“Hang ’em High” Affordable Housing Covenants in Colorado (Part I), 0719 COBJ, Vol. 48, No. 7 Pg. 44

Author:BY BEN DOYLE
Position:Vol. 48, 7 [Page 44]
 
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48 Colo.Law. 44

Hang ’em High” Affordable Housing Covenants in Colorado (Part I)

Vol. 48, No. 7 [Page 44]

Colorado Lawyer

July, 2019

REAL ESTATE LAW

BY BEN DOYLE

Affordable housing covenants required as a condition of land use approval secure the public interest and define expectations among developers, funders, regulators, and the broader community. This article discusses affordable housing covenants with a focus on Meyerstein v. City of Aspen,

the first reported decision applying the amended rent control statute.

Imagine you're getting ready to meet with a new client, an out-of-state developer who wants to build apartments in a historic Colorado mining town, now a beautiful but expensive mountain resort area. She anticipates that local land use approval will be conditioned on a commitment to build a certain number and type of affordable units. She is willing to set aside at least some of the units in her building for affordable housing, but she thought rent control was illegal in Colorado. She also might want financial assistance from the town. She needs your advice on negotiating with the town.

As you prepare, questions arise: What are the key terms in the affordable housing covenant the town will require her to record against the property? How long will the afford ability restrictions last, and will they run with the land? What if she or her successor wants to terminate the restrictions early; can the covenant be modified or released in the future without incurring penalties? How will successors know whether an agreement entered into with the town as part of a land use approval process was entered into voluntarily? Who may enforce its terms?

More fundamentally, what is the legal nature of an affordability covenant granted to a government as part of land use approval—does it convey a property interest to the government, or does it create contractual rights only? Are these covenants instead one of many tools used by localities in administering land use authority, different in kind than private deed restrictions like homeowner association (HO A) covenants?

Answers to these questions depend on the type of affordable covenant at issue, the town's and the owner's long-term vision for the property, the voluntary or involuntary nature of title transfers, and other factors. This two-part article aims to assist practitioners in negotiating voluntary affordability covenants, with a special focus on those imposed as a condition of land use approval. Part 1 describes how affordable covenants are most commonly created in Colorado, how each type of covenant is affected, if at all, by the rent control statute, and the exception in the rent control statute that allows for "voluntary" agreements. Part 2 will offer a transcript from a hypothetical pre-application meeting between a developer and a town, and each party's counsel, to discuss the terms of a voluntary affordability covenant.

Affordable Housing Covenants

Colorado needs more affordable housing. Statewide, 50% of all Colorado renters are cost-burdened, paying 30% or more of their monthly household income toward rent.[1] Nearly one in four households is extremely cost-burdened, paying 50% or more of its monthly income toward rent.2 However, the specific affordable housing needs of each local community vary widely across the state. The benefit of using affordable housing covenants to address this need is that they can be tailored to reflect the specific objectives of the property owner, the project flinders, and the local community.

Affordable housing covenants take a variety of forms. Three distinct categories of covenants— private, public partner, and regulatory—are discussed below. The two most well understood covenants are those between private parties and those granted to a government by a property owner in exchange for public funding or public land. Regulatory covenants voluntarily granted to a local government to secure land use approval are less well understood and more often the subject of disputes.

Regardless of the type of affordable housing covenant, certain terms are typically included in virtually all such instruments. Depending on the parties' desired level of detail, these include eligibility qualifications to lease or purchase a unit, such as maximum allowable income and assets; the methodology for determining maximum rents or sale prices; minimum size and quality standards; allowable uses; occupancy standards; and violation and enforcement procedures.3

The Statutory Prohibition on Rent Control

Since its adoption in 1980, Colorado's rent control statute has always included a version of this prohibition: "The general assembly finds and declares that the imposition of rent control on private residential housing units is a matter of statewide concern; therefore, no county or municipality may enact any ordinance or resolution that would control rent on either private residential property or a private residential housing unit."4 The statute was a response to an effort by the City of Boulder to adopt a rent control scheme. However, the rent control statute does not preclude the provision of affordable housing through certain restrictive covenants entered into voluntarily.

Private Covenants

The rent control statute does not govern restrictive covenants voluntarily granted by one private party to another. For example, a church may sell surplus land to a nonprofit organization on the condition that the nonprofit use the land only to house low-income individuals or households for some period of time. Or a Habitat for Humanity affiliate might sell property to one of its home ownership program participants with certain affordability restrictions added to the deed. Such agreements are voluntary agreements between private parties, which do not implicate the rent control statute.

Perhaps the most familiar private covenants are those governing HOAs. As relevant to affordable housing, in 2009 the legislature amended the Colorado Common Interest Ownership Act (the CCIOA) to prevent common interest communities in "ski lift counties" with populations less than 100,000 from prohibiting the right of a unit owner—public or private—to restrict or to specify by deed, covenant, or other document" [t]he permissible sale price, rental rate, or lease rate of the unit; or... [o]ccupancy or other requirements designed to promote affordable or workforce housing as such terms may be defined by the local housing authority."5

Public Partner Covenants

With rare exceptions, affordable housing is not financially possible to build or operate in Colorado without public support, particularly in high-cost jurisdictions. As a result, local or state governmental entities may decide to support a project by providing public land or financial assistance, such as grants, below-market loans, income tax credits, or property tax exemptions6 in exchange for the recipient's execution of a restrictive covenant running in favor of the government. In this context, the government is not mandating restrictions on private property; rather, the owner is voluntarily agreeing to the restriction in exchange for a readily identifiable benefit. The rent control statute does not govern such "public partner" covenants.

Direct public subsidies of affordable housing are justified by the pressing need to maintain a diverse housing stock that offers a range of housing choices and provides affordable housing for all the state's residents, especially those with low to moderate incomes.7 As the legislature declared when authorizing Affordable Housing Dwelling Unit Advisory Boards, "the inability of [low- and moderate-income persons] to reside near where they work negatively affects the balance between jobs and housing in many regions of the state and has serious detrimental transportation and environmental consequences."8

In many public partner covenants tied to funding, the locality acts as a pass-through of funds from the U.S. Department of Housing and Urban Development (HUD) or the state. For example, the City of Boulder (the City) acts as the lead agency for the Boulder-Broomfield Regional Consortium. When the City awards federal HOME funds to an affordable developer on behalf of the Consortium, HUD requires a recorded covenant to ensure compliance with federal regulations governing the HOME program.9 Requiring recordation of a restrictive covenant is typical when HUD funds are used to build or operate affordable housing.10 The same is true for projects that benefit from an allocation of federal or state low-income housing tax credits from the Colorado Housing and Finance Authority (the CHFA).11

Increasingly, Colorado communities have opted to create purely local sources of funding for affordable housing, which usually means more flexibility, less...

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