Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) Sales and Leases to Program. A program
shall not purchase or lease property in which a sponsor has an interest unless:
(1) The transaction occurs at the formation
of the program and is fully disclosed in its prospectus, and
(2) The property is sold upon terms fair to
the program and at a price not in excess of its appraised value, and
(3) The cost of the property and any
improvements thereon to the sponsor is clearly established. If the sponsor's
cost was less than the price to be paid by the program, the price to be paid by
the program will not be deemed fair, regardless of the appraised value, unless
some material change has occurred to the property which would increase the
value since the sponsor acquired the property. Material factors may include the
passage of a significant amount of time (but in no event less than 2 years) the
assumption by the promoter of the risk of obtaining a re-zoning of the property
and its subsequent re-zoning, or some other extraordinary event which in fact
increases the value of the property.
(4) The provisions of this paragraph
notwithstanding, the sponsor may purchase property in its own name (and assume
loans in connection therewith) and temporarily hold title thereto for the
purpose of facilitating the acquisition of such property or the borrowing of
money or obtaining of financing for the program, or completion of construction
of the property, or any other purpose related to the business of the program,
provided that such property is purchased by the program for a price no greater
than the cost of such property to the sponsor, except for compensation
permitted by Sections
260.140.113.3 and
260.140.114.6 hereof, and provided
there is no difference in interest rates of the loans secured by the property
at the time acquired by the sponsor and the time acquired by the program, nor
any other benefit arising out of such transaction to the sponsor apart from
compensation otherwise permitted by these Rules. Accordingly, all income and
expenses allocable to the period during which the property was held by the
sponsor shall be treated as belonging to the program upon the purchase of the
property by the program.
In no event shall the program purchase property from
the sponsor pursuant to this subparagraph (a)(4) if the sponsor has held the
property for a period in excess of 12 months prior to commencement of the
offering. The sponsor shall not sell property to the program pursuant to this
subparagraph (a)(4) if the cost of the property exceeds the funds reasonably
anticipated to be available to the program to purchase the property. The
prospectus and program agreement shall set forth a reasonable and satisfactory
methodology to be utilized for determining which properties will ultimately be
transferred to the program when the cost of the property acquired by the
sponsor on behalf of the program exceeds program funds available to purchase
the property.
(5)
Notwithstanding subparagraphs (a)(1) through (4) of this Section, the program
may purchase property from a program formed by the sponsor upon exercise of the
rights of first refusal required by Section
260.140.114.9. In such a case the
cost of the property to the program shall not exceed its appraised value at the
time such rights are exercised.
(b) Sales and Leases to Sponsor. A program
shall not sell or lease property to the sponsor except as provided herein.
(1) The program may lease property to the
sponsor pursuant to a lease-back arrangement made at the outset, the terms of
which are fully disclosed in the prospectus and not less favorable to the
program than those offered to and accepted by persons who are not affiliates of
the sponsor.
(2) Not more than 10%
of aggregate leasable space owned by the program may be under lease to the
sponsor pursuant to terms not less favorable to the program than those offered
to and accepted by persons who are not affiliates of the sponsor; provided that
the sponsor may not sublet such properties unless all profits derived from such
subleases in excess of rentals due on the master lease are paid to the
program.
(3) A sponsor may purchase
property (or contract rights related thereto) from the program only if all of
the following criteria are met:
(A) The
program does not have sufficient offering proceeds available to retain the
property (or contract rights related thereto).
(B) The sponsor pays the program an amount in
cash equal to the cost of the property (or contract rights) to the program
(including all cash payments and carrying costs related thereto).
(C) The sponsor assumes all of the program's
obligations and liabilities incurred in connection with the holding of the
property (or contract rights) by the program.
(D) The sale to the sponsor occurs not later
than 90 days following the termination date of the offering.
(E) A reasonable and satisfactory methodology
to be used by the sponsor in determining which properties it will purchase in
the event that the program's offering proceeds are insufficient to retain all
properties must be fully disclosed in the
prospectus.
(c)
Loans. No loans may be made by the program to the sponsor, except as permitted
by Section
260.140.111.4(d).
(d) Dealings with Related Programs. A program
shall not acquire property from a program in which the sponsor has an interest,
except as permitted by Section
260.140.114.1(a)(5).
1.
Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).
2.
Editorial correction inserting "Conflicts of Interest and Investment
Restrictions" subheading (Register 92, No. 34).
3. Change without
regulatory effect amending subsections (c)-(d) filed 9-25-2002 pursuant to
section 100, title 1, California Code of
Regulations (Register 2002, No. 39).
4. Amendment of subsection (c)
filed 9-23-2009; operative 10-23-2009 (Register 2009, No.
39).
Note: Authority cited: Section
25610,
Corporations Code. Reference: Section
25140,
Corporations Code.
