Senior Housing Meets Growing Demand but Must Comply with Strict Eligibility Rules

Published on: August 22, 2007

The housing market is still struggling, keeping home sales and new home construction activity in the cellar. But the development of housing for mature (don’t call them old) adults is booming. The National Association of Home Builders predicts that at least 15 percent of this year’s housing starts will be in communities designed for residents who are 55 or older. Although only about 10 percent of older Americans currently live in age-restricted communities, surveys indicate consistently that large numbers of them – more than half in some recent polls – like the idea of living in communities in which children are allowed only in small numbers or not at all. With the population of older adults expected to double to nearly 70 million in the next 25 years, housing for seniors clearly will remain a growth industry for some time to come.

Federal and state Fair Housing laws prohibit discrimination against families with children. But a 1995 federal law, the Housing for Older Persons Act or HOPA, expanded the Fair Housing Act Amendments Congress had enacted in 1988 to create an exemption for developments designed specifically for older residents. HOPA and its implementing rules, administered by the Department of Housing and Urban Development (HUD), establish two categories of senior housing:

  • Projects in which all occupants of all units must be 62 or older; and
  • Projects targeting residents who are 55 or older, in which 80 percent of the units must be occupied by at least one age-qualified resident.

Strict Compliance Required

Adhering to these requirements is essential. If a single resident of a 62- and-older development is younger than 62, or if more than 20 percent of the units in a 55-and-over community are occupied by younger residents, those communities would lose their exemption from the fair housing rules and could not legally bar families with children. This could be annoying, to say the least, to residents who had purchased units in what they expected would be a “child-free” environment.

Obviously, a newly constructed community cannot meet those eligibility requirements immediately; under HUD rules, a new development does not have to demonstrate compliance until 25 percent of the units are occupied. After that, HUD requires age-restricted communities to comply consistently with the age-eligibility requirements and to demonstrate compliance by conducting a “reliable survey, census, affidavit or [provide] other documentation” to certify the age eligibility of residents. HUD rules require communities to update those records at least every two years, but we think more frequent updates are needed— quarterly if possible, but at least semi-annually — to keep up with changes in ownership or occupancy that could threaten a community’s fair housing exemption. Especially in communities that are close to the 20 percent ceiling, two years may be too long to identify a violation and address it before a complaint is filed.

While HUD allows 55-and-older communities to bar children entirely, the agency encourages “some flexibility where the exemption would not be destroyed by that flexibility.” However, a HUD policy statement also acknowledges that “there is no direct legal authority under the statute” to require communities to bend their rules, leaving developers, homeowner associations, and municipalities free to adopt stricter age and occupancy requirements than HUD mandates.

That’s an important point. Developers who are planning senior housing projects with HUD’s 55-and-older rules in mind need to be aware that many cities and towns have adopted far more restrictive zoning by-laws. Some eliminate the 20 percent “open” occupancy the HUD rules allow, requiring that 100 percent of the units be occupied by age-eligible residents; others establish a maximum two-person occupancy limit and require that both occupants, not just one, meet the age requirement.

We generally advise developers who have the option to maintain a measure of flexibility, partly because overly rigid age restrictions may limit the market for some projects, but also because the most restrictive policies inevitably create problems. For example, consider the common situation of a married couple where the husband, who is 57, dies, making his wife, who is only 54, an illegal occupant of their unit. Does she have to leave 24 hours after the funeral? And if so, what board wants to issue the order instructing her to do so? What about the parents whose grown children want to return home after graduating from college or suffering a financial setback, or the owners whose grandchildren need to move in for an extended stay.

Restrictions Can Bind

These situations are more the norm than the exception. The Del Webb Corporation, which regularly surveys the housing preferences of baby boomers, reported that 25 percent of the respondents to a recent poll said they expect their adult children to move in with them for some period of time, and 24 percent said they expect to have to care for parents or in-laws. Both circumstances could threaten common age and occupancy restrictions in many communities.

Flexible rules leaving room for at least some number of under-age residents are best, but hardship provisions can soften more rigid requirements enough to prevent them from being unreasonable. For example, a zoning by-law or home owner association rule requiring all unit occupants to meet the age restriction might also specify that, if a spouse dies, the non-eligible survivor will have a 120 days or 180 days to leave. This provision might also extend the temporary age waiver for a survivor who will meet the age requirement within a year after his/her spouse dies. Similarly, a provision making it clear that the definition of “occupant” does not include anyone who resides in the community for fewer than 120 days, or 120 consecutive days, in a year, would accommodate extended stays by children or grandchildren.   

Senior housing developments are exempt from the age discrimination rules, but they are not exempt from the provisions of the Fair Housing laws requiring “reasonable accommodations” for individuals suffering from physical or emotional disabilities. Accordingly, HUD’s guidance (summarized in a series of questions and answers) specifies that the caregivers aging residents may need if they become frail or disabled would not be counted as non-qualified residents for purposes of calculating the 20 percent cap. “This is true whether the live-in person resides in the same unit with the disabled occupant or in a separate unit,” HUD’s guidance explains. “Neither circumstance adversely affects the exemption of the housing facility/community.”

HUD’s rules also permit an under-age occupant to reside in a unit during the temporary absence of an owner who is traveling or hospitalized, for example, without altering the age-qualified status of the unit. However, the rules emphasize the “temporary” and informal nature of the arrangement. “The unit would be included in the calculation of the 80 percent occupancy requirement,” HUD says, as long as the dwelling is not rented out and provided that the age-eligible occupant “returns on a periodic basis, and maintains legal and financial responsibility for the upkeep of the dwelling.���

The status of the unit changes, however if the owner vacates it indefinitely, does not return periodically, and/or rents it to an under-age occupant. Under those circumstances, the occupant would be counted against the 20 percent unrestricted portion of the community.

Beware of Children

Developers of age-restricted communities that open a percentage of the units to under-age occupants can market those units to families with children, but a measure of caution is advisable here. You want to be careful not to alter the character of the development or contradict the expectations of its residents. Where three or four children might go unnoticed, 10 or 20 could spark a rebellion among owners who moved into an age-restricted community because they think children should be seen and heard somewhere else. Some residents will be more sensitive and more offended by the presence of children than others. Your community’s policies, as much as possible, should reflect the make-up and preferences of its residents.

Developers of age-restricted communities and the owners living there have to be concerned primarily about compliance with the age-eligibility requirements. But that is not the only concern. HUD rules also require evidence of an “intent to create housing for older persons.” Simply marketing the community as “adults only” or an “adult community” doesn’t satisfy that requirement. In fact, HUD’s guidance says such phrases “are not consistent with the intent to operate the housing for older residents.” For evidence of the required intent, HUD will look, rather, at lease provisions, written rules and regulations, covenants, deeds, or other restrictions that establish the requisite age restrictions, along with the “actual policies and practices of the community and the manner in which the housing facilities…is described to prospective residents.” Developers of age-restricted housing must not only walk the walk, they must also talk the talk – stating in marketing material, in rules and governing documents that residents must meet specified age restrictions; making it clear that the community will enforce those restrictions; and documenting strict adherence to them.

Equally important, a senior housing development must be a separate and distinct entity; it cannot be just a phase or extension of an existing development unless it is structured as a separate sub-association within that development, as one developer discovered in the course of building his single association-multi-phased project. When the market shifted after he had completed phase one of his unrestricted community, the developer began marketing phase two in the development and under the existing association as senior housing.

HUD quickly slammed the door on that opportunistic endeavor, indicating that the age-restricted community could not be an adjunct to the existing association. The “fix” would have been complicated and expensive, requiring, among other steps, creating two separate community associations or a master association with subsidiary associations, changing the governing documents (and possibly the outstanding mortgages), and obtaining the approvals of owners and lenders needed to make those changes.

Careful Planning Required

This developer’s plight underscores the need for anyone planning a senor housing project to review HUD’s rules as well as state laws, local ordinances, and applicable zoning restrictions, focusing both on technical compliance (to ensure HOPA eligibility) and on requirements that may affect the development’s marketing strategy. If a zoning law requires that the entire complex must be age-restricted, you want to be reasonably sure that the area’s demographics and buyer demand will support that plan.

What happens if an age-restricted community falls out of compliance for some period of time?  The community could lose its fair housing exemption and might not be able to prevent currently complying homeowners from subsequently selling their homes to families with children. A community association in this situation runs the risk of being sued by families who claim discrimination, on the one hand, and by owners who claim the board (or developer) negligently failed to maintain the community’s eligibility standards.

A community that discovers the problem and corrects it before anyone sues wouldn’t necessarily be out of the liability woods.  An owner unable to sell his/her unit might contend that the period of non-compliance, however brief, erased the community’s fair housing exemption.  It’s not clear how HUD might respond to that argument, but there is no question that the agency takes the enforcement of the senior housing eligibility requirements seriously.  This falls in the category of questions it would be far better to let some other association answer; if there’s going to be a test case on this issue, you don’t want it to be yours.