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Rising rents in Philadelphia and expiring 30- and 40-year federally assisted affordable housing contracts are combining to present a major challenge for Philadelphia public officials: balancing the interests of tenants living in affordable housing with those of their landlords seeking to take advantage of expiring contracts.

Councilmember Jamie Gauthier’s newly passed People’s Preservation Package seeks to halt the potential freefall for federally assisted affordable housing (affordable housing) in Philadelphia. According to the National Housing Preservation database, Philadelphia has more than 34,000 affordable housing units. Estimates indicate that over 1/3 of these units could cease to exist in the next decade.

Affordable housing operates in conjunction with the U.S. Department of Housing and Urban Development (HUD) so that most tenants only pay up to 30% of their adjusted household monthly income in rent. Through the housing choice voucher program, HUD pays the difference between a tenant’s adjusted rent and the set rent, which is based on the unit’s bedroom count and zip code. The lifespan of affordable housing relies on the good graces of their property owners—while owners receive rental subsidies and tax credits, affordable housing arrangements can expire.

To potentially limit the expiration of affordable housing arrangements, on May 4 the Philadelphia City Council introduced the People’s Preservation Package, which is composed of a two-bill legislative package that both: increases requirements that owners of affordable housing must meet before effectuating a change in ownership, disposition of the property, or any other change in property interest; and provides for a city directory of affordable housing subsidiaries.

The first bill in the pair, the more extensive Bill No. 221017, modifies Chapter 7-200 of the Philadelphia Code so that certain requirements must be met before a change in property interest occurs with respect to affordable housing in Philadelphia.

First, the bill greatly expands who must be notified when the property owner seeks to remove their legal commitment to provide affordable housing. In addition to the director of planning and development and the city councilmember for the council district in which the affordable housing property is located, owners of affordable housing must give 12 months written notice of their intent to take actions which would eliminate their affordable housing commitments to:

• The executive director of the Philadelphia Housing Authority;
• All registered community organizations whose area of concern includes any portion of the property;
• The executive director of Community Legal Services and the executive director of Regional Housing Legal Services; and
• All tenants of the property.

The notice must now additionally include addresses, email addresses, and telephone numbers for Community Legal Services and Regional Housing Legal Services, or other organizations providing comparable legal services.

Next, the bill provides a right of first refusal that prevents property owners of affordable housing from selling their properties until certain requirements have been met. For 45 days after providing notice to the required parties, property owners may not accept, consider, or solicit a purchase offer from anyone except tenant organizations, the city, and affordable housing providers (the eligible parties), effectively giving those groups an exclusive period to purchase the property from the property owner before it may become publicly marketed for sale.

After the 45-day period, once the property owner of affordable housing receives a bona fide offer that the property owner intends to accept from a party other than the eligible parties, the property owner will have to provide notice that includes all material terms of the offer. After 60 days from mailing notice of the bona fide offer to the eligible parties, the eligible parties must submit a matched agreement of sale to the owner (providing 105 days maximum for eligible parties to either take advantage of the right of first refusal or, thereafter, to submit a matched agreement of sale).

If the matched agreement of sale is alike in all material respects to the bona fide offer received, within 60 days of the mailing date of the matched agreement of sale to the property owner, the property owner must either accept or enter into good-faith negotiations with the offering eligible party of the matched agreement of sale, giving tenants or tenant organization priority over nongovernmental eligible parties.

If after 90 days from the mailing of the matched agreement of sale the parties have negotiated but none of the eligible parties have submitted a matched agreement of sale alike in all material respects to a bona fide offer that the property owner intended to accept, the property owner will have no further obligations under the right of first refusal. In other words, eligible parties will have 195 days at most to purchase the affordable housing property before the property owner’s obligations under the right of first refusal are terminated:

• 45 days during the right of first refusal period;
• 60 days for eligible parties to submit a matched agreement of sale after the property owner has mailed notice of a bona fide offer; and
• 90 days after the matched agreement of sale has been mailed to the property owner for the parties to negotiate.

The second bill, Bill No. 221018, amends Section 7-205 of the Philadelphia Code to direct that a city directory of affordable housing properties be established.

The directory will be organized by property name, address, year placed in service, funding stream, ownership, ownership structure, ownership contact information, unit county by number of bedrooms, bedroom count, target population, average rent at the property, average rent in surrounding area, earliest subsidy end date, and date of notice of intent to take an action which would remove the property owner’s affordable housing commitment.

Additionally, the city may also publish any analysis or early warning assessments aimed at estimating which affordable housing Properties are at risk of expiration or nonrenewal.

Further, the city may provide public access to the directory and quarterly updates to support local affordable housing preservation efforts.

Lastly, the city is authorized and directed to keep records according to its established retention schedule of any notice of intent to take an action which would remove the property owner’s affordable housing commitments. The city may consider such notices when making decisions regarding funding allocations for affordable housing production and preservation.

Cameron Cummins, a second-year law student at Washington & Lee University School of Law, who is interning at the firm, assisted in the preparation of this article.

Alan Nochumson is the sole shareholder of Nochumson P.C., a legal services firm with a focus on real estate, land use & zoning, litigation, and business counseling for the people of Pennsylvania and New Jersey. Nochumson is a frequent author and lecturer on issues commonly confronting businesses, individuals and professionals. You can reach him at 215-399-1346 or alan.nochumson@nochumson.com.

Alex Goldberg is an associate attorney at the firm. You can reach him at 215-399-1346 or alex.goldberg@nochumson.com.

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