| CLTs and Other Permanent-Affordability Models
How does the Community Land Trust differ from other long term/permanently affordable housing models?
- Historically, there have been a variety of methods used to ensure long term affordability of housing in the marketplace. Three of the most common methods used are: (1) Limited Equity Housing Cooperatives (LEHC), (2) Deed Restrictions and (3) Community Land Trusts (CLT’s). In order to fully understand how the Community Land Trust works, it is helpful to understand how these three approaches differ among themselves legally, financially and in terms of longevity:
What is the contractual means by which restrictions are imposed?
- Limited Equity Housing Cooperatives (LEHCs) are corporations in which residents share ownership of a property and all the improvements on it. They are democratically controlled by the co-op members. LEHCs offer ownership opportunities to lower income households while limiting the return from resale of their co-op share. It contrasts with market rate cooperatives, in which member shares can be transferred at market value. http://www.policylink.org/EDTK/LEHC/ and
http://www.ica.coop/coop/1937-01.html
- Deed Restrictions are documents attached to Title Deeds which confirm that the buyer of a property will comply with the rules and conditions affecting the property which can be found in the Title Deed or Lease. They are normally put in place by the original developer or, increasingly, imposed by jurisdictions as a way to retain affordability of homes for low and moderate income families.
- Community Land Trusts employ a ground lease which outlines the roles and responsibilities of both the CLT and the CLT homeowner. The ground lease provides the homeowner with secure, long-term exclusive use of the land for a nominal lease fee. The ground lease restricts who the home can be sold to, providing a resale formula that determines the sale price also. The ground lease is renewable and can be passed on to heirs.
http://www.burlingtonassociates.com/resources/
archives/ground_leases/index.html
What kinds of restrictions are imposed?
- Limited Equity Housing Cooperative members completely control the property they own as a corporation, thus governing hoe individual shares are to be obtained, transferred through sale, and maintained over time. A LEHC is usually a nonprofit corporation, incorporated under state laws. State enabling legislation describes the types of cooperatives that are allowable. These laws cover resale controls and authorization to certain state financing vehicles, programs and agencies (e.g. bonds, insurance). http://www.policylink.org/EDTK/LEHC/How.html
- Deed Restrictions define the income eligibility of the next buyer thereby limiting the resale price to what is affordable to the new buyer. Some deed restrictions also contain “use” restrictions, but this is less common.
- Community Land Trusts’ two-party contract between the landowner (the CLT) and the homeowner protects the latter’s interests in security, privacy, legacy, and equity, while enforcing the CLT’s interests in preserving the appropriate use, the structural integrity, and the continuing affordability of any structures located on its land. Lessee’s pay a “fee” for the use of the land. In addition, there are lease provisions regulating maintenance, insurance, mortgaging, subletting, and improvements. http://www.burlingtonassociates.com/
How long are restrictions designed to last?
- Limited Equity Housing Cooperative restrictions are designed to last permanently. LEHCs offer ownership opportunities to lower income households while limiting the return from resale that they can receive from the housing. It contrasts with market rate cooperatives, where memberships can be transferred at market value. A LEHC is one approach to resident-controlled housing. Others include limited equity condominiums, mutual housing associations, co-housing and community land trusts (CLT). Some of these tools may be combined, such as the LEHC and the community land trust. See Policy Link’s Equitable Development Toolkit at
http://www.policylink.org/EDTK/LEHC/default.html
- Deed Restrictions are usually designed to lapse after a relatively short period (e.g., 10-30 years), although some are intended to be permanent, i.e., “running with the land.” In almost every state, “perpetual” deed restrictions are considered invalid as a “restraint on alienation” or violation of the “rule against perpetuities.”
- Community Land Trusts’ ground leases typically last for a very long period of time (e.g., 99 years) and may be renewed at the option of the lessee. Working from a "model" ground lease document that forms the basis of CLT ground leases across the country, each CLT makes critical decisions to mold and customize the ground lease, according to its goals and preferences. Read: Why? Who? What? When? How? Key Issues Addressed in the CLT Ground Lease by Michael Brown found at: http://www.burlingtonassociates.com/resources/
archives/ground_leases/000086.html
How legally enforceable are the restrictions?
- Limited Equity Housing Cooperative organizational documents can include whatever restrictions the organizers of the co-op desire in order to assure affordability preservation by inclusion of appropriate language in the articles of incorporation and the by-laws of the entity. Further, the use of the housing cooperative and condominium can also be combined with the use of community land trusts thereby separating ownership of the land from ownership of the buildings and other improvements to preserve affordability. Ownership of the respective condominium units and their transfer to subsequent owners can be restricted by implementation of the land contract/mortgage financing affordability preservation program. Read:
AFFORDABILITY PRESERVATION PROJECT- Condominium and Limited Equity Cooperative, a product of Community Legal Resources: www.clronline.org/app
- With Deed Restrictions, generally, the longer the duration of the restriction and the farther the party imposing the restriction is removed from the property, the less defensible is the restriction. (Enforceability rests on meeting legal tests of “privity,” “touch and concern,” and benefit to a nearby parcel owned by the same party who is imposing the restriction.) Some states have enacted laws explicitly sanctioning “perpetual” deed restrictions, others have not. www.clronline.org/app
- The Community Land Trusts’ long-term lease is finite (even if the lease is renewable) and because the lessor has a close and continuing connection to the restricted property, affordability restrictions in such a lease are generally more enforceable for a longer period of time than those attached to a deed. The Model Ground Lease used as the foundation for all CLT’s’ ground leases has weathered the tests of time and is formally accepted by most public funders and private lenders. See:
http://www.burlingtonassociates.com/resources/
archives/ground_leases/000086.html
http://www.burlingtonassociates.com/resources/
archives/ground_leases/resale_formulas/index.html
What happens to affordability once the term of the restriction comes to an end?
- Limited Equity Housing Cooperatives are designed to be a permanently affordable and democratically-controlled form of home ownership. Cooperative members can ensure that their property will remain affordable over time to other low-income people. http://www.policylink.org/EDTK/LEHC/Why.html
- Deed Restrictions travel with the deed, and cannot generally be removed by new owners, however, once the term of the restriction expires; the home can then be sold at full market value without income restrictions on the buyer. One way to ensure continued enforcement of deed restrictions during their term of effect is to include a third-party entity, like a Community Stewardship Organization, Community Land Trust, or other corporation, in the transaction. Deed restrictions involve a complicated area of law and should only be used with professional legal advice.
- When Community Land Trust ground leases expire, either the lease is renewed for another 99-year term (along with affordability controls) or the lessor takes possession of any structures located on the land. Upon resale or upon expiration of the ground lease, the CLT may elect to re-purchase the improvements so as to redevelop or renovate them so as to maintain the affordable housing indefinitely.
Additional Reading Suggestions:
- Heskin, Allan The Struggle for Community Available through National Cooperative Business Association
- Heskin and Leavitt, The Hidden History of Housing Co-ops
- Lategola, A.R. Paradise for Sale Available through National Cooperative Business Association
- Mushrush, Paula, Mark A. Larson, and Jerry D. Kraus Social Benefits of Cooperative Housing Available through National Cooperative Business Association
- National Association of Housing Cooperative publications DeGraphenreed, John W. The Conversions of Public Housing Units into a Limited Equity Housing Cooperative in Nashville, Tennessee, Under the Homeownership Demonstration Program
- The Community Land Trust Report: Creating Permanent Affordable Homeownership Opportunities in Austin, Texas: http://www.ci.austin.tx.us/housing/downloads/AFINAL%20CLT%20-%20Council%20Report%20-%20Revised%20I-II-III-72505.pdf
Additional Resources-Web sites
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