1. (a) Change in ownership or Tax Credit allocation; transfers, generally.

   1. (1) Any transfer of project ownership (including changes to any general partner, member, or equivalent responsible party), or allocation of Tax Credits requires prior written approval of the Executive Director and shall be evidenced by a written agreement between the parties to the transfer, including agreements entered into by the transferee and the Committee, including an Assignment and Assumption of the Regulatory Agreement. The parties shall provide CTCAC with any information or documentation reasonably required by CTCAC.
   2. (2) CTCAC shall conduct a “qualifications review” of all transferee entities to determine if sufficient project development and management experience is present for owning and operating a Tax Credit project. Any general partner change during the term of the Regulatory Agreement must be to a party earning equal capacity points pursuant to Section 10325(c)(1)(A) as the exiting general partner. If the new general partner does not meet these experience requirements, then substitution of general partner may not be permitted.
   3. (3) The transferor shall deliver all tenant files, inspection records, financial statements, and reserve balances to the transferee prior to or concurrent with the transfer. Failure to deliver such records may subject the transferor to negative points or a fine.
   4. (4) The Executive Director shall not approve a transfer if, in any of the five calendar years prior to the transfer date or in the year to date of the transfer but not earlier than April 3, 2024, the owner has increased the rent for any low-income household in excess of the amounts described in Section 10336(a). The transferee shall annually certify that they have not increased the rent for any low-income household in excess of the amounts described in Section 10336(a).

   5. (5) A project owner may not sell a portion of vacant or unused land without the prior written approval of the Executive Director and must commit to either:

      1. (A) contributing (not loaning) the sales proceeds to a new multifamily affordable housing deed restricted project; or
      2. (B) reducing rents at the existing property by the aggregate amount of the sales proceeds.
   6. (6) All transfer applicants not subject to an application fee under Section 10335(a) shall pay the transfer and refinancing fee required in Section 10335.

2. (b) Transfer Events. In addition to any applicable requirements set forth in (a) above, all Transfer Events shall comply with the following:

   1. (1) Prior to a Transfer Event, the owner of the project shall submit to the Executive Director a Qualified CNA. For Transfer Events involving new lender financing, the lender shall commission the Qualified CNA.

   2. (2) The transferee shall enter into a Capital Needs Covenant (“Covenant”) with CTCAC, in a form acceptable to CTCAC, and the Covenant shall:

      1. (A) set aside at the closing of the Transfer Event adequate funds to perform the Short-Term Work (the “Short-Term Work Reserve Amount”);
      2. (B) perform the Short-Term Work within three (3) years from the date of the Transfer Event;
      3. (C) make deposits to reserves as are necessary to fund the Long-Term Work, taking into account any balance in replacement reserve accounts upon the conclusion of the Transfer Event beyond those required by (b)(2)(A). Notwithstanding the foregoing, the transferee shall have no obligation to fund any reserve amount from annual operations to the extent that the funding of the reserve causes the project to have a debt service coverage ratio of less than 1.00 to 1.00. In calculating the debt service coverage ratio for the purposes herein, the property management fee shall not exceed the greater of (a) 7% the project's effective gross income, or (b) such amount approved by HUD or USDA, as applicable. Any property management fee in excess of these limitations shall be subordinate to the funding of the required reserves and shall not be considered when calculating the debt service coverage ratio;
      4. (D) complete the Long-Term Work when required, or prior thereto, pursuant to the Qualified CNA; and
      5. (E) the Covenant shall at all times be subordinate to any deed of trust given to any third-party lender to a project. The owner of a project subject to a Covenant shall certify compliance with the terms of said Covenant to CTCAC annually for the term of the Covenant on a form to be developed by the Executive Director. Failure to comply with the terms of the Covenant may subject the owner to negative points and/or a ban on buying or receiving future properties.

3. (c) Resyndication applications. If a project is applying to resyndicate concurrently with a Transfer Event or during the time that the project is subject to a Covenant, the following provisions apply in lieu of subdivision (b):

   1. (1) The applicant shall submit a Qualified CNA. For transactions involving new lender financing, the lender shall commission the Qualified CNA.

   2. (2) The rehabilitation scope of work shall include all the Short-Term Work. The applicant may receive eligible basis for the costs of the Short-Term Work only if the applicant can demonstrate that the Short-Term Work was funded by one of the following:

      1. (A) a credit from the seller of the project equal to the costs of Short-Term Work
      2. (B) a reduction in the purchase price of the project as compared to the purchase price of the project had the project not been subject to the Transfer Event requirement, as shown by an appraisal that calculates the impact of the Short Term Work requirement on value
      3. (C) general partner equity
      4. (D) developer fee contributed to the project (a deferred developer fee does not qualify)
   3. (3) After the Transfer Event giving rise to the Covenant required pursuant to subdivision (b) (the “Initial Transfer”), if the project will be transferred in connection with the closing of the new reservation of 9% or 4% credits (a “Subsequent Transfer”), any increase in acquisition price (if the Initial Transfer was a sale) or the project valuation (if the Initial Transfer was a refinancing) between the Initial Transfer and the Subsequent Transfer attributable to a reduction in the amount of annual deposits into the replacement reserve account from those required pursuant to subdivision (b)(2)(C) because all or a portion of the Long-Term Work will be performed in connection with the new reservation of 9% or 4% credits, must be evidenced in the form of a seller carryback note or a general partner equity contribution.
   4. (4) Upon the closing of the syndication of the new 9% or 4% credits reserved for the project, any Capital Needs Covenant shall automatically terminate without any further action of the project owner and/or the Committee.
   5. (5) Subdivisions (c)(2) and (3) shall not be applicable to any project with an existing tax credit regulatory agreement with a remaining term of five (5) or less years.
   6. (6) Except for resyndication applications without a distribution of Net Project Equity, if a project seeks to receive a new reservation of 9% or 4% tax credits, any uncorrected Form(s) 8823 for life and safety violations (life-threatening and non-life threatening) and for Uniform Physical Condition Standards violations that are in existence at the time of the CTCAC application must be corrected by the project owner that received the Form(s) 8823. The resyndication application shall not include any costs to correct these Form(s) 8823.
   7. (7) An applicant seeking to (1) demolish or similarly alter any of the existing structures currently subject to CTCAC regulatory restrictions when applying for a resyndication; and/or (2) separate an existing project currently subject to CTCAC regulatory restrictions into multiple projects must request and receive prior written approval of the Executive Director. Projects that involve the demolition of existing residential units or separating an existing project must increase the unit count by (i) 25 or (ii) 50% of the existing demolished units, whichever is greater, unless, for existing SRO projects, waived by the Executive Director provided that the applicant demonstrates that full compliance would be impractical.
4. (d) Waivers. The Executive Director may waive or modify the requirements of subdivisions (b) and (c) if the owner can demonstrate that the Transfer Event will not produce, prior to any distributions of Net Project Equity to parties related to the sponsor, developer, limited partner(s) or general partner(s), sufficient Net Project Equity to fund all or any portion of the work contemplated by the Qualified CNA. There shall be a presumption that a Transfer Event has insufficient Net Project Equity if no Net Project Equity from the Transfer Event is distributed to parties related to the sponsor, developer, general partner(s) or limited partner(s) of the owner other than a distribution or a payment to the limited partner(s) of the selling entity in the amount equal to, or less than, all federal, state, and local taxes incurred by the limited partner(s) as a result of the Transfer Event.
5. (e) CTCAC shall initially subordinate its Regulatory Agreement to a permanent lender but thereafter shall not subordinate existing Regulatory Agreements to acquisition or refinancing debt, except in relation to new Deeds of Trust for rehabilitation loans, FHA-insured loans, restructured public loans, or as otherwise permitted by the Executive Director. At the request of the owner, CTCAC shall enter into a stand-still agreement permitting the acquisition or refinance lender 60 days to work with the owner to remedy a breach of the Regulatory Agreement prior to CTCAC implementing any of the remedies in the Regulatory Agreement, except that CTCAC shall not enter into a stand-still agreement related to a Transfer Event requested on or after October 21, 2015 unless the conditions of Section 10338(b) have been satisfied.

6. (f) Management transfers. Property management companies shall not be replaced without prior written approval of the Executive Director.

   1. (1) For projects receiving an allocation of Tax Credits under 10326, management companies ineligible for at least two management company experience points pursuant to Section 10325(c)(1)(B) shall obtain training in project operations, on-site certification, Fair Housing Law, and manager certification in IRS Section 42 program requirements from CTCAC or a CTCAC-approved, nationally recognized entity.
   2. (2) For all Tax Credit projects, the exiting management company shall deliver all tenant files, inspection records, financial statements, and reserve balances to the incoming management company prior to or concurrent with the transfer.
   3. (3) Any property management change during the 15-year federal compliance and extended use period must be to a party earning equal capacity points pursuant to Section 10325(c)(1)(A) as the exiting property management company. If the new property management company does not meet these experience requirements, then substitution of property management may not be permitted.
7. (g) Service provider transfers. Service providers shall not be replaced without prior written approval of the Executive Director. If the new service provider does not document that they have at least 24 months of experience providing services to the project's target population, then substitution of the service provider may not be permitted.
8. (h) CTCAC shall not enter into a qualified contract, as defined in IRC Section 42(h)(6)(F).
9. (i) Non-compliance with the provisions of this section may result in the assessment of negative points under Section 10325 and/or fines under Section 10337.

Note: Authority cited: Section 50199.17, Health and Safety Code; and Sections 12206, 17058 and 23610.5, Revenue and Taxation Code. Reference: Sections 12206, 17058 and 23610.5, Revenue and Taxation Code; and Sections 50199.4, 50199.5, 50199.6, 50199.7, 50199.8, 50199.9, 50199.10, 50199.11, 50199.12, 50199.13, 50199.14, 50199.15, 50199.16, 50199.17, 50199.18, 50199.20, 50199.21, 50199.22 and 50199.23, Health and Safety Code.

History

1. New section filed 2-3-2026; operative upon adoption by the California Tax Credit Allocation Committee on 12-10-2025 pursuant to Health and Safety Code section 50199.17(c). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2026, No. 6).