Opinion ID: 2341820
Heading Depth: 1
Heading Rank: 3

Heading: The Good Cause Requirement

Text: The issues here depend entirely on the effect that the Federal statutes (and implementing Federal regulations) have on State landlord-tenant law. There is no substantial dispute that, if respondent had not subjected petitioner's townhouse to the Federal low-income housing program by qualifying for the Federal tax credit under 26 U.S.C. § 42, and the issue were thus governed solely by Maryland landlord-tenant law, petitioner would, indeed, be a tenant holding over, and respondent would be entitled to use § 8-402 to have her evicted. The one-year term of the last lease had expired, the lease had been converted by its terms into a month-to-month tenancy, and respondent had given the requisite 60-day notice to quit. It is critical, therefore, to understand the nature and requirements of the Federal statutes. The statutory basis for the Federal low-income housing program is split between the tax code, 26 U.S.C. § 42, and the general program for assisted housing, 42 U.S.C., § 1437 et seq. Section 42 sets forth the eligibility criteria for the tax credit. The provisions in title 42 authorize the Secretary of Housing and Urban Development to enter into annual contributions contracts with public housing agencies in order to provide rental assistance payments to owners of certain dwelling units rented to approved low-income tenants. In conformance with statutory guidelines, the Secretary is to establish the maximum monthly rent the owner is entitled to receive for the units and the amount of rent that the tenants are required to pay, the latter being set as a percentage of the tenants' family income. The difference is made up by the government assistance payments. See 42 U.S.C. §§ 1437a and 1437f. For our purposes, the pertinent provision in title 42 is § 1437fthe current emanation of what began as Title I, § 8 of the National Housing Act of 1937and, in particular, § 1437f( o ), the § 8 voucher program. Both sets of provisions § 42 and § 1437fare exceedingly long, complex, and convoluted, as befitting Federal programs in general and Federal tax laws in particular. Section 1437f and the regulations adopted pursuant to it have undergone many changes in just the past 20 years, and keeping up with the shifts in policy and approach is not easy. We shall begin with the tax provision, known as the Low Income Housing Tax Credit (LIHTC). It was enacted as part of the Tax Reform Act of 1986, as an effort to encourage the private development of low income housing. [1] Substantial amendments, relevant to the issue before us, were made as part of the Omnibus Budget Reconciliation Acts of 1989 and 1990. Section 42 of title 26, coupled with § 38 of that title, provides a tax credit, usable ordinarily over a ten-year period, for a qualified low-income housing project. Section 42(g)(1) defines such a project as one for residential rental property in which minimum enumerated percentages of the residential units are both rent-restricted and occupied by persons whose income does not exceed certain amounts. In its initial (1986) version, the law, through its definition of qualified low-income building, required the building to remain part of a qualified low-income housing project during a 15-year compliance period. See P.L. 99-514, § 252, enacting 26 U.S.C. § 42(c)(2) and (i), 100 Stat. 2191, 2199 (1986). The 1989 amendment added a new subsection (h)(6) to § 42, in which was imposed the requirement of a further 15-year extended use period. See P.L. 101-239, § 7108(c), 103 Stat. 2308-2311. With that amendment, § 42(h)(6)(A) makes clear that no credit is allowed with respect to a building unless an extended low-income housing commitment, as defined in § 42(h)(6)(B), is in effect at the end of the taxable year. Thus, to qualify for the tax credit, the commitment must remain in effect for a compliance period of 15 taxable years, dating from the first taxable year of the credit period, and an extended use period, which, subject to § 42(h)(6)(E), may not end earlier than 15 years after the close of the compliance period. See § 42(i)(1) and (h)(6)(D). The effective commitment is thus, ordinarily, for 30 years. Section 42(h)(6)(E) permits an early termination of the extended use period in two circumstances. If a mortgage on the building is foreclosed, the extended use period terminates on the date the building is acquired pursuant to the foreclosure. After the fourteenth year of the compliance period, the owner may request the housing credit agency to find a buyer for the taxpayer's interest in the low-income portion of the building, and, if the agency is unable to present a qualified contract for the acquisition of that portion by a person who will continue to operate it as a low-income building, the extended use period ends on the last day of that one-year period. See § 42(h)(6)(E)(i) and (I). Subsection 42(h)(6)(E)(ii) provides, however, that [t]he termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination (I) the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any low-income unit; or (II) any increase in the gross rent with respect to such unit. This provision, added as § 42(h)(6)(E)(ii) by the 1989 amendment, clearly applies only in the event of an early termination of the extended use period and is intended to protect existing low-income tenants, as to both their tenancy and the rent, for a three-year period. A new owner who acquires the building by virtue of a foreclosure or the existing owner who is allowed to terminate the commitment under § 42(h)(6)(E)(i)(II) may not evict or terminate the leases of low-income tenants, other than for good cause, or raise their gross rent beyond what is permitted during that three-year period. The provision that lies at the heart of petitioner's indefinite tenancy argument is contained in § 42(h)(6)(B) which, as noted, defines the term extended low-income housing commitmentthe commitment that must be in effect in order to entitle the owner to the tax credit. A brief explanation is required. Section 42(a) establishes the amount of the tax credit as (1) the applicable percentage of (2) the qualified basis of each qualified low-income building. Section 42(c), in turn, defines the qualified basis of a qualified low-income building as an amount equal to the applicable fraction of the eligible basis for the building. The applicable fraction is the smaller of the unit fraction or the floor space fraction, each, itself, being a defined term. All of this relates to how the credit is to be calculated and, until the 1990 amendment to § 42(h)(6)(B) added by Congress in the Omnibus Budget Reconciliation Act of 1990 (P.L. No. 101-508, § 11,701, 104 Stat. 1388, 1388-506 (1990)), would have been quite irrelevant to what is now before us. As budget reconciliation Acts tend to be, the 1990 Act was comprehensive in nature. [2] Title XI, which carried its own name, the Revenue Reconciliation Act of 1990, dealt with a variety of revenue provisions. Subtitle G, captioned Tax Technical Corrections, made a number of amendments to the Revenue Reconciliation Act of 1989, one of which effectively amended § 42(h)(6)(B)(i). That subparagraph stated one of the six criteria for an extended low-income housing commitment. The amendment added the language noted below in italics: For purposes of this paragraph, the term `extended low-income housing commitment' means any agreement between the taxpayer and the housing credit agency (i) which requires that the applicable fraction (as defined in subsection (c)(1)) for the building for each taxable year in the extended use period will not be less than the applicable fraction specified in such agreement and which prohibits the actions described in subclauses (I) and (II) of subparagraph (E)(ii).  (Emphasis added). Petitioner views that 1990 amendment as giving the restrictions in § 42(h)(6)(E)(ii) much broader effect and as mandating that an extended low-income housing commitment preclude, during both the compliance period and the extended use period, the eviction of a low-income tenant, other than for good cause. We believe that she is correct in her ultimate conclusion, but not just because of the 1990 statutory amendment. In order to qualify for the tax credit under § 42, a landlord must comply with statutory requirements and requirements imposed by authorized regulations of the Secretary of Housing and Urban Development during both the initial compliance period and the extended use period. Section 1437f(d) and ( o ) require that contracts for assistance payments entered into by a public housing agency and the owner of existing housing units must provide, among other things, that during the term of the lease, the owner shall not terminate the tenancy except for serious or repeated violation of the terms and conditions of the lease, for violation of applicable Federal, State, or local law, or for other good cause. As we shall see, that requirement also appears in regulations of the Secretary. See 24 C.F.R. § 247.3, applicable generally to subsidized projects, and § 982.310, applicable to the voucher program in which petitioner participated. The statutes relied upon by petitioner concern only the extended use period, first imposed by the 1989 amendment. As we observed, the good cause requirement for termination during the extended use period, as enacted in 1989, applied only in the event of early termination of that period, and was obviously intended to protect existing tenants for a minimum three-year period. The 1990 amendment broadened that requirement, however, and made it applicable throughout the entire extended use period, even if there was no early termination. That is clear both as a matter of ordinary statutory construction and from the legislative history of the 1990 provision. Respondent's view that the requirement remains applicable only to the three-year period following early termination makes no sense. The amendment would have been unnecessary for that purpose. The limited grandfather requirement applicable to early termination was already in the law. Placing the requirement in § 42(h)(6)(B)(i), even though it had no relevance to the applicable fraction, which was the subject of § 42(h)(6)(B)(i), made it a condition of an extended low-income housing commitment and thus of the landlord's entitlement to the tax credit. The legislative history of the 1990 amendment clearly supports that intent. Although the technical correction provisions of the 1990 Act were posited by the Chairman of the House Ways and Means Committee, upon introduction of the legislation, as making technical and clerical corrections to the 1989 law in an effort to make the language of the law understandable and clear ( see remarks of Congressman Rostenkowski, 136 Cong. Rec. H 7138, 101st Cong. 2nd Sess. Aug. 3, 1990), the Report of the House Ways and Means Committee notes that [t]he bill also clarifies that the extended low-income housing commitment must prohibit the eviction or termination of tenancy (other than for good cause) of an existing tenant of a low-income unit or any increase in the gross rent inconsistent with the rent restrictions on the unit. (Emphasis added). 101 H. Rpt. 894 (Oct. 17, 1990). See also summary of the provisions of H.R. 5454 placed in the Congressional Record by Representative Rostenkowski upon introduction of the bill (The bill clarifies that the extended low-income housing commitment must prohibit the eviction or termination of tenancy (other than for good cause) of an existing tenant of a low-income unit or any increase in the gross rent inconsistent with the rent restrictions on the unit). 136 Cong. Rec. H 7138, supra. It is clear, therefore, that, both during the initial compliance period and during the extended use period, a landlord participating in the § 42 tax credit program may not terminate the tenancy of a low-income tenant other than for good cause. See Cimarron Village v. Washington, 659 N.W.2d 811 (Minn.App. 2003); Templeton Arms v. Feins, 220 N.J.Super. 1, 531 A.2d 361 (1987).