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Front Street Apartments Tenants Sue to Enforce Affordable Rent Commitment

Tenants at Front Street Apartments in Lahaina filed a lawsuit today in the Second Circuit Court against Front Street Affordable Housing Partners (FSA), the developer of the affordable housing complex. The lawsuit challenges FSA’s attempt to convert the property into market-rate rentals in violation of the 51-year commitment to keep rents affordable to low-income tenants. If allowed, the conversion would almost certainly result in the loss of housing for almost all of Front Street’s residents, while increasing the value of the complex for the owner by up to $44 million—a complex that was developed with over $20 million of public money and benefits.

More than 300 tenants currently live at the complex. Many are seniors or persons with disabilities living on fixed incomes. Many families have an income of less than $15,000 annually. The income limit for a one-person household at the complex is $39,660 per year. One-bedroom units rent between $885 and $1062 based upon the tenant’s income. If FSA is allowed to break its promise to ensure 51 years of affordability, rents will double to current market rates. As a result, Maui’s severe shortage of affordable-housing inventory likely will drive many Front Street tenants into homelessness.

In 2001, $15.6 million in proceeds from the Low Income Housing Tax Credit program enriched FSA. FSA has also received over $5 million in reduced property taxes, along with waivers from zoning laws under the “fast track” approval process. In return, FSA executed a restrictive covenant by which it promised to keep the units affordable for 51 years. FSA is now attempting to abandon that promise—and instead plans to increase rents to current market rates for all tenants in August 2019—which will mean a serious windfall to FSA.

FSA has asserted that it is entitled to break its affordability promise due to a 2012 change in federal law, which created a process for certain properties subject to the Low Income Housing Tax Credit program to be exempted from their low-income commitments after 15 years. The Front Street tenants respond that this process does not apply to the Front Street Apartments because FSA’s contractual commitment supersedes: FSA promised to maintain the affordability commitment for 51 years. The tenants also argue that, even if federal-law change applies, FSA failed to comply with a key component of the federal process—using “reasonable efforts” to advertise sale of the property subject to low-income requirements. In 2015, FSA first invoked the exemption process when it claimed the property was worth only $8.4 million but offered to sell the property to the state or another purchaser for $15.4 million. FSA now claims that, because it found no purchaser, it can sell the property—unburdened by the low-income requirements—for $52 million—nearly four times the 2015 value. The tenants contend that FSA’s actions violate both FSA’s affordability commitment and federal law.

The lawsuit also names as a defendant the Hawai‘i Housing Finance and Development Corporation (HHDFC)—the state agency that oversees the Low Income Housing Tax Credit program that governs Front Street Apartments. The complaint alleges HHFDC failed to comply with applicable legal requirements relating to the process to convert the property from low-income to market-rate, including purporting to release the restrictive covenant without legal authority to do so and without public notice or consent of the tenants.

Three firms represent the tenants: the Hawai‘i non-profit social-justice advocacy firm Lawyers for Equal Justice; Maui attorney Lance D. Collins; and the global law firm Hogan Lovells. Each of the firms is working on a pro bono basis.

Victor Geminiani, an attorney with Lawyers for Equal Justice, emphasized the importance of enforcing the covenant made by FSA: “The owner promised to maintain the affordability of the apartments and got tens of millions in public benefit up front. Let them keep their promise.”

Lance D. Collins, stated that “it’s alarming that this is a fast-track project. The project got County zoning, parking, park and utilities exemptions because they represented it would be affordable for fifty years.”

Andrew Lillie, a partner at the global law firm of Hogan Lovells, has, along with other Hogan Lovells attorneys, joined the litigation team because “Hogan Lovells has long maintained a commitment to seeking equal access to justice for all people. Front Street Apartments promised to maintain access for low-income residents of Maui,” Lillie explained. “We intend to hold them to that promise.”

Download a copy of the complaint.

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