Current through Register 2024 Notice Reg. No. 52, December 27, 2024
(a) All expenses of
the program shall be billed directly to and paid by the program. Reimbursements
to the sponsor may be permitted for the following:
(1) Organization and offering expenses
subject to Section
260.140.113.2.
(2) Acquisition expenses subject to Section
260.140.113.4.
(3) The actual cost of goods and materials
used for or by the program and obtained from unaffiliated persons.
(4) Administrative and transfer agency type
services provided by the sponsor, such as legal, accounting, and investor
communications services, which meet the following conditions:
(A) The sponsor undertakes to maintain an
adequate staff to perform such services;
(B) Such services are necessary to the
prudent operations of the program; and
(C) The price paid to the sponsor for such
services does not exceed the lesser of the actual cost of such services to the
sponsor or 90% of the competitive rate charged by unaffiliated persons
rendering similar services in the same geographic location.
(5) The actual cost of on site property
management personnel if such amounts are customarily reimbursed for similar
property in the same geographical location in addition to payment of the
property management fee permitted by Section
260.140.113.8 of these Rules and
the sponsor is compensated for property management services pursuant to that
Section. Such reimbursements may not exceed a competitive rate for comparable
services for similar property in the same geographic
location.
(b) No
reimbursement shall be permitted for any services for which the sponsor is
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursement shall be:
(1) Rent or
depreciation, utilities, capital equipment, and other administrative items
generally falling under the category of overhead; and
(2) Salaries, fringe benefits, travel
expenses, and other administrative items incurred or allocated to any
controlling persons of the sponsor.
(c) For purposes of this Section, controlling
person includes, but is not limited to, any person, whatever their title, who
performs functions for the sponsor similar to those for:
(1) Chairman or member of the Board of
Directors;
(2) Executive
management, such as the president, vice-president or senior vice-president,
corporate secretary, and treasurer;
(3) Senior management, such as the
vice-president of an operating division who reports directly to executive
management; or
(4) Those holding 5%
or more equity interest in the sponsor or a person having the power to direct
or cause the direction of the sponsor, whether through the ownership of voting
securities, by contract, or otherwise.
(d) Except as provided in Sections
260.140.113.3 through
260.140.113.9 and
260.140.114.6 and paragraph (a) of
this Section, the sponsor may not provide other goods or services to the
program unless all of the following conditions are satisfied:
(1) The goods or services are necessary to
the prudent operation of the program.
(2) The goods or services must be provided at
a price which does not exceed the lesser of the actual cost of such goods and
services to the sponsor or 90% of the compensation, price or fee charged by
unaffiliated persons for providing comparable goods or services on competitive
terms in the same geographic location.
(3) The goods or services for which the
sponsor is to receive compensation shall be embodied in a written contract,
fully disclosed in the prospectus, which precisely describes the goods or
services to be provided and all compensation to be paid. Such contract may only
be modified in any material respect by the vote of a majority in interest of
limited partners and shall be terminable without penalty on 60 days'
notice.
(4) The sponsor must be
previously engaged in the business of rendering such services, or providing
such goods, independently of the program and as an ordinary and ongoing
business.
(5) For purposes of this
paragraph (d) only, the actual cost of services means the pro rata cost of
personnel, including an allocation of overhead directly attributable to such
personnel, based on the amount of time the personnel spent on such services, or
other method of allocation acceptable to the program's certified public
accountant. The actual cost of goods includes the price of goods and materials
paid to unaffiliated persons, and direct costs incurred by the sponsor in the
transaction, including an allocation of overhead directly attributable to the
transaction. Actual cost shall exclude all of the items set forth in paragraph
(b)(2) hereof, and the items set forth in paragraph (b)(1) hereof to the extent
the items are not directly attributable to the rendering of such
services.
(e)
Notwithstanding paragraph (d) of this Section, the sponsor may provide other
goods and services to the program in compliance with Section V.E.2. of the
NASAA Statement of Policy on Real Estate Programs and the Comments thereto, as
amended through October 12, 1988.
(f) The annual program report must contain a
breakdown of the costs reimbursed to the sponsor. Within the scope of the
annual audit of the sponsor's financial statement, the independent certified
public accountants must verify the allocation of such costs to the program. The
method of verification shall at minimum provide:
(A) A review of the time records of
individual employees, the costs of whose services were reimbursed;
and
(B) A review of the specific
nature of the work performed by each such employee. The methods of verification
shall be in accordance with generally accepted auditing standards and shall
accordingly include such tests of the accounting records and such other
auditing procedures which the sponsor's independent certified public
accountants consider appropriate in the circumstance. The additional costs of
such verification will be itemized by said accountants on a program by program
basis and may be reimbursed to the sponsor by the program in accordance with
this subparagraph only to the extent that such reimbursement when added to the
cost for such goods and services does not exceed 90% of the competitive rate
for such goods or services as determined above. The prospectus must disclose in
tabular form an estimate of such proposed expenses for the next fiscal year
together with a breakdown by year of such expenses reimbursed in each of the
last five public programs formed by the sponsor.
1.
Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No.
4).
2. Repealer and new section filed 5-18-92; operative 6-17-92
(Register 92, No. 22).
Note: Authority cited: Section
25610,
Corporations Code. Reference: Section
25140,
Corporations Code.
