Exhibit 10.26

Regulatory Agreement
Nursing Homes

U.S. Department of Housing
and Urban Development
Office of Housing
Federal Housing Commissioner

 

Project Number
122-22056-PM-ALF-REF

Mortgagee
Red Mortgage Capital, Inc., an Ohio corporation

Amount of Mortgage Note
$12,240,000.00

Date
As of April 1, 2003

Mortgage Recorded (State)
California

County
Ventura

Date
April __, 2003

Book

Page

          This Agreement entered into as of this 1st day of April, 2003, between
RETIREMENT INNS III, LLC, a Delaware limited liability company whose address is
245 Fischer Avenue, Suite D-1, Costa Mesa, California  92626 (jointly and
severally, hereinafter referred to as Lessee) and the undersigned FEDERAL
HOUSING COMMISSIONER, (hereinafter called Commissioner).

          In consideration of the consent of the Commissioner to the leasing of
the aforesaid project by ARV LAS POSAS, L.P., a California limited partnership,
Mortgagor, and in order to comply with the requirements of the National Housing
Act and the Regulations adopted by the Commissioner pursuant thereto, Lessees
agree for themselves, their successors, heirs and assigns, that in connection
with the mortgaged property and the project operated thereon and so long as the
Contract of Mortgage Insurance continues in effect, and during such further
period of time as the Commissioner shall be the owner, holder or reinsurer of
the mortgage, or during any time the Commissioner is obligated to insure a
mortgage on the mortgaged property:

 

(1)

The lease shall be subject and subordinate to the mortgage securing the note or
other obligation endorsed for insurance by the commissioner;

 

 

 

 

(2)

Lessee shall make payments under lease when due;

 

 

 

 

(3)

Payments by the lessee to the lessor shall be sufficient to pay all mortgage
payments including payments to reserves for taxes, insurance, etc., payments to
the Reserve for Replacements, and to take care of necessary maintenance. If at
the end of any calendar year, or any fiscal year if the project operates on the
basis of a fiscal year, payments under the lease have not been sufficient to
take care of the above items, the lessor and lessee upon request in writing from
the Commissioner shall renegotiate the amounts due under the lease so that such
amounts shall be sufficient to take care of such items; the Commissioner shall
be furnished by the lessee,

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within thirty days after being called upon to do so, with a financial report in
form satisfactory to the Commissioner covering the operations of the mortgaged
property and of the project;

 

 

 

 

(4)

The lessee shall not sublease the project or any part thereof without the
consent of the Commissioner;

 

 

 

 

(5)

The lessee shall at all times maintain in full force and effect a license from
the State or other licensing authority to operate the project as a nursing home,
but the owner shall not be required to maintain such a license;

 

 

 

 

(6)

Lessee shall maintain in good repair and condition any parts of the project for
the maintenance of which lessee is responsible under the terms of the lease;

 

 

 

 

(7)

Lessee shall not remodel, reconstruct, add to, or demolish any part of the
mortgaged property or subtract from any real or personal property of the
project;

 

 

 

 

(8)

Lessee shall not use the project for any purpose except the operation of an
assisted living facility;

 

 

 

 

(9)

If a default is declared by the Commissioner under the provisions of Paragraph
10 of the Regulatory Agreement entered into by the lessor-mortgagor and the
Commissioner as of the 1st day of April, 2003, a copy of notice of default
having been given to the lessee, the lessee will thereafter make all future
payments under the lease to the Commissioner;

 

 

 

 

(10)

The lease may be cancelled upon thirty days written notice by the Commissioner
given to the lessor and the lessee for a violation of any of the above
provisions unless the violation is corrected to the satisfaction of the
Commissioner within said thirty day period.

 

 

 

 

(11)

The Commissioner must approve any change in or transfer of ownership of the
lessee entity, and any change in or transfer of the management operation, or
control of the project.

 

 

 

 

(12)

The lessee shall not reduce or expand, allow to be reduced or expanded, or cause
the expansion or reduction of the bed capacity of the project without the
consent of the Commissioner. Any change in the bed capacity shall violate this
Regulatory Agreement.

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(13)

The lessee shall not enter into any management contract involving the project,
unless such shall contain a provision that, in the event of default under the
Regulatory Agreement as recited in paragraph 9 (above) of this Agreement, the
management agreement shall be subject to termination without penalty upon
written request of the Commissioner. Upon such request the lessee shall
immediately arrange to terminate the contract within a period of not more than
thirty (30) days and shall make arrangements satisfactory to the Commissioner
for continuing proper management of the project.

 

 

 

 

(14)

The mortgaged property, equipment, buildings, plans, offices, apparatus,
devices, books, contracts, records, documents, and other papers relating thereto
shall at all times be maintained in reasonable condition for proper audit and
subject to examination and inspection at any reasonable time by the Commissioner
or his duly authorized agents. Lessee shall keep copies of all written contracts
or other instruments which affect the mortgaged property, all or any of which
may be subject to inspection and examination by the Commissioner or his/her duly
authorized agents.

 

 

 

 

(15)

There shall be full compliance with the provisions of (1) any State or local
laws prohibiting discrimination in housing on the basis of race, color, creed,
or national origin; and (2) with the Regulations of the Federal Housing
Administration providing for non-discrimination and equal opportunity in
housing. It is understood and agreed that failure or refusal to comply with any
such provisions shall be a proper basis for the Commissioner to take any
corrective action he may deem necessary including, but not limited to, the
refusal to consent to a further renewal of the lease between the
mortgagor-lessor and the lessee, the rejection of applications for FHA mortgage
insurance and the refusal to enter into future contracts of any kind with which
the lessee is identified; and further, if the lessee is a corporation or any
other type of business association or organization which may fail or refuse to
comply with the aforementioned provisions, the Commissioner shall have a similar
right of corrective action (1) with respect to any individuals who are officers,
directors, trustees, managers, partners, associates or principal stockholders of
the lessee; and (2) with respect to any other type of business association, or
organization with which the officers, directors, trustees, managers, partners,
associates or principal stockholders of the lessee may be identified.

 

 

 

 

(16)

The lease is evidenced by a Memorandum of Lease attached hereto and made a part
hereof.

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(17)

All references herein to the terms “nursing home” or nursing homes” shall mean
and include the terms “assisted living facility” and “assisted living
facilities.”

          IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the date first hereinabove written.

 

RETIREMENT INNS III, LLC

 

 

a Delaware limited liability company

 

 

 

 

 

 

By:

 

 

 

 

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Abdo H. Khoury
Manager

 

 

 

 

 

 

 

 

 

 

As of April 1, 2003

 

 

 

 

 

 

 

 

 

 

SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL
HOUSING COMMISSIONER

 

 

 

 

 

 

By:

 

 

 

 

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Authorized Agent

 

 

 

 

 

 

As of April 1, 2003

 

Attachment:
Exhibit “A” – Legal Description
Exhibit “B” – Memorandum of Lease

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LEGAL DESCRIPTION
EXHIBIT “A”

THAT PORTION OF LOT 2, SECTION 27, TOWNSHIP 2 NORTH, RANGE 21 WEST, SAN
BERNARDINO MERIDIAN, IN THE CITY OF  CAMARILLO, COUNTY OF VENTURA, STATE OF
CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT OF SAID LAND FILED JULY 10, 1873 IN
THE DISTRICT LAND OFFICE, DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT IN THE EASTERLY LINE OF LAS POSAS ROAD, 60 FEET WIDE,
DISTANT ALONG SAID EASTERLY LINE NORTH 0° 13’ 35” WEST 666.12 FEET FROM THE
NORTHWESTERLY CORNER OF LAS POSAS PARK, ACCORDING TO THE MAP RECORDED IN BOOK 24
PAGE 10 OF MAPS, AT THE NORTHWESTERLY CORNER OF THE LAND DESCRIBED IN THE DEED
TO PLEASANT VALLEY SCHOOL DISTRICT RECORDED AUGUST 29, 1958 IN BOOK  1649 PAGE
522,  OFFICIAL RECORDS, THENCE, CONTINUING ALONG SAID EASTERLY LINE,

1ST: NORTH 0° 13’ 35” WEST 364.30 FEET TO THE SOUTHWESTERLY CORNER OF THE LAND
DESCRIBED IN THE DEED TO VILLAGE WATER COMPANY, RECORDED DECEMBER 18, 1961 IN
BOOK 2085 PAGE 172,  OFFICIAL RECORDS, THENCE  ALONG THE BOUNDARY OF SAID LAST
MENTIONED LAND BY THE FOLLOWING TWO COURSES,

2ND: NORTH 89° 46’ 25” EAST 50 FEET TO THE SOUTHEASTERLY CORNER THEREOF THENCE,

3RD: NORTH 0° 13’ 35” WEST 64.25 FEET TO THE NORTHERLY LINE OF SAID LOT 2;
THENCE, ALONG SAID NORTHERLY LINE,

4TH: NORTH 73° 52’ EAST 532.39 FEET, MORE OR LESS TO A POINT ON THE NORTH LINE
OF SAID LOT 2, WHICH IS NORTH 73° 52’ EAST 584.38 FEET MEASURED ALONG SAID NORTH
LINE FROM THE EAST LINE OF LAS POSAS ROAD, ALSO BEING THE NORTHWEST CORNER OF
SAID LAND DESCRIBED IN DEED TO UNITED STATES OF AMERICA, RECORDED APRIL 30, 1958
IN BOOK  1612 PAGE 22 OF OFFICIAL RECORDS, THENCE, ALONG THE WESTERLY LINE OF
LAND DESCRIBED IN SAID DEED,

5TH: SOUTH 0° 13’ 35” EAST 271.12 FEET, MORE OR LESS, TO THE NORTHEASTERLY
CORNER OF SAID LAND OF PLEASANT VALLEY SCHOOL DISTRICT, THENCE,

6TH: SOUTH 89° 46’ 25” WEST 241.50 FEET TO AN ANGLE POINT; THENCE,

7TH: SOUTH 46° 20’  57” WEST 441.26 FEET TO THE POINT OF BEGINNING.

EXCEPT ALL THE OIL, GAS, MINERALS AND OTHER HYDROCARBON SUBSTANCES IN, ON, OR
UNDER SAID LAND BUT WITHOUT THE RIGHT, HOWEVER, OF SURFACE ENTRY AND WITHOUT THE
RIGHT OF ENTRY IN AND TO THE SUBSURFACE THEREOF AT A DEPTH OF LESS THAN 500 FEET
BENEATH THE SURFACE.

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MEMORANDUM OF LEASE

          THIS MEMORANDUM OF LEASE (the “Memorandum”) dated as of April ___,
2003 is entered into between ARV Las Posas, L.P., a California limited
partnership (“Lessor”) and Retirement Inns III, LLC, a Delaware limited
liability company (“Lessee”).

RECITALS

          A.          On or about April ___, 2003, Lessor and Lessee entered
into an Agreement of Lease (the “Lease”), pursuant to which Lessor leased to
Lessee and Lessee leased from Lessor real property, more particularly described
in attached Exhibit “A” and incorporated by reference (“Premises”).

          B.          Lessor and Lessee desire to execute this Memorandum to
provide constructive notice of Lessee’s rights under the Lease to all third
parties.

          For good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties agree as follows:

          1.          Term.  Lessor leases the Premises to Lessee for a term of
ten (10) years commencing on the date of Endorsement (as defined in the Lease)
and ending on the last day of the month during which falls the tenth anniversary
of the date of Endorsement.

          2.          Lease Terms.  This lease of the Premises to Lessee is
pursuant to the Lease, which is incorporated in this Memorandum by reference.

          3.          Assignment.  Lessee’s rights and obligations under the
Lease shall not be assigned without Lessor’s prior written consent, and any
assignment without this consent shall be void.

          4.          Successors and Assigns.  This Memorandum and the Lease
shall bind and inure to the benefit of the parties and their respective
successors and assigns, subject, however, to the provisions of the Lease on
assignment.

          5.          Governing Law.  This Memorandum and the Lease are governed
by California law.

(Signature Page to Follow)

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          Executed as of the date first above written.

LESSOR:

 ARV Las Posas, L.P.,
 a California limited partnership

By:

AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.,
a California limited partnership, General Partner

 

 

 

 

 

By:

ARV ASSISTED LIVING, INC.,
a Delaware corporation, General Partner

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

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Douglas Armstrong
Senior Vice President

 

 

LESSEE:

RETIREMENT INNS III, LLC,

 

a Delaware limited liability company

 

 

 

 

By:

 

 

 

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Abdo H. Khoury
Authorized Manager

 

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