Considerations for senior living developments

Generally, the Fair Housing Act prohibits developers or sellers of residential property from restricting sales to certain “types” of people, effectively ending troubling housing discrimination methods. However, there are some exceptions that allow for age-focused communities. As the senior living market expands naturally, developers should be mindful of the particular requirements for senior housing to avoid losing the right to limit sales or occupancy to seniors.

The Fair Housing Act has an exemption for senior housing called the Housing for Older Persons Act of 1995 or “HOPA” for short. HOPA allows facilities and communities to restrict ownership and occupancy into two bands, age 55 and older and 62 and older. The 55+ band has particular guidelines and requirements that developers and operators (including residential condominium and homeowners associations) must follow. In short, a 55 and older community must show that 80 percent of the units have at least one occupant 55 or older, that the community’s published policies and procedures show the intent to operate as 55 and older housing and that the community complies with the requirement of periodic age verification for residents.

The age verification requirement is likely the most important part of the HOPA exemption and failure to follow its requirements results in a loss of the exemption. Generally, the housing provider must, every two years, survey the residents to confirm that there is at least one 55 or older resident that qualifies. This is usually accomplished with presentation of a government-issued identification card or affidavit. It is not a sound practice to assume that a unit once in compliance remains in compliance, so the biennial survey must confirm existing occupancy from the last survey.

Occupancy, not ownership, is the key consideration and the survey must reveal that 80 percent of the units are occupied by those 55+ for the majority of the year, not just owned. Snowbirds may, of course, be counted as occupants in that 80 percent if they are only absent for a season at a time, for example.

With this 80/20 rule, operators often seek to establish the 80 percent and then dispose of the remaining 20 percent of units to varied age occupants, which is permissible under HOPA. This can be problematic if any members of the 80 percent drop (by death, inheritance or sale) to lower age groups. This makes for a difficult situation and potential loss of status so the conservative approach is achieving more than 80 percent 55 and older saturation.

Unit transfers are another difficult question that will undoubtedly cause risks. Though only a minor problem in rental developments where there is little risk, beyond a surviving co-lessee remaining in the unit after the other’s death, condominium and homeowners associations face survivorship and inheritance questions. It is possible, so long as the drafting is careful, to add restrictions on transfer and sale into the community covenants (so long as status remains valid). Inheritance and survivorship are harder to limit and are often best addressed with the 20 percent buffer. The U.S. Department of Housing and Urban Development’s guidance is clear that thoughtful drafting of community covenants may alleviate some of these problems for non-apartment communities. If status lapses, the covenants become unprotected and operators risk claims of discrimination.

One unique aspect of HOPA communities is that they may, somewhat lawfully, impose different conditions of residency on families with children that reside there. The “somewhat lawfully” caveat is an important one, as HOPA can run into (often untested and not yet court approved) conflicts with local laws that prohibit family status discrimination. State and local law may be more restrictive than HOPA in some cases, too. This is not an easy intersection for use of community facilities like pools and fitness areas. Operators should tread carefully, and with proper legal guidance.

In the event that a community loses its HOPA exemption, all age-restricted marketing and covenants become unenforceable and risk claims of discrimination. While there are some good faith reliance exceptions, the general rule is that, if challenged, the operator must show that it has verified its compliance to keep the HOPA exemption status valid. If not, and especially in cases where operators fail to complete the verification surveys, there is great risk. Compliance is likely the best defense and, decidedly, the best practice.

For additional information regarding HOPA, please contact an attorney from Chuhak & Tecson’s Real Estate practice group.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: James R. Stevens, Principal

This alert originally appeared in the Spring 2018 Real Estate Focus newsletter.