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StrategiesAdvocates brought the owner to the negotiatingtable on the basis of HUD's existing FlexibleSubsidy contract and Use Agreement, whichrequired the owner to operate the project as221(d)(3) housing through the original mortgageterm and to secure HUD's consent to prepayment.HUD refused to approve the prepaymentunless the project remained affordable tolow-income families through 2010, the mortgagematurity date. 38 However, HUD stated thatthere were no federal rules preventing theowner from opting out of the Section 8 contract.The city then asserted claims under the project’sChapter 121A contract, which referenced theowner’s promise in the original application to constructand maintain a Section 221(d)(3) project withSection 8 assistance for 40 years. Based on thesedocuments, the City argued that the owner could neitherprepay nor opt out through 2010.The owner agreed to explore HUD's new Mark-Up-to-Market initiative as an alternative but quickly discoveredtwo hurdles. First, because the Section 8 contractwas underutilized, the financial benefits availablefrom Mark-Up-to-Market were limited. Second,the existing low- and moderate-income use restrictionsassociated with the City's 121A contract, andwith HUD's Flexible Subsidy loan, constituted an eligibilitybarrier. HUD would have to provide a waiverallowing the owner to participate in the Mark-Up-to-Market program. 39 The same restrictions would effectivelycap the market rents, thus reducing the level ofbenefits available from this program. Just how the cityinterpreted its 121A use restriction to HUD thusbecame critical to the owner's ability to take advantageof Mark-Up-to-Market incentives.OutcomeUltimately, the City succeeded in using its 121Arestrictions to extend affordability. The finalpackage included the following provisions:• All units covered by the Section 8 contract(338), to the extent actually occupied by subsidy-eligiblehouseholds, were marked up tothe effective BMIR limit (rents deemed affordableat 30 percent of the maximum BMIRincome level, or 95 percent of the AreaMedian Income (AMI)). Underutilized Section8 slots will be marked-up upon turnover,when the units are reoccupied by Section 8-eligible households. The owner is obligated torenew and fully utilize the Section 8 contractthroughout the term of the new use agreement.• If project-based Section 8 is discontinued, theowner must accept vouchers at the maximumPHA payment standard. Upon turnover, theunits will be rented at a stricter affordabilitystandard, 30 percent of 80 percent of AMI• While prepayment is permitted by the settlement,all 166 non-Section 8 units must beheld harmless at the OCAF-adjusted BMIRrents (for current and future tenants). Futureoccupancy will be restricted to householdswith incomes at or below 80 percent of AMI,vs. the current limit of 95 percent of AMI.• The owner must complete capital improvementsaccording to an agreed-upon schedule.• The term of the new use agreement is 20years, through 2020.• The city is a party to the new use agreementand has enforcement powers, along with HUDand the project residents.Following this precedent, Chapter 121A contractrequirements have been used by the BostonRedevelopment Authority to maintain affordabilityin at least a half dozen projects. InBoston, every 121A project that seeks to participatein the discretionary Mark-Up-to-Marketprogram is required by the BRA to execute along-term Section 8 contract that is at leastcoterminous with the 121A term, providing up to20 additional years of affordability.Case Study #5: Salem Heights(Chapter 121A, Zoning)Salem Heights is a Section 236 project containing284 units, built 27 years ago in a communitynorth of Boston. The tenancy is primarily elderly,with rents approximately half of current marketlevels. The property was formerly 20 percentSection 8-assisted, but the owner opted out ofthe Section 8 contract several years ago and,more recently, sought to prepay the HUD-assistedmortgage.StrategiesThe tenants and the city went to court andenjoined the prepayment based on two claims.First, they argued that the 121A tax contractrestricts the property's use to “moderate-28 chapter three: State and Local Preservation Tools and Strategies