Updated September 28, 2026
You built more units than base zoning allowed because you took the density bonus or a TOC tier, and in exchange you recorded a covenant setting aside a share of units as affordable. That covenant didn't expire when the certificate of occupancy was issued. It's still recorded against the property, and it's still there when you sell.
A density bonus or TOC affordability covenant is recorded against the property title as a condition of the extra units the project was allowed to build. It obligates whoever owns the building — you today, someone else tomorrow — to maintain the designated units at the specified affordability level for the covenant's term. Selling the building doesn't end the obligation or transfer it to a different party; the new owner simply steps into your position as the party bound by it.
A covenanted building isn't unsellable, but it changes who's likely to bid. Institutional buyers focused on maximizing market-rate income may pass, or price the covenant as a permanent cap on a portion of the rent roll's upside. Buyers who specialize in affordable and mixed-income housing — including preservation-focused nonprofits and mission-driven operators — are often a better-fit buyer pool for a covenanted asset, because they underwrite the affordability requirement as a feature of the deal rather than a constraint fighting against their thesis.
The exact terms of the covenant. How many units, at what affordability level, and how long the covenant runs. This is recorded language, not something to summarize from memory.
Compliance history. Whether the affordability restrictions have actually been maintained and properly documented — income certifications, rent-level tracking — matters to a buyer who will inherit responsibility for ongoing compliance the day they close.
Any right of first refusal built into the covenant. Some affordability covenants, particularly those tied to specific public financing, include a right of first refusal for tenant associations or preservation purchasers before the property can sell to an open-market buyer — a narrower version of the general point that most LA tenants don't have a right of first refusal, except in specific covenanted situations exactly like this one. Read your covenant's actual language before assuming either way.
Regulatory reporting obligations. Ongoing compliance reporting to the city or a housing agency, if the covenant requires it, transfers to the new owner along with the property.
A recorded affordability covenant is not a title defect the way a cloud on title is — it's a known, disclosed condition that came with a real benefit (the additional units you were allowed to build). Pricing and marketing should reflect that reality rather than trying to obscure it. A buyer who discovers a covenant during diligence that wasn't disclosed upfront will treat the entire disclosure package with more suspicion, which slows negotiation far more than early, clear disclosure of the covenant itself would have.
Pull the recorded covenant document itself, not a summary of what you remember agreeing to. Confirm your compliance history is documented and current. If the covenant includes any first-refusal or notice provisions, understand exactly what they require before you begin marketing — some require specific advance notice to a housing agency or tenant group before a sale can proceed. The general disclosure sequence this sits inside is covered in how to sell an apartment building in Los Angeles.
A density bonus or TOC affordability covenant is a permanent feature of the property, not a temporary condition that quietly expires. It narrows the buyer pool toward buyers who understand and want that structure, and it requires more upfront disclosure than a standard market-rate sale. Sellers who treat the covenant as a known, well-documented fact close cleanly with the right buyer. Sellers who treat it as something to gloss over in the listing find that the gap between the pitch and the recorded document becomes the whole negotiation.
Does an affordable-housing covenant expire when I sell the building?
No. The covenant runs with the land and binds the new owner for whatever term was recorded, regardless of a change in ownership.
Does a covenant like this mean I need a special kind of buyer?
Often, yes in practice. Buyers focused purely on market-rate upside may pass or discount the offer; buyers experienced in affordable and mixed-income housing are often a better fit and price it as a known feature rather than a constraint.
Can a covenant include a right of first refusal for tenants or a housing agency?
Sometimes, depending on how the specific covenant was structured, particularly where public financing was involved. Read the recorded document itself before assuming either way.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
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