Vacant Unit Rule

Written by Harold Tucker, Spectrum Enterprises

We here at Spectrum understand that due to the rough economic climate of our country that renting affordable units has become more difficult the last few years. This is just one of the explanations we receive when inquiring about extended vacancies at LIHTC projects. In addition to the poor economy we also understand that finding qualified tenants that are income eligible and pass basic background checks can be difficult. For these reasons we will often see units that have been vacant for several months up to a year. This brings us to the question of how does the Vacant Unit Rule come into play in these situations?

One beneficial rule under Section 42 is the Vacant Unit Rule. This allows credits to be claimed if an LIHTC eligible household moves out and with reasonable attempts to rent the unit, it stays vacant. The vacant unit still counts towards the set-aside and qualified basis.

 In a nut shell, when an LIHTC unit goes vacant the next unit (of comparable or smaller size) must rented to an LIHTC eligible household, even if it was previously a market unit. However, if the owner can show that they are making reasonable attempts to rent the LIHTC unit(s) then the next unit (of comparable or smaller size) can be rented to a market unit. This is beneficial in the fact that the owner does not automatically have to begin to rent all of their market units to LIHTC eligible households if they have a LIHTC unit vacant and possibly lose needed revenue.

How does an owner show that they are making reasonable attempts to rent LIHTC units? Records should be kept of all marketing material. If ads are placed in local newspapers, radio, flyers and internet, all this marketing material should be kept and a log of when the marketing was active. This information is always requested by Spectrum during project audits when extended vacancies are found.

NOTE: For a vacant unit to count toward the set-aside and qualified basis it must also be kept habitable. If you have vacant units make sure you are turning them quickly. They should be rent ready at all times. 

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