August 2002

Planning

Copyright by American Planning Association

Owner Must Continue Offering Below-Market Rentals

By James Lawlor

The Massachusetts Supreme Judicial Court has addressed for the first time the question of what happens when an apartment owner pays off a government-subsidized mortgage requiring that a percentage of the units be rented at below-market prices. In a decision handed down May 15 in Zoning Board of Appeals v. Ardemore Apartments, the court held that the owner must continue offering the below-market rents as long as the building does not conform to local zoning.

The 1969 Massachusetts "anti-snob zoning act," as it was known even before its adoption, was designed to encourage construction of low- and moderate-income housing in towns where exclusionary zoning practices prevented such construction. The law permits multifamily housing in single-family zones where there is a local shortage of affordable housing. A developer can file an application with the local zoning board for a comprehensive permit rather than seeking separate approvals from each local board having jurisdiction over the project.

Loans required affordability

The case involved an apartment project built in Wellesley, Massachusetts (pop. 27,000), a prosperous Boston suburb, by the predecessor to a company known as Ardemore Apartments. The project was built under a comprehensive permit in a single-family residential zone with the aid of state-subsidized financing. The loan required the owner to rent 25 percent of the units to low- or moderate-income households for at least 15 years.

The comprehensive permit did not specify how long the project was to remain affordable, and the statute has no express provision addressing the continuing effect of affordability restrictions. A dispute arose after Ardemore paid off its construction loan as part of a bankruptcy reorganization. The state's housing finance agency, the holder of the note, rejected the town's request that any foreclosure sale of the property require that 25 percent of the building be maintained as affordable housing.

Wellesley sued in state court to block the foreclosure. The court granted summary judgment for the town, ruling that the remedial purposes of the affordable housing law would not be served by permitting restrictions to expire once subsidized financing obligations were satisfied.

The supreme court noted that Massachusetts was one of only a few states to pass legislation permitting overrides of local zoning in order to promote affordable housing. No state court, the Massachusetts court observed, had yet considered whether the expiration of use restrictions when subsidized loans are paid off also removes such restrictions as they relate to zoning exceptions.

Restrictions not 'short-term fix'

The comprehensive permit device, the court said, was a solution crafted by the state legislature to address concerns that cities and towns might use their zoning power to exclude residents with low and moderate incomes. The legislature was concerned not only with aiding construction, but also ensuring that every city and town had at least a minimum of affordable housing stock.

Viewed in that light, the court said, it was anomalous to suggest that the affordable-housing law was intended to provide only a short-term fix to the problem. Each time a project reverts to market rentals, the percentage of low-income housing falls, the percentage of market-rate units rises, and a new round of comprehensive permits is triggered. The court said there was nothing in the law's language or history to suggest the legislature intended to create an endless cycle of comprehensive permits leading to an ever increasing number of multifamily buildings constructed in single-family zones.

The affordable-housing law also embodied a legislative conclusion that particular sites should be given special zoning treatment by providing affordable housing in jurisdictions where it was lacking, the court said. Such special treatment is warranted only when it serves the public interest. That interest would no longer be served when affordable units convert to market-rate units. Thus, unless a town expressly agrees otherwise, so long as a project remains in noncompliance with local zoning ordinances, it must continue to serve the public interest for which it was authorized.

James Lawlor, a lawyer in Silver Spring, Maryland, is a regular contributor to Planning.