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compliance with these requirements. The Borrower shall pay a penalty to the City equal to one- half ofone percent (0.5%) of the total amount of bonds issued for the Project utilizing bonding City under Minnesota Statutes, Chapter 474A, if the Monitor issues an order of noncompliance. For each additional year the Project is out of compliance, the annual penalty must be increased by one-half of one percent (0.5%) of the total amount of such bonds. Insubstantial violations may be waived. No order ofnon-compliance shall become final and effective until thirty (30} days after its dated date, and such effective date shall be further delayed if the Borrower in good faith contests the validity or accuracy of the order. This Section 2 is limited in its entirety to applicable provisions of Minnesota Statutes, Chapters 462C and 474A, but shall not limit any other obligations of the Borrower under this Regulatory Agreement. Section 3. Occupan.cv Restrictions. The Borrower represents, warrants and covenants that, for the period. specified in Section 5 hereof: (a) Federal Tax Requirements. At least forty percent (40%) of the completed units in the Project shaI1 be occupied (or treated as occupied as provided herein) by Qualifying Tenants and such units will be of comparable quality and will be a range of sizes and numbers of bedrooms comparable to those units which are available to other tenants. "Qualifying Tenants" shall mean those persons and families (treating all occupants of a unit as a single family) who shall be determined from time to time by the Borrower to be eligible as "...individuals whose income is sixty percent (60%) or less of area median gross income..." within the meaning of Section 142(d)(2)(A) of the Code. In determining the applicable income limit, the Borrower shall apply the provisions of Revenue Ruling 89-24. "Income" shall be determined in a manner consistent with determinations of lower income families under Section 8 of the YJnited States Housing Act of 1937 (and as presently set forth in 24 CFR 813.106). For purposes of this definition, the occupants of a residential unit shall not be deemed to be Qualifying Tenants if all the occupants of such residential unit at any time are "students", as defined in Section 151(c)(4) of the Code, no one of whom is entitled to f le a joint return under Section 6013 of the Code. The determination of whether an individual or family is of low or moderate income shall be made at the time the tenancy commences and on an ongoing basis thereafter, determined at least annually. Any unit occupied by an individual or family who is a Qualifying Tenant at the commencement of occupancy shall not continue to be treated as if occupied by a Qualifying Tenant during their tenancy in such unit if such individual or family subsequently ceases to be of low or moderate income unless such individual's or family's income does not exceed 140% of the maximum income qualifying as low or moderate income for a family of its size. In the event that a unit does cease to be treated as occupied by a Qualifying Tenant for such reason, and thereupon less than forty percent (40%) of the completed units in the Project would not be occupied (or treated as occupied) by Qualifying Tenants, the next vacant unit of comparable or smaller size not previously occupied by a Qualifying Tenant must be rented to a Qualifying Tenant. Any completed unit vacated by a Qualifying Tenant shall be treated as occupied by a Qualifying Tenant until reoccupied (on other than a temporary basis not in excess of 3I days), at which time a redetermination shall be made as to whether- the unit is occupied by a Qualifying Tenant. The Borrower shall make reasonable efforts to rent the vacated unit, or the next 2029975v1 4