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Transient Issues and the LIHTC program

Written by Lainey Nadeau, Spectrum Enterprises

Line 11o of the 8823 form is used to report that a unit has been rented on a transient basis.

Transient is defined as “passing through or by a place with only a brief stay or sojourn,” (Merriam-Webster Dictionary).

As applied to LIHTC units, a “brief stay” is anything less than 6 months. The 8823 guide states that a unit is nontransient when the initial lease term is six months or more.

Example: Unit 204 is rented effective 7/1/13. The initial lease term is 7/1/13 to 6/30/14. The unit is nontransient because the lease term is 12 months.

Example: Unit 206 is rented effective 8/1/13. The initial lease term is 8/1/13 to 12/31/13. The unit is transient because the lease term is less than 6 months.

There are some exceptions where units with less than a 6 month terms are considered nontransient.

  1. The 8823 guide explains that some transitional housing for the homeless may not be considered rented on a transient basis if the units contains sleeping accommodations, kitchen and bathroom facilities and the unit is located in a building –
    • which is used exclusively to facilitate the transition of homeless individual to independent living within 24 months, and
    • in which a government entity or qualified nonprofit organization provided such individuals with temporary housing and supportive services designed to assist such individuals in locating and retaining permanent housing (8823 Guide, p. 20-1).
  2. Single room occupancy (SRO) units are also not considered transient use even when rented on a month to month basis.

What if the household moves out prior the 6 months of occupancy?

When a lease is executed with a term of at least 6 months it shows the owner and tenant’s intent to of nontransient use. There is no noncompliance if extenuating circumstances arise and the household vacates as long as there was a valid 6-month lease at move in and the household is vacating for a valid reason. The 8823 Guide gives the following example:

Example 1: Tenant Vacates Before End of the Lease

A couple vacates their unit before fulfilling their initial six-month lease because the husband accepted a job in another state. Because the couple was subject to a valid six-month lease and vacated the unit for a valid reason, the low-income unit was not used on a transient basis (8823 Guide, p. 20-2).

The IRS does not give any guidance on what is and isn’t considered a “valid reason.” Managers should use their best judgment and contact their state agency if they question the validity of the reason for a tenant vacating. The file should be well documented as to why the household moved out.

Remember, the lease must be between the owner and the tenant(s). Do not allow an agency to rent LIHTC units so they can place their clients themselves. The tenant must enter into the lease agreement.

Make sure the lease being used does not contain any language allowing the tenant to rent the unit on a month to month basis during the initial lease term. This language is okay if it applies to the time period after the initial lease has expired.

Some leases may contain a buy out or early termination clause stating that if the household vacates the unit prior to the end of the lease term they will have to pay a buy out fee or early termination fee. Spectrum’s position is that this does not represent transient use. Imposing a fee for breaking the lease is not the same as allowing month to month occupancy as long as the owner and tenant entered into a lease with the intent of nontransient use.  Spectrum recommends contacting your state agency to determine their position on this subject.

How do I fix non compliance?

If a unit or units at your property have been rented on a transient basis (not SRO or transitional housing) then non compliance is corrected when a lease of at least 6 months has been executed. The 8823 guide explains that the correction date is the date of the new lease.

Example: Unit 402 was rented effective 6/1/13. On 8/1/13 it was discovered that all the units in the building were rented on a transient basis because the lease contained an “opt out” clause allowing tenants to move out at any time with a 30-day notice, thus allowing for month to month tenancy. The household in Unit 402 signed a new lease with a 6-month term on 8/15/13. The non compliance has been corrected as of 8/15/13. 


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