Table of content
- Will My Rent Double? The Truth About the LIHTC 15-Year Rule
- The Lifecycle of Your Apartment: It’s a Marathon, Not a Sprint
- Key Terms Every Tenant Should Know
- The Loophole: “Qualified Contracts” (QC)
- What Happens If My Building Converts? (The “De-Control” Period)
- Safety Check: Is My Unit at Risk?
- Frequently Asked Questions
If you live in a Low-Income Housing Tax Credit (LIHTC) property in Hawaii, you might have heard a scary rumor from a neighbor: “Once this building turns 15 years old, the owner can kick us all out and charge market rent.”
This is the dreaded “15-Year Rule” rumor. And like most rumors, it is only partially true—and mostly misunderstood.
While it is true that the initial tax credit compliance period ends after 15 years, federal and Hawaii state laws have built-in safety nets that usually keep your rent affordable for much, much longer. Understanding these legal protections can save you from unnecessary panic.
At HAPI, we manage affordable communities that are 5, 15, and even 30+ years old. Here is the honest truth about what actually happens when your building hits that milestone.
The Lifecycle of Your Apartment: It’s a Marathon, Not a Sprint
Understanding the “Extended Use Period” is key to your stability.
To understand your risk, you need to understand the timeline the developer signed up for when they built the property. A LIHTC project is not a standard apartment complex; it is bound by a federal contract called the Land Use Restriction Agreement (LURA).
Years 1–15: The “Initial Compliance Period” (The Safe Zone) During this first phase, the investors are actively claiming tax credits from the IRS. The oversight is incredibly strict. The owner cannot violate the rules (such as raising rents above the limit or evicting without good cause) without facing severe tax recapture penalties from the IRS. This is the period of highest security for tenants.
Years 15–30+: The “Extended Use Period” (The Gray Zone) After Year 15, the tax credits are technically “used up.” However, the LURA stays with the land.
- Federal Minimum: Federal law mandates an additional 15 years of affordability, bringing the total commitment to 30 years.
- The Hawaii Advantage: Because competition for tax credits is so fierce in the islands, the Hawaii Housing Finance and Development Corporation (HHFDC) often awards projects to developers who promise even longer terms. Many newer Hawaii projects are legally restricted for 45 or even 61 years.
Key Terms Every Tenant Should Know
Understanding these acronyms can help you read your lease and public documents.
| Term | Definition | Why It Matters |
|---|---|---|
| AMI (Area Median Income) | The federal calculation of the average income for a county. | Your rent increases are tied to this number, not your personal salary. If the AMI goes up, your rent can go up. |
| LURA (Land Use Restriction Agreement) | The legal contract between the owner and the state (HHFDC) that restricts rent prices. | This document tells you exactly when the affordability period expires. It is public record. |
| QC (Qualified Contract) | A loophole that allows owners of older buildings (pre-2000s) to request to exit the program early. | This is the mechanism owners use to convert to market rent. Newer buildings usually waive this right. |
| Recertification | The annual process of proving your income is still low enough to qualify. | Even in the “Extended Use Period,” you typically still have to recertify every year. |
The Loophole: “Qualified Contracts” (QC)
This is where the fear comes from—but it’s rarer than you think.
There is a specific provision in Section 42 of the Internal Revenue Code called the Qualified Contract (QC). After the 14th year, an owner of an older building can theoretically ask the state housing agency (HHFDC) to find a buyer who will keep the building affordable.
If the state cannot find a willing buyer within one year, the owner is allowed to exit the program and convert the units to market rent. This is the scenario tenants fear most.
Why You Shouldn’t Panic:
- It is Difficult: HHFDC works aggressively to preserve these assets and often finds non-profit buyers to take over.
- Newer Rules: For many properties built after 2000, developers voluntarily waived their right to a Qualified Contract to score higher on their application. They are locked in for the full term.
- The “De-Control” Safety Net: Even if the owner successfully uses the QC loophole, they cannot just double your rent overnight. (See below).
What Happens If My Building Converts? (The “De-Control” Period)
Your federally mandated golden parachute.
Let’s say the worst-case scenario happens: Your building’s 30-year term ends, or the owner successfully uses a Qualified Contract to exit the program. Do you get evicted instantly? NO.
Federal law grants all existing tenants a specific 3-Year De-Control Period. During these 3 years, you are protected by two critical rules:
- No Eviction Without Good Cause: The landlord cannot evict you just because they want to renovate the unit or sell the building. They can only evict you for lease violations (like non-payment of rent or criminal activity).
- Rent Freeze: Your rent is effectively capped at the affordable limit for that 3-year window. The owner cannot raise your rent to market rates until you voluntarily move out or the 3 years expire.
Basically, the law guarantees you a 3-year warning to find new housing.
Safety Check: Is My Unit at Risk?
How to judge your building’s stability based on its age.
| Building Age | Status | Risk Level | What You Should Do |
|---|---|---|---|
| 0 – 14 Years | Initial Compliance | Zero Risk. | Relax. The IRS is watching closely, and the owner cannot exit. |
| 15 – 29 Years | Extended Use | Low Risk. | Most Hawaii owners are committed to the long haul, especially given HHFDC’s strict oversight. |
| 30+ Years | LURA Expiring | Medium Risk. | Ask management: “When does our LURA expire?” This date is public record. |
| Any Age | Foreclosure | High Risk. | If the bank takes over due to owner bankruptcy, affordability can be wiped out (though the state often intervenes). |
Frequently Asked Questions
How do I know when my building's restrictions expire?
You can ask your Community Manager directly. The governing document is the “Land Use Restriction Agreement” (LURA). This is a public record filed with the Bureau of Conveyances. While you can search for it yourself, a transparent management company should be able to tell you the expiration date.
Can the owner raise my rent to market rate if I get a raise at work?
No. In LIHTC properties, the rent is based on the Area Median Income (AMI) for the county, not your personal income. Even if you get a promotion and double your salary, your rent stays the same (as long as you remain in that unit). However, if you move to a new unit, you might be reassessed.
Does HAPI manage buildings with expiring credits?
Yes, we manage properties at all stages of the lifecycle. Our specialty is Preservation—working with owners to refinance and renovate older buildings so they can stay affordable for another 30 years. This protects tenants and secures funding for necessary upgrades like new roofs and elevators.
What is the difference between Section 8 and LIHTC expiration?
Section 8 contracts (HAP contracts) are often renewed annually or in short 5-20 year terms. LIHTC is a long-term deed restriction (30+ years). Generally, a tax credit property offers more long-term stability than a property relying solely on a renewable Project-Based Section 8 contract.
If the building is sold to a new owner, does the 15-year clock reset?
No, the clock does not reset, but the restrictions usually remain. The LURA is a “covenant running with the land,” meaning it binds the new owner just like the old one. If a new owner buys the building in Year 10, they must still finish the remaining 5 years of the Initial Compliance Period plus the extended use period.
If my building converts to market rent, will I get a Section 8 voucher?
Possibly. In some conversion scenarios (especially if federal HUD financing is involved), tenants may be issued Tenant Protection Vouchers (TPVs) or “Enhanced Vouchers” to help them pay the new market rent or move elsewhere. This is not guaranteed for pure LIHTC properties, but it is common in HUD preservation deals.
Living in Uncertainty?
If your building is approaching the 15-year or 30-year mark, don’t rely on parking lot rumors. Talk to a professional management team.
At HAPI, we believe in transparency—because your home is your foundation.
