Lennar Corp., one of the nation’s largest homebuilders, is changing the definition of charity by requiring that all Lennar homebuyers make a mandatory contribution of $250 or more to the company’s foundation.

The Lennar Charitable Housing Foundation has collected $3.8 million from 13,000 homebuyers in California through a mandatory fee that has been included in the price of every home since last year. The fee, which is similar to a homeowner’s association fee, is recorded on the lien and title documents of every property. Potential homebuyers cannot buy a Lennar home without paying the fee.

Moreover, if a home is resold, the new property owner is required to pay the fee which is 1/20th of 1 percent of the purchase price of the home to ensure what Lennar calls “an annuity in perpetuity” to its non-profit foundation.

Affordable housing advocates say the fee is the latest attempt by a homebuilder to preclude the passage of “inclusionary zoning” measures, which are being considered by city officials from L.A. to Charleston, S.C.

Inclusionary zoning laws require private homebuilders set aside a certain percentage of a housing development for working families with low to moderate incomes.

The shortage of affordable housing in Los Angeles, where prices have skyrocketed, has stirred renewed interest by planning officials and local governments to enact such measures. More than 100 cities and municipalities in California have adopted variations of inclusionary zoning.

Matt Coleman, executive director of the Lennar Charitable Housing Foundation, said the foundation was not established to pre-empt inclusionary zoning. He said several of the company’s executives came up with the idea of attaching a fee to the price of a home because they wanted to raise money for affordable housing and the homeless.

“Anyone who can afford a home ought to kick down a few crumbs to a homeless person,” said Coleman. “Lennar, from a social level, really believes that those who have the ability to give back should give back.”

But housing advocates are questioning whether it is appropriate for a for-profit developer to make charity mandatory particularly since it adds to the overall cost of a home and the developer operates the charity. Others say the fee could be seen as a clever marketing gimmick to soften the image of homebuilders at a time when housing prices are soaring.

“It makes more sense for local governments to collect “charitable” fees generated by builders, than it does to rely on for-profit builders to channel money into their own charity,” said Sam Mistrano, deputy executive director of the Southern California Association of Non-Profit Housing.

Matt Schwartz, president of the non-profit California Housing Partnership Corp., said there is some danger if a housing group is taking advantage of tax breaks that are given to foundations.

“When people think about giving to charity, they don’t think about the profits that a for-profit organization can get from it,” he said.

IRS ruling due


Lennar created the housing foundation in 2001 and the group has received temporary status as a non-profit 501(c)3 organization from the Franchise Tax Board. The housing foundation expects a ruling within 90 days on whether it will be granted permanent status as a non-profit.

Lennar executives said homebuyers are told in brochures and fact sheets in model homes of the mandatory contribution to the foundation. But it is unclear whether homebuyers can take a tax deduction, or if the write-off can be taken entirely by Lennar.

“This is the first time something like this has ever been done in real estate, so this is something the tax board is looking into,” Coleman said.

He said that homebuyers who ask about a tax deduction are told that they should talk to their accountant about the mandatory fee. He said Lennar only gets a tax deduction on business operating expenses that are paid by the corporation.

“If a person believes they are contributing to something that positively affects the community, then they can write it off,” he said. “If they don’t believe it, then they can’t write it off.” Lennar has spearheaded a campaign to convince other homebuilders to raise funds for affordable housing by attaching a similar fee to their new home sales.

“This type of federal approval, or final non-profit/business qualification of LCHF is very new to the IRS and the Franchise Tax board,” Coleman said. “I would expect that they are making sure that the final ruling is the best one, since other foundations like LCHF may become more common in the non-profit world, moving forward.”

Currently, the company is going through the legal process of getting the fee added to all of its homes in Arizona and Nevada, and eventually to every home it sells in the U.S.

The Miami-based company owns 34,000 acres of land in the Santa Clarita Valley, which it acquired through its purchase of Valencia-based Newhall Land & Farming Co. in 2003. The land includes most of Valencia and 20,000 homes being built in Newhall Ranch.

Concrete results


Last month, Lennar Homes and the charitable foundation presented Girls & Boys Town of Southern California with a $1 million check to cover the cost of building a shelter in Compton for abused and neglected children. Roughly 5 percent to 8 percent of the donation came from Lennar’s charitable housing foundation and the bulk of it came from the company.

The homebuilding industry has been on the forefront of creating non-profits to build temporary housing for the homeless and affordable housing for low-income families. Lennar’s own charity grew out of its relationship to HomeAid America, which was founded in 1989 by the Orange County chapter of the Building Industry Association of Southern California. Jonathan Jaffe, president of the Western region for Lennar Homes of California, is a board member of HomeAid.

Kristine Thalman, chief executive of the Orange County chapter of BIASC, said she wasn’t aware of any other homebuilders or developers who had set up a similar housing foundation or assessed a fee on homebuyers.

“It is a great way to address the affordable housing issue,” she said in an email.

Michael Lennon, president of HomeAid America, said that when Jeff Roos, Lennar’s Southern California division president, came up with the idea of putting a lien on every property to raise money for the foundation, the company had to consider whether that would put them at a disadvantage in the housing market.

“It’s a very novel idea and it’s a minimal amount of the cost of a home,” said Lennon. “Once people understand what the money is for, their feedback is unanimously supportive.”