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Marian L. Black is an associate in the in the Atlanta, Georgia, firm of Hyatt & Stubblefield, P.C. Janet L. Bozeman is a share-holder in the same firm.
The astounding statistics regarding the post-Second World War generation, the baby boomers," are well-known. Increasingly as the 80 million baby boomers in the American population age, developers will undoubtedly seek to take advantage of this substantial demographic to create age-restricted communities to suit boomers' desires and needs. These developers, particularly those with no prior or extensive experience in creating age-restricted communities, face considerable challenges. This article discusses the following practical issues and potential pitfalls for developers of age-restricted communities: (1) distinguishing business strategy from marketing strategy, (2) disclosing age restrictions, (3) selling into the 20% buffer," (4) defining occupancy" in light of buyer expectations, and (5) taking account of state and local laws.
Age restrictions in housing are governed by the Fair Housing Act (FHA), 42 U.S.C. § 3601 et seq., as amended by the Housing for Older Persons Act of 1995 (HOPA), Pub. L. No. 104-76, 109 Stat. 787 (1995) (codified at 42 U.S.C. § 3607). The FHA prohibits discrimination by direct providers of housing, such as sellers, landlords, real estate companies, and municipalities, and by persons engaged in real estate-related transactions, such as banks or other lending institutions, homeowners associations, and homeowners insurance companies, on the basis of race or color, religion, sex, national origin, familial status, or disability.
Under the FHA, housing discrimination based on familial status exists if families with children under the age of 18 are discriminated against when buying or renting a home or when any special requirements or conditions are imposed on such families. HOPA creates a limited exception to the general prohibition of discrimination based on familial status, permitting discrimination in communities where at least one person who is 55 years of age or older lives in at least 80% of the occupied units. Id. § 3607(b).
Distinguishing Business Strategy from Marketing Strategy
Although the regulations themselves are fairly straightforward, perhaps the most fundamental principle underlying the development of age-restricted housing is that business strategy and marketing strategy must be, and should remain, distinct. In other words, although a community may be eminently suited to older residents, unless HOPA regulations are fully met the community cannot be marketed as an age-restricted or even age-targeted" community. Advertising or marketing predicated on an age-restricted message or sales pitch (such as advertising a community as being great for retirement," perfect for empty-nesters," or otherwise aimed at seniors or adults generally) without fully complying with HOPA requirements is impermissibly exclusionary. Directing residents with children away from a particular neighborhood or subdivision within the community also violates HOPA requirements.
Disclosing Age Restrictions
HOPA requires that age-restricted communities publish and follow policies and procedures that demonstrate an intent to provide housing for persons age 55 and older. For a for-sale product, demonstrated intent can be established by including HOPA requirements directly in a community's declaration of covenants and restrictions. Furthermore, advertising for age-restricted communities should include specific information about age restrictions. To comply with federal requirements, sellers must assure that buyers receive covenants and a full explanation of the age restrictions and occupancy requirements at the point of sale. Sales agents need training not only on HOPA basics but also on the community's governing documents, in particular the age restrictions, and how to deal with hypothetical what if" issues. The sales and marketing team must realize that FHA and HOPA requirements are strict and nonnegotiable and direct their efforts accordingly.
Selling into the 20% Buffer
HOPA's exception to the FHA's prohibition against discrimination based on familial status requires that at least 80 percent of the occupied units are occupied by at least one person who is 55 years of age or older." Id. § 3607(b)(2)(C)(i). So what about the remaining 20% of the occupied units? The 1999 HOPA amendments and recent policy statements provide for greater flexibility in allowing persons under age 55 to occupy units within an age-restricted community. Developers must always keep in mind, however, that the 80/20 ratio is a minimum requirement, and any number below this ratio constitutes an immediate FHA violation and disqualification from HOPA. This ratio and the message to future buyers and/or occupants must be strictly controlled and maintained.
The developer must determine its vision and direction for the community early on and establish that decision in the covenants. Unless such a determination is made long before any marketing or sales, the potential pitfall for many developers is that the 20% buffer" may immediately be eroded by initial sales to younger buyers, significantly compromising any flexibility thereafter to grant life change or hardship waivers. The difficulty of staying above the 80/20 ratio becomes increasingly evident as the community itself ages and community control is ceded by the developer to the residents.
Some age-restrictive covenants provide governing boards the authority to grant hardship waivers or even automatic hardship waivers. Developers must realize that there are no exceptions to the 80% requirement under federal law, and communities may create exceptions only if the exceptions do not result in a violation of the 80% requirement. When the age 55 or older occupant of a unit passes away, leaving an under age 55 widow or widower, a hardship exception may be granted automatically or at the board's discretion only when there is room to do so, and the 80/20 ratio has not yet been reached. A recommended approach is to impose a bright-line covenant (for example, each unit must be occupied by at least one person 55 years of age or older) while including in the community documents the flexibility to grant hardship exceptions or waive enforcement for a certain period of time, allowing those with sudden hardships time to relocate. Again, however, exceptions can be made only if the community would still satisfy the 80/20 ratio.
Defining and Verifying Occupancy—Buyer Expectations
Developers possess a great deal of leeway in determining whether and to what extent a community will be open to children, grandchildren, and adults under the age of 55 as occupants or visitors. Developers must carefully balance their business and marketing goals with possibly inconsistent buyer wishes and expectations. The Secretary of the Department of Housing and Urban Development (HUD) issues HOPA rules and requirements for verification of occupancy. 24 C.F.R. § 100.304 et seq. Once the requirements are met, developers may set standards about who can occupy the units and for how long. In so doing, developers must be sensitive to buyer expectations for the community. Meeting and managing these expectations are a critical component of ensuring the community's well-being.
A significant portion of these expectations relates to the presence of children within the community. So long as the community meets the 80% occupancy requirement and complies with HUD verification through reliable surveys and affidavits, the community is free to define occupancy as it prefers, with varying effects on the ability of children to spend time in the community. For example, if occupancy is defined as staying overnight for at least 90 days in a 12-month period, residents' grandchildren may visit for a period of 89 days—an entire summer vacation. On the other hand, so long as HOPA requirements are met, the developer may prohibit children from staying overnight entirely. Getting an accurate feel for buyer expectations through a survey of general market conditions before developing a new community is important not only for purposes of the HOPA census but also in framing and formulating the covenants that govern the community's demographic makeup.
Developers must contend with buyer expectations regarding not only children but other adults as well. Developers should be aware that operational problems often arise when selling into the 20% buffer, as residents with expectations of living solely among other members of their age group are disappointed and even angered on the arrival of 20- and 30-somethings. Before adopting a marketing strategy, because of such high risk of conflict associated with selling into the 20% buffer, developers should determine whether the community will be open to children and grandchildren, whether age 55 and older buyers will tolerate residents outside their own age cohort, or if the community will be limited exclusively to older residents. If HOPA requirements are met, developers can adopt age-targeted marketing procedures to address these exceptions.
HOPA regulations require routine procedures" for verifying compliance with the 80% occupancy standard on an ongoing basis, so regular surveys of an age-restricted community's residents are recommended. Initial information regarding residents may be obtained in conjunction with sales contracts, but the composition of the community's residents must be independently verified on an ongoing basis at least every two years. Id. § 100.307(c). Issuing a community identification document or card for each occupant provides an effective method of capturing age data for the community.
State and Local Laws
Another consideration for developers is that state and local laws can be more stringent in terms of the occupancy required to achieve age-restricted status. For example, California's Unruh Act, Cal. Civ. Code §§ 51–51.3, does not have a numeric or percentage buffer but lists certain categories of exceptions for those 55 years of age and older. In addition, local authorities, especially those unfamiliar with age-restrictive covenants and fearful of the effect on schools and other residents, may be less flexible than HOPA.
Perhaps the most overlooked aspect in planning for and implementing age restrictions under HOPA is the human aspect. Creating an age-restricted community involves not merely conforming to numerical requirements or meeting building code standards, or even installing senior-friendly fixtures, but rather learning how to deal with and satisfy a unique set of owners' mindsets, attitudes, values, concerns, and expectations. The development of an age-restricted community requires a heightened commitment and willingness to address issues that may differ greatly from the typical issues developers are used to handling. Any developer interested in creating a successful age-restricted community must be aware of numerous practical issues associated with age restrictions and be prepared to work together with residents to achieve success.Return To Issue Index