Qualified contract
The qualified contract is the statutory early exit from LIHTC rent restrictions — and the most controversial provision in the program.
After year 14, an owner who reserved the right can ask its state housing agency to find a buyer for the property at the "qualified contract price" — a formula price set by statute (roughly, original equity inflated at 5% annually plus outstanding debt, minus distributions). The formula usually produces a price above market value. If the agency cannot deliver a buyer at that price within one year — and at an above-market price it usually cannot — the extended-use restriction terminates.
The consequences are softened but not eliminated by the three-year decontrol period: existing tenants cannot be evicted without good cause or charged above-restricted rents for three years. After that, units reprice to market on turnover.
Because the formula price makes the one-year listing period largely ceremonial, housing advocates describe the provision as a loophole, and it has become a major preservation issue:
- Many state agencies now require applicants to waive qualified contract rights as a condition of receiving credits, so newer deals often cannot use it.
- Federal legislation to repeal or reform the provision has been introduced repeatedly.
- Tens of thousands of units have left the program through this door — they appear in HUD's database flagged as no longer participating (see leaving the program).
For capital-markets purposes, the approach to a qualified-contract decision — an owner at year 14–15 in a strong market, restrictions capping rents well below market — is one of the highest-stakes moments in the deal's life, for the owner, for preservation buyers, and for the state agency.