In a new Housing Huddle, I sat down with Affordable Housing & Real Estate counsel, Karla Chaffee, to discuss choice limiting actions (CLAs) in federally funded affordable housing projects.
CLAs are actions that are considered to restrict a developer’s future options before the completion of a federally required environmental review under the National Environmental Policy Act (NEPA)—such as signing contracts, purchasing materials, or committing funds—which could predetermine the outcome of the review and affect HUD funding eligibility.
What types of projects typically encounter NEPA or CLA issues?
Choice limiting action restrictions apply to almost any project receiving federal funds. For our clients, the most common sources are Project-Based Vouchers, Rental Assistance Demonstration (RAD), and HOME funds.
Whenever you’re assembling your capital stack and federal funding is part of it, you need to ask: Is NEPA triggered—and when? These restrictions can apply as soon as you apply for federal funds. In fact, some agencies consider the CLA period to begin even earlier—during pre-application meetings or when expressing interest in federal funding.
If these restrictions apply, how do they impact a deal?
It’s something developers must keep in mind throughout the process. During the CLA period, you need to avoid actions that could be seen as committing the project before environmental review is complete.
For example, entering into contracts or purchasing long-lead items like switchgear can violate CLA restrictions. These actions suggest you’ve limited your future choices, which is exactly what the rules aim to prevent.
The best approach is to work with a team that understands these risks. Communicate with your general counsel and contractors to ensure no funds are committed until you’re out of the CLA phase.
Why do contracts matter?
The principle behind CLA is that you shouldn’t do anything that limits your future options. Signing a construction contract, for example, makes it much harder to walk away from a project.
Purchase and sale agreements are another area to watch. HUD has specific guidance on what these contracts can and cannot include, and there are limits on initial payments—they must be reasonable and comply with HUD guidelines.
It’s critical to include contingency language in these agreements. If you sign a contract without it, renegotiating later can be difficult, especially if you need to renew the agreement during the CLA period.
Timing seems crucial here. When does the CLA prohibition start, and when does it end?
The CLA period begins when you apply for federal funds. That could mean submitting a formal application, attending a pre-application meeting, or even sending a letter of interest.
It ends when your Environmental Review Record (ERR) is complete and approved. The responsible entity—often a state or municipal agency, not HUD—assembles the ERR and evaluates compliance with various laws (e.g., airport proximity, radon, environmental hazards).
If there are no adverse effects—or if mitigation measures are in place—the entity issues a Finding of No Significant Impact (FONSI), which is published for public comment. After two waiting periods (15 days each), HUD issues an Authority to Use Grant Funds. Once you have that document, you can safely commit funds.
What is the consequence for violating CLA restrictions?
Developers need to keep in mind that if there is a CLA violation the federal funding could be at risk.
My mantra is simple: Think before you commit. Talk to experienced professionals, evaluate your actions, and make sure you’re in compliance before spending money.
Any final tips for avoiding CLA issues?
Awareness is key. Always ask: What am I committing to? Is this consistent with CLA restrictions?
For rehab projects, consider whether the work is routine maintenance or something more substantial—because significant work can be viewed as rehabilitation, which may trigger CLA concerns.
