010.

    Note that an owner must give each of the notices required under Chapter 40T regardless of whether the owner has immediate plans to sell the property.

    Purchase Rights

    Chapter 40T prohibits an owner of publicly-assisted housing from entering into a purchase and sale agreement without first providing DHCD with an opportunity to make an offer to purchase the property.  In addition, if the owner and DHCD are unable to agree upon the terms of the sale and the owner enters into an agreement to sell the housing to a third party, the owner must allow DHCD the opportunity to buy the housing pursuant to the same agreement or another agreement mutually acceptable to the owner and DHCD.  Therefore, under the statute, DHCD has both a right of first offer and a right of first refusal.  Further, DHCD is permitted to assign its rights to certain other parties, including municipalities, housing authorities, or any other entities selected by DHCD to operate publicly-assisted housing.

    The statute provides certain exceptions to the applicability of the purchase rights, such as transfers to affiliates, sales that preserve affordability, and dispositions of properties that have affordability restrictions with remaining terms of fifteen (15) years or more.

    Chapter 40T contains detailed procedures and timeframes for complying with the notice requirements and purchase right obligations, and also imposes limitations on rent increases for three (3) years after affordability restrictions terminate.  In addition, the statute requires DHCD to promulgate implementing regulations by April 22, 2010, so more particulars will be forthcoming.