<PAGE>
                                                                    EXHIBIT 10.3





                       MASTER LEASE AND SECURITY AGREEMENT
                                    (POOL 2)


                                 BY AND BETWEEN

                 THE ENTITIES LISTED AS LANDLORD ON SCHEDULE 1,

                                  AS "LANDLORD"


                                       AND


                  THE ENTITIES LISTED AS TENANT ON SCHEDULE 1,

                                   AS "TENANT"



                               DATED: JULY 9, 2002






<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                Page
<S>                                                                             <C>
1.       Term......................................................................3

1.1      Term......................................................................3

1.2      Renewal Terms.............................................................3

2.       Rent......................................................................3

2.1      Initial Term Minimum Rent.................................................3

2.2      Renewal Term Minimum Rent.................................................4

2.3      Initial Term Additional Rent..............................................5

2.4      Renewal Term Additional Rent..............................................5

2.5      Total Rent................................................................6

2.6      Proration for Partial Periods; Payment Dates; Other Adjustment............7

2.7      Absolute Net Lease........................................................7

3.       Taxes, Assessments and Other Charges; Ground Lease........................7

3.1      Tenant's Obligations......................................................7

3.2      Proration.................................................................8

3.3      Right to Protest..........................................................8

3.4      Tax Bills.................................................................8

3.5      Other Charges.............................................................8

3.6      Impound...................................................................8

4.       Insurance.................................................................9

4.1      General Insurance Requirements............................................9

4.2      Fire and Other Casualty..................................................10

4.3      Public Liability.........................................................10

4.4      Professional Liability Insurance.........................................10

4.5      Workers Compensation.....................................................10

4.6      Boiler Insurance.........................................................10

4.7      Business Interruption Insurance..........................................11

4.8      Deductible Amounts.......................................................11

4.9      Intentionally Omitted....................................................11

4.10     Reimbursement of Landlord's Insurance Costs..............................11
</TABLE>



                                       i
<PAGE>
<TABLE>
<S>                                                                               <C>
5.       Use, Maintenance and Alteration of the Premises..........................11

5.1      Tenant's Maintenance Obligations.........................................11

5.2      Regulatory Compliance....................................................12

5.3      Permitted Use............................................................13

5.4      Tenant Repurchase Obligation.............................................13

5.5      No Liens; Permitted Contests.............................................14

5.6      Alterations by Tenant....................................................14

5.7      Capital Improvements Funded by Landlord..................................14

5.8      Compliance With IRS Guidelines...........................................15

6.       Condition And Title Of Premises; Right of First Offer....................15

6.1      Condition and Title of Premises..........................................15

6.2      Right of First Offer to Purchase Premises................................15

7.       Landlord and Tenant Personal Property....................................18

7.1      Tenant Personal Property.................................................18

7.2      Landlord's Security Interest.............................................18

7.3      Financing Statements.....................................................19

7.4      Intangible Property......................................................19

8.       Representations And Warranties...........................................19

8.1      Due Authorization And Execution..........................................19

8.2      Due Organization.........................................................20

8.3      No Breach of Other Agreements............................................20

9.       Financial, Management and Regulatory Reports.............................20

9.1      Monthly Facility Reports.................................................20

9.2      Quarterly Financial Statements...........................................20

9.3      Annual Financial Statement...............................................20

9.4      Accounting Principles....................................................20

9.5      Regulatory Reports.......................................................20

9.6      Additional Information...................................................21

10.      Events of Default and Landlord's Remedies................................21

10.1     Events of Default........................................................21

10.2     Remedies.................................................................23

10.3     Receivership.............................................................24
</TABLE>


                                       ii


<PAGE>
<TABLE>
<S>                                                                               <C>
10.4     Late Charges; Default Interest...........................................24

10.5     Remedies Cumulative; No Waiver...........................................25

10.6     Performance of Tenant's Obligations by Landlord..........................25

11.      Collateral for Lease Obligations.........................................25

12.      Damage by Fire or Other Casualty.........................................27

12.1     Reconstruction Using Insurance...........................................27

12.2     Surplus Proceeds.........................................................27

12.3     No Rent Abatement........................................................27

12.4     End of Term..............................................................27

13.      Condemnation.............................................................27

13.1     Complete Taking..........................................................27

13.2     Partial Taking...........................................................28

13.3     Lease Remains in Effect..................................................28

14.      Provisions on Termination of Term........................................28

14.1     Surrender of Possession..................................................28

14.2     Removal of Personal Property.............................................28

14.3     Title to Personal Property Not Removed...................................29

14.4     Management of Premises...................................................29

14.5     Correction of Deficiencies...............................................29

15.      Notices and Demands......................................................29

16.      Right of Entry; Examination of Records...................................30

17.      Landlord May Grant Liens.................................................30

18.      Quiet Enjoyment..........................................................30

19.      Applicable Law...........................................................31

20.      Preservation of Gross Revenues...........................................31

21.      Hazardous Materials......................................................32

21.1     Hazardous Material Covenants.............................................32

21.2     Tenant Notices to Landlord...............................................32

21.3     Extension of Term........................................................33

21.4     Participation in Hazardous Materials Claims..............................33

21.5     Environmental Activities.................................................33

21.6     Hazardous Materials......................................................33
</TABLE>





                                       iii
<PAGE>

<TABLE>
<S>                                                                               <C>
21.7     Hazardous Materials Claims...............................................34

21.8     Hazardous Materials Laws.................................................34

22.      Assignment and Subletting................................................34

23.      Indemnification..........................................................36

24.      Holding Over.............................................................36

25.      Estoppel Certificates....................................................36

26.      Conveyance by Landlord...................................................36

27.      Waiver of Jury Trial.....................................................37

28.      Attorneys' Fees..........................................................37

29.      Severability.............................................................37

30.      Counterparts.............................................................37

31.      Binding Effect...........................................................37

32.      Waiver and Subrogation...................................................37

33.      Memorandum of Lease......................................................37

34.      Incorporation of Recitals and Attachments................................37

35.      Titles and Headings......................................................37

36.      Nature of Relationship; Usury Savings Clause.............................37

37.      Joint and Several........................................................38

38.      Survival of Representations, Warranties and Covenants....................38

39.      Interpretation...........................................................38
</TABLE>




SCHEDULE 1 - LANDLORD AND TENANT ENTITIES
SCHEDULE 2 - DESCRIPTIONS OF FACILITIES
SCHEDULE 3 - LANDLORD PERSONAL PROPERTY

EXHIBIT A - LEGAL DESCRIPTIONS OF FACILITIES
EXHIBIT B - APPRAISAL PROCESS
EXHIBIT C - PERMITTED EXCEPTIONS
EXHIBIT D - EXEMPTED PROPERTIES







                                       iv





<PAGE>


                       MASTER LEASE AND SECURITY AGREEMENT
                                    (POOL 2)

         THIS MASTER LEASE AND SECURITY AGREEMENT (POOL 2) (the "LEASE") is made
and entered into as of the 9th day of July, 2002 by and between the entities
listed as Landlord on Schedule 1 (collectively, "LANDLORD"), and the entities
listed as Tenant on Schedule 1 (collectively, "TENANT").

                               W I T N E S S E T H

         WHEREAS, each entity comprising Landlord is the owner of those certain
real properties, all improvements thereon and all appurtenances thereto
(collectively, the "FACILITIES"), as located, described and identified on
Schedule 2, the legal descriptions of which are attached as Exhibit A;

         WHEREAS, each of the Facilities is presently utilized as a personal
care, independent living or memory impaired assisted living facility (as so
utilized, a "PERSONAL CARE FACILITY"), each duly licensed for a specified number
of units, all as located, described and identified on Schedule 2;

         WHEREAS, each entity comprising Landlord is also the owner,
respectively, of that certain furniture, machinery, equipment, appliances,
fixtures and other personal property used in connection with the Facilities as
described on Schedule 3 (collectively, the "LANDLORD PERSONAL PROPERTY" and,
together with the Facilities, the "PREMISES");

         WHEREAS, Landlord desires to lease the Premises to Tenant, and Tenant
desires to lease the Premises from Landlord; and

         WHEREAS, Landlord or certain Affiliates of Landlord, as landlord
(collectively, the "POOL 1 LANDLORD"), and Tenant or certain Affiliates of
Tenant, as tenant (collectively, the "POOL 1 TENANT"), have entered into that
certain Master Lease and Security Agreement (Pool 1) of even date herewith (the
"POOL 1 LEASE");

         WHEREAS, Landlord, Pool 1 Landlord, Tenant and Pool 1 Tenant have
entered into that certain Letter of Credit Agreement of even date herewith (the
"LC AGREEMENT") pursuant to which Tenant and Pool 1 Tenant shall post with
Landlord and Pool 1 Landlord a letter or letters of credit as partial collateral
for the performance of Tenant's and Pool 1 Tenant's obligations under this Lease
and the Pool 1 Lease; and

         WHEREAS, American Retirement Corporation, a Tennessee corporation (in
such capacity, "GUARANTOR"), has agreed to guarantee to Landlord and to Pool 1
Landlord, respectively, Tenant's obligations under this Lease and Pool 1
Tenant's obligations under the Pool 1 Lease pursuant to that certain Guaranty of
Master Lease and Security Agreements and Letter of Credit Agreement of even date
herewith (the "GUARANTY").




<PAGE>

                                A G R E E M E N T

         NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein, Landlord hereby leases and lets unto Tenant the
Premises for the term and upon the conditions and provisions hereinafter set
forth.

                          RECOGNITION OF MASTER LEASE;
                            WAIVER OF CERTAIN RIGHTS

         Tenant and Guarantor each acknowledge and agree that this Lease
constitutes a single, indivisible lease of the entire Premises, and the Premises
constitutes a single economic unit. The Minimum Rent, Additional Rent and other
amounts payable hereunder and all other provisions contained herein have been
negotiated and agreed upon based on the intent to lease the entirety of the
Premises as a single and inseparable transaction, and such Minimum Rent,
Additional Rent and other amounts and other provisions would have been
materially different had the parties intended to enter into separate leases or a
divisible lease. Any Event of Default under this Lease shall constitute an Event
of Default as to the entire Premises.

         Tenant and Guarantor each further acknowledge and agree that Landlord
is entering into this Master Lease as an accommodation to Tenant and Guarantor
as described in the Master Agreement (as defined in Section 10.1.2). Each of the
entities comprising Tenant and Guarantor, in order to induce Landlord to enter
into this Lease, to the extent permitted by law:

         A. Agrees, acknowledges and is forever estopped from asserting to the
contrary that the statements set forth in the first sentence of this Section are
true, correct and complete;

         B. Agrees, acknowledges and is forever estopped from asserting to the
contrary that this Lease is a new and de novo lease, separate and distinct from
any other lease between any of the entities comprising Tenant and any of the
entities comprising Landlord that may have existed prior to the date hereof.

         C. Agrees, acknowledges and is forever estopped from asserting to the
contrary that this Lease is a single lease pursuant to which the collective
Premises are demised as a whole to Tenant;

         D. Agrees, acknowledges and is forever estopped from asserting to the
contrary that if, notwithstanding the provisions of this Section, this Lease
were to be determined or found to be in any proceeding, action or arbitration
under state or federal bankruptcy, insolvency, debtor-relief or other applicable
laws to constitute multiple leases demising multiple properties, such multiple
leases could not, by the debtor, trustee, or any other party, be selectively or
individually assumed or rejected;

         E. Forever knowingly waives and relinquishes any and all rights under
or benefits of the provisions of the Federal Bankruptcy Code Section 365 (11
U.S.C. ss. 365), or any successor or replacement thereof or any analogous state
law, to selectively or individually assume or reject the multiple leases
comprising this Lease following a determination or finding in the nature of that
described in the foregoing Section D.



                                       2
<PAGE>

         1.   TERM.

              1.1 TERM. The term of this Lease shall commence as of July 9, 2002
and shall end on June 30, 2012 (the "INITIAL TERM") unless extended pursuant to
Section 1.2 or earlier terminated in accordance with the provisions hereof. The
Initial Term and all Renewal Terms are referred to collectively as the "TERM".

              1.2 RENEWAL TERMS. The Term may be extended for five (5) separate
renewal terms (each a "RENEWAL TERM") of ten (10) years each, upon the
satisfaction of all of the following terms and conditions:

                  1.2.1 Not more than ten (10) business days before or after the
         date which is fifteen (15) months prior to the end of the then current
         Term, Tenant shall give Landlord written notice that Tenant desires to
         exercise its right to extend the then current Term for one (1) Renewal
         Term.

                  1.2.2 There shall be (a) no Event of Default (as defined in
         Section 10 below) under this Lease and (b) no "Event of Default" (as
         defined in the Pool 1 Lease), if the Pool 1 Lease is still then in
         effect, in each case either on the date of Tenant's notice to Landlord
         pursuant to Section 1.2.1 above, or on the last day of the then current
         Term.

                  1.2.3 Concurrently with the commencement of each Renewal Term,
         the Security Deposit and Collateral Amount (as defined in Section 11.1)
         shall be increased to an amount equal to (a) if the Pool 1 Lease is
         then still in effect, thirty-eight percent (38%) of the sum of the
         annual Minimum Rent in effect during such Renewal Term and the "Minimum
         Rent" then payable under the Pool 1 Lease (but in no event less than
         the Security Deposit and Collateral Amount in effect immediately prior
         to the commencement of such Renewal Term), or (b) if the Pool 1 Lease
         is not then still in effect, forty-one percent (41%) of the annual
         Minimum Rent in effect during such Renewal Term (but in no event less
         than the Security Deposit and Collateral Amount in effect immediately
         prior to the commencement of such Renewal Term).

                  1.2.4 All other provisions of this Lease shall remain in full
         force and effect and shall continuously apply throughout the Renewal
         Term(s).

         2.   RENT. During the Initial Term and all Renewal Terms, minimum rent
("MINIMUM RENT") and additional rent ("ADDITIONAL RENT") shall be paid by Tenant
to Landlord by wire transfer as set forth in this Section 2.

              2.1 INITIAL TERM MINIMUM RENT. During the Initial Term, Tenant
shall pay to Landlord Minimum Rent of (a) Eight Million Eight Hundred
Ninety-Eight Thousand Dollars ($8,898,000) annually for each Lease Year through
and including the Lease Year ending June 30, 2011, and (b) Eight Million Seven
Hundred Sixty-Six Thousand Dollars ($8,766,000) annually for each Lease Year
thereafter. Such Minimum Rent with respect to each month shall be paid in
advance on the first (1st) business day of each such calendar month by wire
transfer and in equal monthly installments of (x) Seven Hundred Forty-One
Thousand Five Hundred





                                       3
<PAGE>

Dollars ($741,500) for each month in each Lease Year through and including the
Lease Year ending June 30, 2011, and (y) Seven Hundred Thirty Thousand Five
Hundred Dollars ($730,500) for each month in each Lease Year thereafter. As used
herein, "LEASE YEAR" shall be defined as the twelve (12) month periods
commencing on July 1 and ending on June 30 of each year of the Term.

              2.2 RENEWAL TERM MINIMUM RENT. The Minimum Rent for each Renewal
Term shall be expressed as an annual amount but shall be payable in advance in
equal monthly installments by wire transfer on the first (1st) business day of
each calendar month. Such annual Minimum Rent shall be equal to the product of:

                  2.2.1 The lesser of (i) the Adjusted Fair Market Value of the
         Premises (as such term is defined in Section 2.2.4 below) on the date
         of Tenant's notice of exercise pursuant to Section 1.2.1 or (ii)
         Landlord's Adjusted Investment in the Premises (as defined in Section
         2.2.5 below); and

                  2.2.2 A percentage equal to three hundred (300) basis points
         over the twenty (20) day average 10 year United States Treasury rate in
         effect on the date of Tenant's notice of exercise pursuant to Section
         1.2.1. In the event that the unavailability of United States Treasury
         securities causes the foregoing calculation, or any other similar
         calculation described in this Lease, to be impracticable, a substitute
         therefor, reasonably acceptable to Landlord and Tenant, shall be used
         for such purposes.

                  2.2.3 Notwithstanding the foregoing, in no event shall the
         Minimum Rent for the first Lease Year of the first Renewal Term exceed
         one hundred twenty percent (120%) of the Total Rent payable in the last
         Lease Year of the Initial Term, and in no event shall the Minimum Rent
         for the first Lease Year of any Renewal Term other than the first
         Renewal Term exceed one hundred twenty percent (120%) of the Total Rent
         payable in the last Lease Year of the immediately preceding Renewal
         Term. Furthermore, in no event shall the Minimum Rent for the first
         Lease Year of the first Renewal Term be less than one hundred percent
         (100%) of the Total Rent payable during the last Lease Year of the
         Initial Term, and in no event shall the Minimum Rent for the first
         Lease Year of any Renewal Term other than the first Renewal Term be
         less than one hundred percent (100%) of the Total Rent payable during
         the last Lease Year of the immediately preceding Renewal Term.

                  2.2.4 As used herein, the "ADJUSTED FAIR MARKET VALUE" of the
         Premises shall mean fair market value as determined under this Lease
         with the following adjustments: (i) excluding the enterprise value of
         any home health agency operated by Tenant out of space in the Premises
         but including the fair rental value of such space; and (ii) minus the
         value of any capital improvements to the Premises paid for by Tenant
         and not funded by Landlord under Section 5.7 below.



                                       4
<PAGE>

                  2.2.5 As used herein, "LANDLORD'S ADJUSTED INVESTMENT" in the
         Premises shall mean Landlord's Original Investment (as hereinafter
         defined in this Section 2.2.5) multiplied at the end of each Lease Year
         by a percentage equal to one hundred percent (100%) plus one-half
         (1/2) of the CPI Increase (as defined in Section 2.2.6 below) for such
         Lease Year. As used herein, "LANDLORD'S ORIGINAL INVESTMENT" shall mean
         Eighty-Three Million Seven Hundred Sixty-Two Thousand Seven Hundred
         Seventy Dollars ($83,762,770) as increased by (A) any amount paid by
         Landlord pursuant to Section 5.7 below, and as decreased by (B) any net
         award paid to Landlord pursuant to Section 13.2 below, any portion
         thereof allocable to any Facility sold to Tenant pursuant to Section
         5.4 or otherwise, all as applicable and as may be otherwise increased
         or decreased pursuant to any other provision of the Lease.

                  2.2.6 As used herein, "CPI" shall be defined as the Consumer
         Price Index for All Urban Wage Earners and Clerical Workers, United
         States Average, Subgroup "All Items" (1982 - 1984 = 100), as published
         by the United States Department of Labor, Bureau of Labor Statistics,
         or similar index if the same becomes available. The "CPI INCREASE"
         shall be calculated annually by comparing the CPI in effect on the
         first calendar day of the immediately preceding Lease Year to the first
         calendar day of the then current Lease Year.

If within ten (10) days of the date of Tenant's notice of exercise pursuant to
Section 1.2.1, Landlord and Tenant are unable to agree on the Adjusted Fair
Market Value of the Premises for purposes of this calculation, such Adjusted
Fair Market Value shall be established by the appraisal process described on
Exhibit B attached hereto. The Minimum Rent for the applicable Renewal Term must
be finally determined by such appraisal process on or before a date ninety (90)
days after Tenant's notice of exercise pursuant to Section 1.2.1 or Tenant shall
lose its right to extend the Term. Landlord and Tenant acknowledge and agree
that this Section is designed to establish a fair market Minimum Rent for the
Premises during the applicable Renewal Terms.

              2.3 INITIAL TERM ADDITIONAL RENT. During the second (2nd) and
each other Lease Year of the Initial Term, Tenant shall pay to Landlord annual
Additional Rent in an amount equal to the sum of (a) the Total Rent payable in
the immediately preceding Lease Year less the Annual Constant (as defined in
section 2.5.2) (the "PREVIOUS YEAR'S RENT") multiplied by the lesser of (i) two
and one-half percent (2.5%) or (ii) two (2) times the CPI Increase, and (b) the
Additional Rent payable in the immediately preceding Lease Year. Such Additional
Rent with respect to each month shall be paid by wire transfer in advance and in
equal monthly installments on the first (1st) business day of each such calendar
month.

              2.4 RENEWAL TERM ADDITIONAL RENT. During the second (2nd) and
each other Lease Year of each Renewal Term, Tenant shall pay to Landlord annual
Additional Rent in an amount equal to the sum of (a) the Previous Year's Rent
multiplied by the lesser of (i) two and one-half percent (2.5%) or (ii) two (2)
times the CPI Increase and (b) the Additional Rent payable in the immediately
preceding Lease Year. Such Additional Rent with respect to each month shall be
paid by wire transfer in advance and in equal monthly installments on the first
(1st) business day of each such calendar month.



                                       5
<PAGE>

              2.5 TOTAL RENT.

                  2.5.1 Except to the extent provided to the contrary in the
         immediately succeeding sentence, for all purposes of calculating and
         paying Minimum Rent and Additional Rent under this Lease, the total of
         the Minimum Rent and Additional Rent ("TOTAL RENT") payable by Tenant
         in any quarter of any Lease Year will not be less than the Total Rent
         paid by Tenant for the immediately preceding quarterly period.
         Notwithstanding the foregoing, Total Rent payable by Tenant with
         respect to the first (1st) quarter of the Lease Year commencing July 1,
         2011 will not be less than the difference obtained by subtracting
         Thirty-Three Thousand Dollars ($33,000) from the Total Rent paid by
         Tenant for the immediately preceding quarterly period.

                  2.5.2 Notwithstanding any of the other terms of this Section
         2, but subject to Section 2.5.3 below, the Total Rent due during each
         Lease Year shall not increase from one Lease Year to the next by an
         amount in excess of (i) two and one-half percent (2.5%), multiplied by
         (ii) the difference obtained by subtracting the Annual Constant (as
         defined below) from the Total Rent due during the immediately preceding
         Lease Year (the "ANNUAL RENT Cap"). For purposes of applying the Annual
         Rent Cap to the monthly installments of Additional Rent due under
         Section 2.3.1, the Total Rent due during each quarter of any Lease Year
         shall not increase by an amount in excess of one-fourth (1/4) of the
         Annual Rent Cap for the then applicable Lease Year. As used herein, the
         "ANNUAL CONSTANT" shall mean (a) the amount of One Hundred Thirty-Two
         Thousand Dollars ($132,000) for each Lease Year through and including
         the Lease Year ending June 30, 2011, and (b) the amount of Zero Dollars
         ($0) for each Lease Year thereafter.

                  2.5.3. The terms of Section 2.5.2 above shall have no
         applicability in determining the calculation of the Minimum Rent due
         during the first (1st) Lease Year of any Renewal Term.

                  2.5.4 To the extent that Section 2.5.2 above operates to limit
         the Total Rent due for any Lease Year, the amount of rent which would
         have otherwise been paid or payable by Tenant will be carried forward
         on a cumulative basis and will be paid by Tenant to Landlord in any
         subsequent Lease Year (other than the first (1st) Lease Year of a
         Renewal Term) to the extent that the Total Rent due for such subsequent
         Lease Year is less than the Annual Rent Cap.

                  2.5.5 For the purpose of comparing the Total Rent due during
         each quarter of any Lease Year to the Total Rent due in the immediately
         preceding quarterly period pursuant to this Section 2.5, the increase
         in Minimum Rent by reason of any disbursement by Landlord pursuant to
         Section 5.7 of this Lease shall be treated as follows: (i) for the
         purpose of comparing the Total Rent in the quarterly period in which
         such disbursement is made against the Total Rent due in the immediately
         preceding quarter, such increase in Minimum Rent shall be ignored, and
         (ii) for the purpose of comparing the Total Rent in the quarterly



                                       6
<PAGE>

         period in which such disbursement is made to the Total Rent due in the
         following quarter, such increase in Minimum Rent shall be deemed
         effective on the first day of the quarterly period in which the
         disbursement is made.

              2.6 PRORATION FOR PARTIAL PERIODS; PAYMENT DATES; OTHER
ADJUSTMENT. The rent for any month during the Term which begins or ends on other
than the first or last calendar day of a calendar month shall be prorated based
on actual days elapsed. If any payment of rent or other amounts hereunder falls
due on a day other than a business day, such payment shall be due on the last
business day immediately preceding such payment date.

              2.7 ABSOLUTE NET LEASE.

                  2.7.1 GENERALLY. All rent payments shall be absolutely net to
         the Landlord free of taxes (other than federal or state income taxes
         calculated on the net income of Landlord), assessments, utility
         charges, operating expenses, refurnishings, insurance premiums or any
         other charge or expense in connection with the Premises. All expenses
         and charges, whether for upkeep, maintenance, repair, refurnishing,
         refurbishing, restoration, replacement, insurance premiums, real estate
         or other property taxes, utilities, and other operating or other
         charges of a like nature or otherwise, shall be paid by Tenant. This
         provision is not in derogation of the specific provisions of this
         Lease, but in expansion thereof and as an indication of the general
         intention of the parties hereto. Tenant shall continue to perform its
         obligations under this Lease even if Tenant claims that Tenant has been
         damaged by any act or omission of Landlord. Therefore, Tenant shall at
         all times remain obligated under this Lease without any right of
         set-off, counterclaim, abatement, deduction, reduction or defense of
         any kind. Tenant's sole right to recover damages against Landlord by
         reason of a breach or alleged breach of Landlord's obligations under
         this Lease shall be to prove such damages in a separate action against
         Landlord.

                  2.7.2 SALES TAX. Tenant hereby agrees to pay any and all sales
         or use taxes (and any interest or penalties related thereto) at any
         time assessed by any governmental entity against (i) Landlord, with
         respect to the Landlord's purchase of any portion of the Premises from
         Guarantor or any affiliate of Guarantor, or (ii) Tenant, with respect
         to Tenant's operation of any Facility, including, without limitation,
         any lease of personal property at any time entered into by and between
         Landlord and Tenant. Tenant further agrees to indemnify Landlord
         against and/or reimburse Landlord for the amount of any such taxes
         actually paid by or assessed against Landlord regardless of the reason
         for any such payment or assessment. Any failure to make such
         reimbursement shall constitute an Event of Default under this Lease.

         3.   TAXES, ASSESSMENTS AND OTHER CHARGES; GROUND LEASE:

              3.1 TENANT'S OBLIGATIONS. Subject to Section 3.6, Tenant agrees to
pay and discharge (including the filing of all required returns) any and all
taxes (including but not limited to real estate and personal property taxes,
business and occupational license taxes, ad valorem




                                       7
<PAGE>

sales, use, single business, gross receipts, transaction privilege, franchise,
rent or other excise taxes, but excluding federal or state income taxes
calculated on the net income of Landlord), and other assessments levied or
assessed against the Premises or any interest therein during the Term, prior to
delinquency or imposition of any fine, penalty, interest or other cost.

              3.2 PRORATION. At the end of the Term, all such taxes and
assessments under Section 3.1 shall be prorated.

              3.3 RIGHT TO PROTEST. Landlord and/or Tenant shall have the right,
but not the obligation, to protest the amount or payment of any real or personal
property taxes or assessments levied against the Premises; provided that in the
event of any protest by Tenant, Landlord shall not incur any expense because of
any such protest, Tenant shall diligently and continuously prosecute any such
protest and notwithstanding such protest Tenant shall pay any tax, assessment or
other charge before the imposition of any penalty or interest.

              3.4 TAX BILLS. Landlord shall promptly forward to Tenant copies of
all tax bills and payment receipts relating to the Premises received by
Landlord.

              3.5 OTHER CHARGES. Tenant agrees to pay and discharge, punctually
as and when the same shall become due and payable without penalty, all
electricity, gas, garbage collection, cable television, telephone, water, sewer,
and other utilities costs and all other charges, obligations or deposits
assessed against the Premises during the Term.

              3.6 IMPOUND. Tenant shall deposit with Landlord at the time of
each payment of an installment of Minimum Rent, one-twelfth (1/12) of the amount
sufficient to discharge the annual amount of real property taxes and assessments
secured by a lien encumbering any portion of the Premises as and when they
become due. Such amounts shall be held by Landlord not in trust and not as an
agent of Tenant, and shall be applied to the payment of the obligations with
respect to which the amounts were deposited. Tenant acknowledges that the
impounding of such funds in the escrow described herein shall constitute a true
escrow, and that Tenant has no, and hereby waives any, interest in or right or
title to any funds escrowed pursuant to this Section 3.6, whether legal,
equitable, beneficial or otherwise, except that Tenant shall be entitled to
enforce Landlord's obligations hereunder with respect to such escrow. If at any
time within thirty (30) days prior to the due date of any of the aforementioned
obligations the amounts then on deposit therefor shall be insufficient for the
payment of such obligation in full, Tenant shall within ten (10) days after
demand, deposit the amount of the deficiency with Landlord. If the amounts
deposited are in excess of the actual obligations for which they were deposited,
Landlord shall hold the same in a reserve account, not in trust, and reduce
proportionately the required monthly deposits for the ensuing Lease Year;
provided that any such excess with respect to the final Lease Year of the Term
shall be refunded to Tenant within thirty (30) days of the end of the Term.
Tenant shall deliver to Landlord, or Landlord's agent if so directed by
Landlord, all tax bills, bond and assessment statements, as soon as the same are
received by Tenant. If Landlord sells or assigns this Lease, Landlord shall
transfer all amounts deposited by Tenant pursuant to this Section 3.6 to the
purchaser or assignee, and Landlord shall thereafter be released from all
responsibility related to, and shall have no further liability for the
application of, such deposits, and to the extent Landlord transfers such
amounts, Tenant shall look solely to such purchaser or assignee for such
application and for all responsibility related to




                                       8
<PAGE>

such deposits. Except during the continuance of an Event of Default, cash
amounts deposited by Tenant with Landlord pursuant to this Section 3.6 shall
accrue interest for the benefit of Tenant at the annual rate of ten percent
(10%). Provided that no Event of Default is then continuing, such interest shall
be paid by Landlord to Tenant on a quarterly basis in arrears.

         4.   INSURANCE.

              4.1 GENERAL INSURANCE REQUIREMENTS. All insurance provided for in
this Lease shall be maintained under valid and enforceable policies issued by
insurers of recognized responsibility, approved to do business in the State in
which the applicable Facility is located having a general policyholders rating
of not less than "A-" and a financial rating of not less than "VIII" in the then
most current Best's Insurance Report. Any and all policies of insurance required
under this Lease shall name the Landlord as an additional insured, shall be
primary and non-contributory with any insurance that Landlord may maintain in
connection with the Premises, and shall be on an "occurrence" basis, or on a
"claims-made" basis upon Landlord's prior written consent, which consent shall
not be unreasonably withheld at such times as the applicable insurance is not
available on an "occurrence" bases at commercially reasonable rates, as
reasonably determined by Landlord; provided, however, the proceeds of any
business interruption policy shall be payable to Tenant without relieving Tenant
in any way of its obligation to pay rent under this Lease. With respect to any
insurance policy maintained by Tenant in accordance with this Section 4.1 that
is on a "claims-made" basis: (a) any renewal or replacement of such policy shall
show as its prior acts/retroactive or continuity date the first date of
claims-made coverage under the policy being renewed or replaced; (b) if such
policy is cancelled or not renewed and is not concurrently replaced with a
policy providing insurance on an "occurrence" basis with "full prior acts"
coverage, Tenant shall obtain effective as of such cancellation or non-renewal
an "extended reporting provision option" (or "tail" coverage) for a minimum of
three (3) years; and (c) if such policy is replaced by any policy providing
coverage on an "occurrence" basis, such replacement policy shall contain a "full
prior acts" provision. In addition, Landlord shall be shown as the loss payable
beneficiary under the casualty insurance policy maintained by Tenant pursuant to
Section 4.2. All policies of insurance required herein may be in the form of
"blanket" or "umbrella" type policies which shall name the Landlord and Tenant
as their interests may appear and allocate to each Facility the full amount of
insurance required hereunder. Original policies or satisfactory certificates
from the insurers evidencing the existence of all policies of insurance required
by this Lease and showing the interest of the Landlord shall be filed with the
Landlord prior to the commencement of the Term and shall provide that the
subject policy may not be canceled except upon not less than ten (10) days prior
written notice to Landlord. If Landlord is provided with a certificate, upon
Landlord's request Tenant shall provide Landlord with a complete copy of the
insurance policy evidenced by such certificate within thirty (30) days of the
commencement of the Term. Originals of the renewal policies or certificates
therefor from the insurers evidencing the existence thereof shall be deposited
with Landlord upon renewal of the applicable policies. If Landlord is provided
with a certificate for a renewal policy, upon Landlord's request Tenant shall
deliver a copy of the complete renewal policy to Landlord within thirty (30)
days of the expiration of the replaced policy. Any claims under any policies of
insurance described in this Lease shall be adjudicated by and at the expense of
the Tenant or of its insurance carrier, but shall be subject to joint control of
Tenant and Landlord.



                                       9
<PAGE>

              4.2 FIRE AND OTHER CASUALTY. Tenant shall keep each Facility
insured against loss or damage from all causes under standard "all risk"
property insurance coverage, without exclusion for fire, lightning, windstorm
(including hurricane coverage), explosion, smoke damage, vehicle damage,
sprinkler leakage, flood, vandalism, earthquake, malicious mischief or any other
risk as is normally covered under an extended coverage endorsement, in the
amounts that are not less than the full insurable value of the applicable
Facility including all equipment and personal property (whether or not Landlord
Personal Property) used in the operation of the such Facility; provided,
however, that the amount of such insurance in respect of the required flood and
earthquake coverage may be limited, at Tenant's option, to Five Million Dollars
($5,000,000). The term "FULL INSURABLE VALUE" as used in this Lease shall mean
the actual replacement value of the applicable Facility (including all
improvements) and every portion thereof, including the cost of compliance with
changes in zoning and building codes and other laws and regulations, demolition
and debris removal and increased cost of construction. In addition, the casualty
insurance required under this Section 4.2 will include an agreed amount
endorsement such that the insurance carrier has accepted the amount of coverage
and has agreed that there will be no co-insurance penalty.

              4.3 PUBLIC LIABILITY. Tenant shall maintain comprehensive general
public liability insurance coverage (including products liability coverage)
against claims for bodily injury, death or property damage occurring on, in or
about each Facility and the adjoining sidewalks and passageways, such insurance
to include a broad form endorsement and to afford protection to Landlord and
Tenant of not less than One Million Dollars ($1,000,000) with respect to bodily
injury or death to any one person, not less than Five Million Dollars
($5,000,000) with respect to any one accident, and not less than One Million
Dollars ($1,000,000) with respect to property damage; provided, that Landlord
shall have the right at any time hereafter to require such higher limits as may
be reasonable and customary for transactions and properties that are similar to
the applicable Facility and that are located in the area thereof.

              4.4 PROFESSIONAL LIABILITY INSURANCE. Tenant shall maintain with
respect to each Facility insurance against liability imposed by law upon Tenant
for damages on account of professional services rendered or which should have
been rendered by Tenant or any person for which acts Tenant is legally liable on
account of injury, sickness or disease, including death at any time resulting
therefrom, and including damages allowed for loss of service, in a minimum
amount of One Million Dollars ($1,000,000) for each claim and Five Million
Dollars ($5,000,000) in the aggregate.

              4.5 WORKERS COMPENSATION. Tenant shall comply with all legal
requirements regarding worker's compensation, including any requirement to
maintain worker's compensation insurance against claims for injuries sustained
by Tenant's employees in the course of their employment.

              4.6 BOILER INSURANCE. Tenant shall maintain with respect to each
Facility boiler and pressure vessel insurance, including an endorsement for
boiler business interruption insurance, on any fixtures or equipment which are
capable of bursting or exploding, in an amount not less than Five Million
Dollars ($5,000,000) for damage to property, bodily injury or death resulting
from such perils.



                                       10
<PAGE>

              4.7 BUSINESS INTERRUPTION INSURANCE. Tenant shall maintain with
respect to each Facility, at its expense, business interruption and extra
expense insurance insuring a period of not less than six (6) months.

              4.8 DEDUCTIBLE AMOUNTS. The policies of insurance which Tenant
is required to provide under this Lease will not have deductibles or
self-insured retentions in excess of One Hundred Thousand Dollars ($100,000), or
such higher amount as may be commercially reasonable under applicable
circumstances, as reasonably determined by Landlord.

              4.9 INTENTIONALLY OMITTED.

              4.10 REIMBURSEMENT OF LANDLORD'S INSURANCE COSTS. During any
Lease Year or portion thereof in which Tenant in not in compliance with the
other provisions of this Section 4, Tenant shall reimburse Landlord, within ten
(10) days of Landlord's demand therefor, for the costs of the premiums of the
general liability and environmental insurance policies maintained by Landlord,
or contributions to self-insurance in lieu thereof, in connection with the
Premises, which amount shall not exceed in any Lease Year the amount of
Twenty-Five Thousand Dollars ($25,000) (or Fifty Thousand Dollars ($50,000) when
aggregated with such amounts as may be due under the Pool 1 Lease), as adjusted
at the end of each Lease Year for increases in the CPI since the date of this
Lease. Tenant shall have no right to receive any proceeds or other benefits from
any such insurance. The foregoing shall not in any way imply that Landlord
shall, or impose any duty on Landlord to: (a) waive any Event of Default that
may arise as a result of Tenant's failure to comply with the other provisions of
this Section 4, or (b) obtain or maintain any such general liability or
environmental insurance with respect to the Premises.

         5.   USE, MAINTENANCE AND ALTERATION OF THE PREMISES.

              5.1 TENANT'S MAINTENANCE OBLIGATIONS.

                  5.1.1 Tenant will keep and maintain the Premises in good
         appearance, repair and condition and maintain proper housekeeping.
         Tenant shall promptly make or cause to be made all repairs, interior
         and exterior, structural and nonstructural, ordinary and extraordinary,
         foreseen and unforeseen, necessary to keep each Facility in good and
         lawful order and condition and in substantial compliance with all
         applicable requirements for the licensing of the Personal Care
         Facilities in the State in which such Facility is located and
         certification for participation in Medicare and Medicaid (or any
         successor programs) as currently exist or as are obtained by Tenant at
         a later date or as otherwise required under all applicable local, state
         and federal laws.

                  5.1.2 As part of Tenant's obligations under this Section 5.1,
         Tenant shall be responsible to maintain, repair and replace all
         Landlord Personal Property and all Tenant Personal Property (as defined
         in Section 7.1 below) in good condition, ordinary wear and tear
         excepted, consistent with prudent industry practice as applicable to
         the Personal Care Facilities.


                                       11
<PAGE>

                  5.1.3 Without limiting Tenant's obligations to maintain the
         Premises under this Lease, within thirty (30) days of the end of each
         Lease Year starting with the end of the fourth (4th) Lease Year, Tenant
         shall provide Landlord with evidence satisfactory to Landlord in the
         reasonable exercise of Landlord's discretion that Tenant has in such
         Lease Year and the two (2) immediately preceding Lease Years spent on
         Repair Expenditures for each Facility an annual average amount of at
         least Two Hundred Dollars ($200) per unit per year as such amount is
         adjusted annually at the end of each Lease Year for increases in the
         CPI from the date hereof. The term "REPAIR EXPENDITURES" is defined to
         mean repairs or modifications to the Facility which have the effect of
         maintaining the competitive position of the Facility in its respective
         marketplace. Non-exclusive examples of Repair Expenditures are
         replacement wallpaper, tiles, window coverings, lighting fixtures,
         painting, landscaping, carpeting, architectural adornments, common area
         amenities and the like. It is expressly understood that capital
         improvements or repairs (such as but not limited to repairs or
         replacements to the structural elements, equipment, fixtures,
         appliances, parking area, or the roof or to the electrical, plumbing,
         HVAC or other mechanical or structural systems in the Facility) and any
         advances under Section 5.7 shall not be considered to be Repair
         Expenditures. If Tenant fails to make at least the above amount of
         Repair Expenditures, Tenant shall promptly on demand from Landlord (but
         in no event more than five (5) days) pay to Landlord the applicable
         shortfall in Repair Expenditures. Such funds shall be the sole property
         of Landlord and Landlord may in its sole discretion provide such funds
         to Tenant to correct the shortfall in Repair Expenditures or may simply
         retain such funds as supplemental rent hereunder.

              5.2 REGULATORY COMPLIANCE.

                  5.2.1 Tenant and each Facility shall comply in all material
         respects with all federal, state and local licensing and other laws and
         regulations applicable to the Personal Care Facilities (including,
         without limitation and with respect to each Facility located in
         Colorado, Colorado Revised Statute ss. 25-1-101 and the core
         regulations found at 6 C.C.R. 1011-1, Chapter VII) as well as with the
         certification requirements of Medicare and Medicaid (or any successor
         program) that are obtained by Tenant. Further, Tenant shall ensure that
         each Facility continues to be licensed and operated as a Personal Care
         Facility with a licensed and operating capacity as set forth on
         Schedule 2, fully certified for participation in Medicare and Medicaid
         (or any successor program) that are obtained by Tenant throughout the
         Term and at the time the Premises are returned to Landlord at the
         termination thereof, all without any suspension, revocation,
         decertification, material penalty or material limitation. Further,
         Tenant shall not commit any act or omission that would in any way
         violate any certificate of occupancy affecting any Facility. Without
         limiting the generality of the foregoing, Tenant shall be responsible
         to obtain all licenses and certificates of occupancy for each Facility
         upon completion of any construction thereto in order to operate such
         Facility for its intended use in compliance with applicable legal and
         regulatory requirements.


                                       12
<PAGE>

                  5.2.2 During the Term, all inspection fees, costs and charges
         associated with a change of any licensure or certification shall be
         borne solely by Tenant. Tenant shall at its sole cost make any
         additions or alterations to any Facility necessitated by, or imposed in
         connection with, a change of ownership inspection survey for the
         transfer of operation of such Facility from Tenant or Tenant's assignee
         or subtenant to Landlord or Landlord's designee at the expiration or
         earlier termination of the Term in accordance herewith.

                  5.2.3 If Tenant elects to participate in Medicare or Medicaid
         (or any successor program), Tenant shall comply in all material
         respects with the requirements to participate in such programs.
         However, it shall not be a default under this Lease if Tenant
         voluntarily for its own business reasons elects to discontinue its
         participation in such programs so long as at the time of such
         discontinuance there is no ongoing proceeding by the applicable
         regulatory authority to decertify Tenant and so long as Tenant at the
         time of such discontinuance is not in material default of any material
         requirement of any such program.

                  5.2.4 It is acknowledged that while this Lease refers to the
         Personal Care Facilities as "assisted living facilities," such use in
         Colorado is referred to as a "personal care boarding home." Any
         reference in this Lease to "assisted living facility" or "Personal Care
         Facility" shall be deemed to refer to a "personal care boarding home"
         within the meaning of the applicable Colorado statutes, rules and
         regulations.

              5.3 PERMITTED USE. Tenant shall continuously use and occupy each
Facility during the Term solely as a Personal Care Facility licensed and
operated as set forth in the Lease, with the number of beds or units set forth
on Schedule 2.

              5.4 TENANT REPURCHASE OBLIGATION. In the event of an Event of
Default arising from Tenant's failure to comply with Section 5.3 and during the
pendency thereof, or if an Event of Default occurs and is continuing because the
license of any Facility is revoked, suspended or materially limited for any of
the uses included in the definition of Personal Care Facilities, then in
addition to Landlord's other rights and remedies under this Lease, Landlord
shall have the right to put the applicable Facility to Tenant. If Landlord
exercises such right, Tenant shall purchase the applicable Facility from
Landlord for a cash price equal to the greater of the Adjusted Fair Market Value
of the applicable Facility or the portion of the Landlord's Original Investment
applicable to such Facility on the date of Landlord's notice of exercise. Such
Adjusted Fair Market Value shall be as agreed between Landlord and Tenant.
However, failing such agreement within ten (10) days of Landlord's notice of
exercise under this Section, such Adjusted Fair Market Value shall be determined
by the appraisal process set forth in Exhibit B attached hereto. Within ninety
(90) days of Landlord's exercise of its put under this Section 5.4, such
purchase shall be consummated utilizing an escrow at a national title company
selected by Landlord. Such escrow shall be documented on such title company's
standard sale escrow instructions without representations or warranties and
without any due diligence or other contingencies in favor of the buyer. Tenant
shall pay all costs of such sale transaction. At the close of such sale,
Landlord shall deliver to Tenant title to the applicable Facility subject only
to




                                       13
<PAGE>

the applicable title exceptions shown on Exhibit C attached hereto. Upon the
consummation of the sale of any Facility pursuant to this Section 5.4,
Landlord's Original Investment, Minimum Rent and Additional Rent shall be
reduced by the respective amount thereof attributable to such Facility.

              5.5 NO LIENS; PERMITTED CONTESTS. Tenant shall not cause or permit
any liens, levies or attachments to be placed or assessed against any portion of
the Premises or the operation thereof for any reason. However, Tenant shall be
permitted in good faith and at its expense to contest the existence, amount or
validity of any lien upon any portion of the Premises by appropriate proceedings
sufficient to prevent the collection or other realization of the lien or claim
so contested, as well as the sale, forfeiture or loss of any of the Premises or
any rent to satisfy the same. Tenant shall provide Landlord with security
satisfactory to Landlord in Landlord's reasonable judgment to assure the
foregoing. Each contest permitted by this Section 5.5 shall be promptly and
diligently prosecuted to a final conclusion by Tenant.

              5.6 ALTERATIONS BY TENANT. Subject to Section 5.8, Tenant shall
have the right of altering, improving, replacing, modifying or expanding the
facilities, equipment or appliances in each Facility from time to time as it may
determine is desirable for the continuing and proper use and maintenance of the
Premises under this Lease; provided, however, that any alterations,
improvements, replacements, expansions or modifications to any single Facility
in excess of Two Hundred Thousand Dollars ($200,000) in any rolling twelve (12)
month period shall require the prior written consent of the Landlord; provided,
further, that the aggregate cost of tenant-funded improvements for any single
Facility cannot exceed ten percent (10%) of Landlord's Original Investment
therefor without securing the prior written consent of Landlord. Any amounts
funded by Tenant as necessitated by damage to the Premises by casualty or
condemnation shall not count towards the foregoing calculation. The cost of all
alterations, improvements, replacements, modifications, expansions or other
purchases, covered by this Section 5.6, whether undertaken as an on-going
licensing, Medicare or Medicaid (or any successor program) requirement (if
applicable) or other regulatory requirement or otherwise shall be borne solely
and exclusively by Tenant (unless funded by Landlord under Section 5.7) and
shall immediately become a part of the Premises and the property of the Landlord
subject to the terms and conditions of this Lease. All work done in connection
therewith shall be done in a good and workmanlike manner and in compliance with
all existing codes and regulations pertaining to the applicable Facility and
shall comply with the requirements of insurance policies required under this
Lease. In the event any items of any Facility have become inadequate, obsolete
or worn out or require replacement (by direction of any regulatory body or
otherwise), Tenant shall remove such items and exchange or replace the same at
Tenant's sole cost and the same shall become part of the Premises and property
of the Landlord.

              5.7 CAPITAL IMPROVEMENTS FUNDED BY LANDLORD. In the event Tenant
desires to make a capital improvement or a related series of capital
improvements to any Facility and if Tenant desires that Landlord fund the same,
Landlord shall, in its discretion and without obligation, within thirty (30)
days of Tenants' written request therefor, consider Tenant's request to fund
such capital improvements. Each and every capital improvement funded by Landlord
under this Section shall immediately become a part of the Premises and shall
belong to Landlord subject to the terms and conditions of this Lease. If
Landlord funds any capital improvements,




                                       14
<PAGE>

Landlord's Original Investment shall be increased for all purposes under this
Lease by the amount of the funds provided by Landlord for capital improvements.

              5.8 COMPLIANCE WITH IRS GUIDELINES. Any improvement or
modification to the Premises shall satisfy the requirements set forth in
Sections 4(4).02 and .03 of Revenue Procedure 75-21, 1975-1 C.B. 715, as
modified by Revenue Procedure 79-48, 1979-2 C.B. 529. Landlord reserves the
right to refuse to consent to any improvement or modification to the Premises
if, in its judgment, such improvement or modification does not meet the
foregoing requirements.

         6.   CONDITION AND TITLE OF PREMISES; RIGHT OF FIRST OFFER.

              6.1 CONDITION AND TITLE OF PREMISES. Tenant acknowledges that it
is presently engaged (or has hired a consultant or manager that is presently
engaged) in the operation of Personal Care Facilities in the States in which the
Facilities are located and has expertise (or has hired a consultant or manager
that has expertise) in senior housing, independent living, personal care,
skilled and intermediate nursing, subacute care and dementia care. Tenant has
thoroughly investigated the Premises and has selected the Premises to its own
specifications. Tenant accepts the Premises for use as Personal Care Facilities
under this Lease on an "AS IS, WHERE IS, WITH ALL FAULTS" basis and will assume
all responsibility and cost for the correction of any observed or unobserved
deficiencies or violations. In making its decision to enter into this Lease,
Tenant has not relied on any representations or warranties, express or implied,
of any kind from Landlord. Notwithstanding any other provision of this Lease to
the contrary, Tenant accepts the Premises in their present condition, AS IS,
WHERE IS, WITH ALL FAULTS, and without any representations or warranties
whatsoever, express or implied, including, without limitation, any express or
implied representations or warranties as to the fitness, use, suitability, or
condition of the Premises. Tenant hereby represents and warrants to Landlord
that Tenant is thoroughly familiar with the Premises and the condition thereof,
that Tenant is relying on Tenant's own personal knowledge of the condition of
the Premises, that neither Landlord nor any person or entity acting or allegedly
acting for or on behalf of Landlord or any other person or entity having or
claiming any interest in the Premises has made any representations, warranties,
agreements, statements, or expressions of opinions in any way or manner
whatsoever related to, connected with, or concerning the Premises, the condition
of the Premises, or any other fact or circumstance whatsoever on which Tenant is
relying, and, to the maximum extent not prohibited by applicable law, Tenant
hereby releases and discharges Landlord and all other persons and entities
having or claiming any interest in the Premises from all liability, damages,
costs, and expenses of every kind and nature whatsoever in any way or manner
arising out of, connected with, related to, or emanating from the condition of
the Premises at any time during the Term of this Lease. Tenant has examined the
condition of title to the Premises prior to the execution and delivery of this
Lease and has found the same to be satisfactory.

             6.2 RIGHT OF FIRST OFFER TO PURCHASE PREMISES.

                  6.2.1 Tenant shall have the right of first offer to purchase
         the Premises upon the terms and conditions set forth in this Section
         6.2; provided, however, Tenant shall not have the right to exercise its
         rights under this Section 6.2 if any




                                       15
<PAGE>

         Event of Default has occurred and is continuing as of any of the
         following dates: (i) the date on which Landlord delivers an Offering
         Notice to Tenant pursuant to Section 6.2.2(i), or (ii) the date of
         Tenant's delivery of an Exercise Notice pursuant to Section 6.2.2(ii),
         or (iii) or the closing date established to consummate the purchase of
         the Premises pursuant to Section 6.2.2(iii).

                  6.2.2 If during the Term Landlord receives a bona fide offer
         to purchase the Premises, or any portion thereof (the "OFFERED
         PROPERTY"), from any person or entity other than an Affiliate of
         Landlord (as such term is defined in Section 10.1.4 below), Landlord
         and Tenant shall take the following steps if Landlord has determined to
         accept such offer:

                        (i) Landlord shall give written notice to Tenant of its
         intention to accept such offer, which notice shall set forth the price,
         terms and conditions contained in the offer to purchase the Offered
         Property which Landlord intends to accept ("OFFERING NOTICE");

                        (ii) Within fifteen (15) days after receipt of an
         Offering Notice, Tenant shall either (A) deliver to Landlord written
         notice that Tenant does not desire to purchase the Offered Property on
         the terms set forth in the Offering Notice, or (B) deliver to Landlord
         written notice of Tenant's desire to exercise its right to purchase the
         Offered Property on the terms set forth in the Offering Notice pursuant
         to this Section 6.2 ("EXERCISE NOTICE");

                        (iii) If Tenant delivers an Exercise Notice within such
         fifteen (15) day period, Landlord as seller and Tenant as buyer shall
         immediately open an escrow to consummate such purchase at a national
         title company selected by Landlord in its reasonable discretion on the
         following terms: (A) the form of such instructions to be then signed by
         Landlord and Tenant shall be such title company's standard sale escrow
         instructions and, notwithstanding anything set forth in the Offering
         Notice to the contrary, shall not provide for any representations or
         warranties by Landlord as seller or for any due diligence or other
         contingencies in favor of Tenant as buyer, (B) the purchase price shall
         be payable in cash by Tenant or on such other terms as are set forth in
         the Offering Notice with escrow to close on or before the date set
         forth in the Offering Notice, (C) transaction costs shall be paid as
         set forth in the Offering Notice, (D) at close, Landlord shall deliver
         title to the Offered Property subject only to the applicable title
         exceptions shown on Exhibit C attached hereto, (E) the sale escrow
         instructions shall provide for an earnest money deposit in the amount
         set forth in the Offering Notice and shall provide that such deposit
         may be retained by Landlord as liquidated damages in the event of any
         breach by Tenant of the terms of the escrow instructions (provided,
         however, such liquidated damages shall relate only to Landlord's
         damages by reason of a breach of the escrow instructions and shall in
         no way liquidate or limit Landlord's damages by reason of a breach of
         this Lease), and (F) the escrow instructions shall otherwise be in form
         and substance reasonably satisfactory to Landlord. If Tenant fails to
         close the escrow for any reason other than a breach by Landlord, then
         Landlord shall




                                       16
<PAGE>

         have the right at its option (to be exercised in Landlord's sole
         discretion) to either declare such breach to be a default under this
         Lease (as to which the cure period shall, notwithstanding anything else
         in this Lease, be ten (10) calendar days after notice by Landlord,
         after which an Event of Default shall exist), or Landlord may elect to
         pursue all remedies available to Landlord against Tenant under the
         escrow instructions or under applicable law.

                        (iv) If within the fifteen (15) day period following
         Landlord's delivery of an Offering Notice, Tenant either delivers to
         Landlord the notice set forth in Section 6.2.2(ii)(A) or fails to
         deliver either of the notices set forth in Section 6.2.2(ii), then for
         a period of nine (9) months following the expiration of such fifteen
         (15) day period Landlord shall be free to sell the Offered Property on
         the terms set forth in the Offering Notice or on any other revised
         terms deemed appropriate by Landlord in its sole discretion; provided,
         however, if such other revised terms include a price that is more than
         ten percent (10%) below the price set forth in the Offering Notice,
         then prior to completing any sale on such revised terms Landlord shall
         notify Tenant of such revised offering terms. During the five (5)
         business day period after receipt by Tenant of such notice, Tenant
         shall have the right (to be exercised if at all by Tenant's execution
         of escrow instructions and deposit of earnest money under Section
         6.2.2(iii) within such five (5) business day period) to require that
         Landlord sell the Offered Property to Tenant on such revised offering
         terms. If Tenant fails to timely exercise its right as required by the
         preceding proviso, Landlord shall be free to sell the Offered Property
         to a third party on the revised offering terms.

                        (v) If at the end of the nine (9) month period described
         in Section 6.2.1(iv), Landlord has not sold the Offered Property, then
         Landlord shall again be required to comply with the provisions of this
         Section 6.2 if Landlord desires to accept a third party offer to
         purchase the Offered Property.

                        (vi) If an escrow is opened pursuant to Section
         6.2.2(iii) and such escrow fails to close by reason of Tenant's
         default, in addition to all of the other rights and remedies of
         Landlord with respect to such breach, Landlord shall thereafter be free
         to sell the Premises or any portion thereof to any Person on any terms
         whatsoever without being required to comply with this Section 6.2.

                        (vii) If Landlord has hypothecated its interest in the
         Premises, this Section 6.2 shall not apply to any judicial or
         non-judicial sale of the Premises in connection with any foreclosure
         action or proceeding by the lender, or to any deed in lieu of such
         foreclosure.

                        (viii) Upon the consummation of the sale of any Offered
         Property pursuant to this Section 6.2, Landlord's Original Investment,
         Minimum Rent and Additional Rent shall be reduced by the respective
         amount thereof attributable to such Offered Property.



                                       17
<PAGE>

         7.   LANDLORD AND TENANT PERSONAL PROPERTY.

              7.1 TENANT PERSONAL PROPERTY. Tenant shall install, affix or
assemble or place on each Facility all items of furniture, fixtures, equipment
and supplies not included as Landlord Personal Property as Tenant reasonably
considers to be appropriate for Tenant's use of the Premises as contemplated by
this Lease (the "TENANT PERSONAL PROPERTY"). Tenant shall provide and maintain
during the entire Term all Tenant Personal Property as shall be necessary in
order to operate each Facility in compliance with all requirements set forth in
this Lease. All Tenant Personal Property shall be and shall remain the property
of Tenant and may be removed by Tenant upon the expiration of the Term. However,
if there is any Event of Default which is continuing, Tenant will not remove the
Tenant Personal Property from the Premises and will on demand from Landlord,
convey (subject to any existing security interest thereon) the Tenant Personal
Property to Landlord by executing a bill of sale in a form reasonably required
by Landlord. Upon any such conveyance of Tenant Personal Property to Landlord,
the amount owing by Tenant to Landlord by reason of the applicable Event of
Default shall be reduced by the fair market value of such Tenant Personal
Property, net of any associated debt assumed by Landlord. Such fair market value
shall be established by agreement of the parties, but failing such agreement,
within ten (10) days of request by any party, such fair market value shall be
established by the appraisal process set forth in Exhibit B. In any event,
Tenant will repair all damage to the Premises caused by any removal of the
Tenant Personal Property.

              7.2 LANDLORD'S SECURITY INTEREST.

                  7.2.1 The parties intend that if Tenant defaults under this
         Lease, Landlord will control the Tenant Personal Property and the
         Intangible Property (as defined in Section 7.4 below) so that Landlord
         or its designee can operate or re-let each Facility intact for use as a
         Personal Care Facility.

                  7.2.2 Therefore, to implement the intention of the parties,
         and for the purpose of securing the payment and performance of Tenant's
         obligations under this Lease, Tenant, as debtor, hereby grants to
         Landlord, as secured party, a security interest in and an express
         contractual lien upon, all of Tenant's right, title and interest in and
         to the Tenant Personal Property and in and to the Intangible Property
         and any and all products and proceeds thereof, in which Tenant now owns
         or hereafter acquires an interest or right, including any leased Tenant
         Personal Property. This Lease constitutes a security agreement covering
         all such Tenant Personal Property and the Intangible Property. The
         security interest granted to Landlord in this Section 7.2.2 is intended
         by Landlord and Tenant to be subordinate to any security interest
         granted in connection with the financing or leasing of all or any
         portion of the Tenant Personal Property so long as the lessor or
         financier of such Tenant Personal Property agrees to give Landlord
         written notice of any default by Tenant under the terms of such lease
         or financing arrangement, to give Landlord a reasonable time following
         such notice to cure any such default and to consent to Landlord's
         written assumption of such lease or financing arrangement upon
         Landlord's curing of any defaults thereunder. This security agreement
         and the security interest created herein shall survive the




                                       18
<PAGE>

         termination of this Lease if such termination results from the
         occurrence of an Event of Default.

                  7.2.3 Notwithstanding the foregoing, in no event will
         Landlord's security interest extend to any of Tenant's motor vehicles,
         proprietary software or systems, operating manuals or the tradenames
         "American Retirement Corporation," "ARC," "Heritage Club," "Homewood"
         or any derivation thereof.

              7.3 FINANCING STATEMENTS. If required by Landlord at any time
during the Term, Tenant will execute and deliver to Landlord, in form reasonably
satisfactory to Landlord, additional security agreements, financing statements,
fixture filings and such other documents as Landlord may reasonably require to
perfect or continue the perfection of Landlord's security interest in the Tenant
Personal Property and the Intangible Property and any and all products and
proceeds thereof now owned or hereafter acquired by Tenant. Tenant shall pay all
fees and costs that Landlord may incur in filing such documents in public
offices and in obtaining such record searches as Landlord may reasonably
require. In the event Tenant fails to execute any financing statements or other
documents for the perfection or continuation of Landlord's security interest,
Tenant hereby appoints Landlord as its true and lawful attorney-in-fact to
execute any such documents on its behalf, which power of attorney shall be
irrevocable and is deemed to be coupled with an interest.

              7.4 INTANGIBLE PROPERTY. The term "INTANGIBLE PROPERTY" means
documents, chattel paper, contract rights, residency agreements, management
agreements, medical records, patient files, confidential patient materials,
general intangibles, choses in action, now owned or hereafter acquired by Tenant
(including any right to any refund of any taxes or other charges heretofore or
hereafter paid to any governmental authority) arising from or in connection with
Tenant's operation or use of the Premises; all licenses and permits now owned or
hereinafter acquired by Tenant, necessary or desirable for Tenant's use of the
Premises under this Lease, including without limitation, if applicable, any
certificate of need or other similar certificate; and the right to use any trade
or other name now or hereafter associated with the operation of the Premises by
Tenant, including, without limitation, the names "Aurora," "Greenville," "Bay
Pines," "Naples," "Countryside" and "Lakewood," but excluding any corporate
names or logos used by Tenant. For purposes of this Lease, the term "Intangible
Property" shall not include accounts receivable, negotiable instruments, rights
to payment from third parties, security deposits, utility deposits, proprietary
software, training manuals, or general corporate trademarks, service marks,
logos, insignia, books or records of Tenant, or the tradenames "American
Retirement Corporation," "ARC," "Heritage Club," "Homewood" or any derivation
thereof.

         8.   REPRESENTATIONS AND WARRANTIES. Landlord and Tenant do hereby each
for itself represent and warrant to each other as follows:

              8.1 DUE AUTHORIZATION AND EXECUTION. This Lease and all
agreements, instruments and documents executed or to be executed in connection
herewith by either Landlord or Tenant were duly authorized and shall be binding
upon the party that executed and delivered the same.



                                       19
<PAGE>

              8.2 DUE ORGANIZATION. Landlord and Tenant are duly organized,
validly existing and in good standing under the laws of the State of their
respective formations and are duly authorized and qualified to do all things
required of the applicable party under this Lease within the States in which the
Facilities are located.

              8.3 NO BREACH OF OTHER AGREEMENTS. Neither this Lease nor any
agreement, document or instrument executed or to be executed in connection
herewith, violates the terms of any other agreement to which either Landlord or
Tenant is a party where such violation would have a material adverse effect.

         9.   FINANCIAL, MANAGEMENT AND REGULATORY REPORTS.

              9.1 MONTHLY FACILITY REPORTS. Within thirty (30) days after the
end of each calendar month during the Term, Tenant shall prepare and deliver
monthly financial reports to Landlord consisting of a balance sheet and income
statement prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and a summary of significant operating statistics
(including but not limited to total patient days, total number of beds and
occupancy and payor mix) concerning the business conducted at each Facility.
These reports will be accompanied by a statement signed by the President, Chief
Financial Officer, Principal Accounting Officer, Controller, Executive Vice
President for Corporate Development, Executive Vice President for Development
Services, or other officer of Tenant as approved by Landlord in writing in its
sole discretion, affirming that said reports are true and correct in all
material respects and do not fail to disclose any material adverse information,
all after due inquiry ("OFFICER'S CERTIFICATE").

              9.2 QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days of
the end of each of the first three quarters of the fiscal year of Tenant, Tenant
shall deliver to Landlord the unaudited quarterly consolidated financial
statements of Guarantor and Tenant prepared in accordance with GAAP accompanied
by an Officer's Certificate.

              9.3 ANNUAL FINANCIAL STATEMENT. Within ninety (90) days of the
fiscal year end of Guarantor and Tenant, Tenant shall deliver to Landlord the
annual consolidated financial statement of Tenant and Guarantor prepared in
accordance with GAAP and audited by a certified public accounting firm
reasonably acceptable to Landlord. Notwithstanding any of the other terms of
this Section 9.3, if Tenant or Guarantor becomes subject to any reporting
requirements of the Securities and Exchange Commission (the "SEC") during the
Term, Tenant shall deliver to Landlord within five (5) days of delivery to the
SEC such reports as are delivered to the SEC pursuant to applicable security
laws.

              9.4 ACCOUNTING PRINCIPLES. All of the reports and statements
required hereby shall be prepared in accordance with GAAP.

              9.5 REGULATORY REPORTS. In addition, Tenant shall within five (5)
business days of receipt thereof deliver to Landlord all federal, state and
local licensing and reimbursement certification surveys, inspection and other
reports received by Tenant as to the Premises or any portion thereof and the
operation of business thereon, including, without limitation, state department
of human services licensing surveys, Medicare and Medicaid (and




                                       20
<PAGE>

successor programs) certification surveys (if applicable) and life safety code
reports. Within five (5) business days of receipt thereof, Tenant shall give
Landlord written notice of any violation of any federal, state or local
licensing or reimbursement certification statute or regulation including without
limitation Medicare and Medicaid or successor programs (if applicable to the
Premises or any portion thereof), any suspension, termination or restriction
placed upon Tenant or the Premises or any portion thereof, the operation of
business thereon or the ability to admit residents, or any violation of any
other permit, approval or certification in connection with the Premises or any
portion thereof or its business, by any federal, state or local authority
including without limitation Medicare and Medicaid or successor programs if
applicable to the Premises or any portion thereof.

              9.6 ADDITIONAL INFORMATION. Within ten (10) days of Landlord's
request therefor, which may be made from time to time and at any time during the
Term, Tenant shall also deliver such other information, reports or statements as
Landlord may reasonably request.

         10.  EVENTS OF DEFAULT AND LANDLORD'S REMEDIES.

              10.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an event of default on the part of Tenant hereunder ("EVENT OF
DEFAULT"):

                  10.1.1 The failure to pay within ten (10) calendar days of the
         date when due any Minimum Rent, Additional Rent or other monetary
         amount due hereunder, including without limitation any taxes or
         assessments required of Tenant (or impounds therefor), under this
         Lease;

                  10.1.2 The occurrence of an "Event of Default" (as defined in
         the Pool 1 Lease), or a material breach: (a) by Tenant of any
         representation or warranty in this Lease, (b) by Guarantor of any
         representation or warranty in, or other obligation under, the Guaranty,
         or (c) by Tenant or Guarantor of any representation or warranty in, or
         other obligation under, the LC Agreement or that certain Agreement to
         Enter into Master Leases and Termination of Leases dated as of even
         date herewith by and among Landlord, Tenant and Guarantor (the "MASTER
         AGREEMENT");

                  10.1.3 A material default by Tenant (or any Affiliate of
         Tenant) ("AFFILIATE" being defined to mean, with respect to any person
         or entity, any other person or entity which controls, is controlled by
         or is under common control with the first person or entity) under any
         other material obligation other than this Lease owed by Tenant (or any
         Affiliate of Tenant) to Landlord or any Affiliate of Landlord
         (including without limitation any financing agreement or any other
         lease), which default is not cured within any applicable cure period
         provided in the documentation for such obligation; or, a material
         default by Guarantor (or any Affiliate of Guarantor ) under any
         material obligation other than this Lease or the Guaranty owed by
         Guarantor (or any Affiliate of Guarantor) to Landlord or any Affiliate
         of Landlord (including without limitation any financing agreement or
         any other lease), which default is not cured within any applicable cure
         period provided in the documentation for such obligation;



                                       21
<PAGE>

                  10.1.4 A material default by Tenant with respect to any
         material obligation under any other lease or financing agreement with
         any other party, which default is not cured within any applicable cure
         period provided in the documentation for such obligation;

                  10.1.5 Any material misstatement or omission of any material
         fact in any written report, notice or communication from senior
         management of Tenant or Guarantor to Landlord with respect to Tenant,
         Guarantor, or the Premises or any portion thereof;

                  10.1.6 Any change (voluntary or involuntary, by operation of
         law or otherwise) in the person, persons, entity or entities which
         ultimately exert effective control over the management of the affairs
         of Tenant or Guarantor as of the date hereof except as permitted in
         Section 22.2 below;

                  10.1.7 An assignment by Tenant or Guarantor of all or
         substantially all of its property for the benefit of creditors;

                  10.1.8 The appointment of a receiver, trustee, or liquidator
         for Tenant or Guarantor, or any of the property of Tenant or Guarantor,
         if within three (3) business days of such appointment Tenant or
         Guarantor does not inform Landlord in writing that Tenant or Guarantor
         intends to cause such appointment to be discharged or Tenant or
         Guarantor does not thereafter diligently prosecute such discharge to
         completion within sixty (60) days after the date of such appointment;

                  10.1.9 The filing by Tenant or Guarantor of a voluntary
         petition under any federal bankruptcy law or under the law of any state
         to be adjudicated as bankrupt or for any arrangement or other debtor's
         relief, or in the alternative, if any such petition is involuntarily
         filed against Tenant or Guarantor by any other party and Tenant or
         Guarantor does not within three (3) business days of any such filing
         inform Landlord in writing of the intent by Tenant or Guarantor to
         cause such petition to be dismissed, if Tenant or Guarantor does not
         thereafter diligently prosecute such dismissal, or if such filing is
         not dismissed within ninety (90) days after filing thereof;

                  10.1.10 The failure to perform or comply in any material
         respect with any other term or provision of this Lease (other than
         those provisions set forth in Sections 10.1.1 through 10.1.9 above, or
         Section 10.1.11 below), not requiring the payment of money, including,
         without limitation, the failure to comply with the provisions hereof
         pertaining to the use, operation and maintenance of the Premises (or
         any portion thereof) or the breach of any representation or warranty of
         Tenant in this Lease; provided, however, the default described in this
         Section 10.1.10 is curable and shall be deemed cured, if: (i) within
         five (5) business days of Tenant's receipt of a notice of default from
         Landlord, Tenant gives Landlord notice of its intent to cure such
         default; and (ii) Tenant cures such default within thirty (30) days
         after such notice from Landlord, unless such default cannot with due
         diligence be cured within a period of thirty (30) days because of the
         nature of




                                       22
<PAGE>

         the default or delays beyond the control of Tenant, and cure after such
         thirty (30) day period will not have a material and adverse effect upon
         all or any portion of the Premises, in which case such default shall
         not constitute an Event of Default if Tenant uses its best efforts to
         cure such default by promptly commencing and diligently pursuing such
         cure to the completion thereof, provided, however, no such default
         shall continue for more than one hundred twenty (120) days from
         Tenant's receipt of a notice of default from Landlord;

                  10.1.11 There shall be (a) no cure period in the event of the
         breach by Tenant of (i) the obligation to provide replacement policies
         of insurance as required in Section 4.1 above, (ii) the provisions of
         Section 20 below, or (iii) the provisions of Section 22 below with
         respect to assignments and other related matters, and (b) a cure period
         of ten (10) days following Landlord's notice of any breach by Tenant to
         provide any financial or other information required pursuant to Section
         9 above; and

                  10.1.12 All notice and cure periods provided herein shall run
         concurrently with any notice or cure periods provided by applicable
         law.

              10.2 REMEDIES. Upon the occurrence of an Event of Default and
during the pendency thereof, Landlord may exercise all rights and remedies under
this Lease and applicable law available to a lessor of real and personal
property in the event of a default by its lessee, and as to the Tenant Personal
Property and Intangible Property all remedies granted under the laws of any
applicable State to a secured party under its Uniform Commercial Code. Without
limiting the foregoing, Landlord shall have the right to do any of the
following:

                  10.2.1 Sue for the specific performance of any covenant of
         Tenant under this Lease as to which Tenant is in breach;

                  10.2.2 Upon compliance with the requirements of applicable law
         and to the extent allowed thereunder, Landlord may do any of the
         following: enter upon the Premises, terminate this Lease, dispossess
         Tenant from the Premises and/or collect money damages by reason of
         Tenant's breach, including without limitation all rent which would have
         accrued after such termination and all obligations and liabilities of
         Tenant under this Lease which survive the termination of the Term;

                  10.2.3 Elect to leave this Lease in place and sue for rent
         and/or other money damages as the same come due;

                  10.2.4 Before or after repossession of the Premises pursuant
         to Section 10.2.2, and whether or not this Lease has been terminated,
         Landlord shall have the right (but shall be under no obligation except
         to the extent required by applicable law) to relet any portion of the
         Premises to such tenant or tenants, for such term or terms (which may
         be greater or less than the remaining balance of the Term), for such
         rent, or such conditions (which may include concessions or free rent)
         and for such uses, as Landlord, in its absolute discretion, may
         determine, and Landlord may collect and receive any rents payable by
         reason of




                                       23
<PAGE>

         such reletting. Landlord shall have no duty to mitigate damages unless
         required by applicable law and shall not be responsible or liable for
         any failure to relet any of the Premises or for any failure to collect
         any rent due upon any such reletting. Tenant agrees to pay Landlord,
         immediately upon demand, all expenses incurred by Landlord in obtaining
         possession and in reletting any of the Premises, including fees,
         commissions and costs of attorneys, architects, agents and brokers;

                  10.2.5 Sell the Tenant Personal Property in a non-judicial
         foreclosure sale;

                  10.2.6 Revoke any waiver or deferral given by Landlord of any
         Minimum Rent or other amount payable hereunder, and immediately
         thereafter all such deferred or waived amounts shall become immediately
         due and payable. The foregoing shall not be construed to mean that
         Landlord is under any obligation whatsoever to consider or grant any
         such deferral or waiver to Tenant.

                  10.2.7 For the purpose of calculating rent loss damages
         payable to Landlord, Additional Rent for all periods after an Event of
         Default shall be calculated based on a two and one half percent (2.5%)
         annual increase of the Additional Rent in effect at the end of the
         calendar quarter most recently ended before the applicable Event of
         Default.

              10.3 RECEIVERSHIP. Tenant acknowledges that one of the rights and
remedies available to Landlord under applicable law is to secure a
court-appointed receiver to take possession of the Premises or any portion
thereof, to collect the rents, issues, profits and income of the Premises or any
portion thereof, and to manage the operation of the Premises or any portion
thereof. Tenant further acknowledges that the revocation, suspension or material
limitation of the certification of the Premises or any portion thereof for
provider status under Medicare or Medicaid (or successor programs) as currently
exist or as are obtained by Tenant at a later date and/or the revocation,
suspension or material limitation of the license of the Premises or any portion
thereof as Personal Care Facilities for the number of beds and units shown in
Schedule 2 under the laws of the State in which the applicable Facility is
located will materially and irreparably impair the value of Landlord's
investment in the Premises. Therefore, in the event of any such revocation,
suspension or material limitation, and in addition to any other right or remedy
of Landlord under this Lease, Tenant hereby consents to the appointment of such
a receiver to enter upon and take possession of the Premises or any portion
thereof, to manage the operation of the Premises or any portion thereof, to
collect and disburse all rents, issues, profits and income generated thereby and
to preserve or replace to the extent possible the licenses and provider
certifications of the Premises required for the operation of the Personal Care
Facilities or to otherwise substitute the licensee or provider thereof. The
receiver shall be entitled to a reasonable fee for its services as a receiver.
All such fees and other expenses of the receivership estate shall be added to
the monthly rent due to Landlord under this Lease. Tenant hereby irrevocably
stipulates to the appointment of a receiver under such circumstances and for
such purposes and agrees not to contest such appointment.

              10.4 LATE CHARGES; DEFAULT INTEREST. Tenant acknowledges that the
late payment of any Minimum Rent, Additional Rent or any other monetary amount
due hereunder




                                       24
<PAGE>

will cause Landlord to lose the use of such money and incur costs and expenses
not contemplated under this Lease, including, without limitation, administrative
and collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, if any installment of
Minimum Rent, Additional Rent or any other monetary amount due hereunder
(including any amount to be impounded) is not paid within five (5) calendar days
after the due date for such payment, then Tenant shall thereafter pay to
Landlord on demand (a) a late charge equal to five percent (5%) of the amount of
any installment of Minimum Rent, Additional Rent or other amount not paid on the
due date, together with (b) interest on all such amounts (including the late
charge) at the rate of the lesser of the Agreed Rate or the highest rate that
may be collected pursuant to applicable law, accruing from the due date of such
payment until receipt by Landlord of such payment and all late charges and
interest thereon then due. As used herein, "AGREED RATE" shall mean six percent
(6%) plus the "prime rate" then in effect as published from time to time in the
Wall Street Journal (the "PRIME RATE"). Landlord and Tenant agree that this late
charge and default interest represents a reasonable estimate of such costs and
expenses and is fair compensation to Landlord for the loss suffered from such
nonpayment by Tenant.

              10.5 REMEDIES CUMULATIVE; NO WAIVER. No right or remedy herein
conferred upon or reserved to Landlord is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No failure of Landlord to insist at any time upon
the strict performance of any provision of this Lease or to exercise any option,
right, power or remedy contained in this Lease shall be construed as a waiver,
modification or relinquishment thereof as to any similar or different breach
(future or otherwise) by Tenant. A receipt by Landlord of any rent or other sum
due hereunder (including any late charge) with knowledge of the breach of any
provision contained in this Lease shall not be deemed a waiver of such breach,
and no waiver by Landlord of any provision of this Lease shall be deemed to have
been made unless expressed in a writing signed by Landlord.

              10.6 PERFORMANCE OF TENANT'S OBLIGATIONS BY LANDLORD. If Tenant at
any time shall fail to make any payment or perform any act on its part required
to be made or performed under this Lease, then Landlord may, without waiving or
releasing Tenant from any obligations or default of Tenant hereunder, make any
such payment or perform any such act for the account and at the expense of
Tenant, and may enter upon the Premises for the purpose of taking all such
action thereon as may be reasonably necessary therefor. No such entry shall be
deemed an eviction of Tenant. All reasonable sums so paid by Landlord and all
necessary and incidental costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred in connection with the
performance of any such act by Landlord, together with interest at the rate of
the Prime Rate plus 5% (or if said interest rate is violative of any applicable
statute or law, then the maximum interest rate allowable) from the date of the
making of such payment or the incurring of such costs and expenses by Landlord,
shall be payable by Tenant to Landlord on demand.

         11.  COLLATERAL FOR LEASE OBLIGATIONS.

              11.1 In accordance with the provisions of this Section 11 and the
provisions of the LC Agreement, Tenant shall maintain with Landlord cash (the
"SECURITY DEPOSIT") securing




                                       25
<PAGE>

Tenant's faithful performance of its obligations under this Lease and the Pool 1
Lease, Letters of Credit (as defined in the LC Agreement) as partial collateral
for the Lease and the Pool 1 Lease obligations or a combination thereof
(collectively, the "SECURITY DEPOSIT AND COLLATERAL"). Each Letter of Credit
shall be in the form set forth in, and shall otherwise be in compliance with the
terms of, the LC Agreement. Neither Letters of Credit, nor any proceeds from any
draw on any Letter of Credit (except to the extent such proceeds are not applied
to any Event of Default as permitted hereunder or under the LC Agreement), shall
constitute a security deposit or any part of the Security Deposit hereunder. The
amount of the Security Deposit (including the cash proceeds from any draw on any
Letter of Credit to the extent not applied to any Event of Default as permitted
hereunder or under the LC Agreement) and the aggregate undrawn face amounts of
all Letters of Credit comprising the Security Deposit and Collateral (the
"SECURITY DEPOSIT AND COLLATERAL AMOUNT") shall at all times during the Term be
equal to, in the aggregate but without duplication of the requirements under
Section 11 of the Pool 1 Lease, Seven Million Six Thousand Dollars ($7,006,000),
as may be increased from time to time in accordance with Section 1.2.3 or in
connection with Landlord's funding of any additional improvements pursuant to
Section 5.7. Upon Substantial Completion (as defined in the Pool 1 Lease), the
Security Deposit and Collateral Amount shall be increased by fifty percent (50%)
of the amount obtained by multiplying the Park Regency Additional Investment (as
defined in the Pool 1 Lease) by the Park Regency Rate (as defined in the Pool 1
Lease). In the event that the Pool 1 Lease is terminated during the Term of this
Lease, the Security Deposit and Collateral Amount shall be reduced to an amount
equal to the Security Deposit and Collateral Amount then in effect, multiplied
by a fraction, the denominator of which is the aggregate amount of Landlord's
Adjusted Investment and "Landlord's Adjusted Investment" (as defined in the Pool
1 Lease), and the numerator of which is the Landlord's Adjusted Investment.

              11.2 Landlord may apply the Security Deposit and Collateral (cash
from the Security Deposit and proceeds of any draw on a Letter of Credit), in
whole or in part, against any Event of Default (including an "Event of Default"
as defined in the Pool 1 Lease), or as otherwise permitted in this Lease or any
Letter Credit. If Landlord so applies all or any portion of the Security Deposit
and Collateral, Tenant shall, within three (3) days of such application by
Landlord and without the requirement of notice or demand by Landlord, deposit
cash or post additional Letters of Credit such that the total amount of cash and
undrawn face amounts of Letters of Credit comprising the Security Deposit and
Collateral is equal to the Security Deposit and Collateral Amount. Any proceeds
from any draw on any Letter of Credit shall be held by Landlord as part of the
Security Deposit and Collateral until the same are applied by Landlord as
provided herein. Landlord shall not be deemed a trustee as to any cash portion
of the Security Deposit and Collateral and shall have the right to commingle any
such cash with its own or other funds. Except during the continuance of any
Event of Default, interest on the cash held as the Security Deposit shall be
paid by Landlord to Tenant on a quarterly basis in arrears (i) if Landlord
segregates such cash from its general funds, at the average rate earned in such
period on Landlord's cash and cash equivalent investments, and (ii) if Landlord
does not segregate such cash from its general funds, at the average cost of
funds for Landlord for short term borrowings for such period. In the event
Tenant has fully complied with the terms of this Lease and no Event of Default
then exists, any remaining portion of the Security Deposit and Collateral then
held by Landlord shall be returned to Tenant within thirty (30) days after the
expiration of the Term; provided, however, that Landlord shall have the right to
draw on such Security Deposit or Letters of Credit for cleaning and repairing
the Premises if Tenant shall fail to deliver the




                                       26
<PAGE>

Premises at the termination or expiration of this Lease in a neat and clean
condition and in as good a condition as existed at the date of possession and
occupancy of same, ordinary wear and tear only excepted. From time to time at
Tenant's option following reasonable advance notice to Landlord, Tenant may
replace any cash portion of the Security Deposit and Collateral with Letters of
Credit and may replace any Letters of Credit constituting a part of the Security
Deposit and Collateral with a cash deposit of like amount, so long as in any
such event the total amount of the Security Deposit and Collateral is equal to
the Security Deposit and Collateral Amount. Upon Tenant providing any additional
Letter of Credit to Landlord pursuant to this Section 11, Landlord and Tenant
shall enter into an amendment to the Letter of Credit Agreement or a further
agreement substantially in the form of the Letter of Credit Agreement with
respect to such additional letter of credit.

         12.  DAMAGE BY FIRE OR OTHER CASUALTY.

              12.1 RECONSTRUCTION USING INSURANCE. In the event of the damage or
destruction of any portion of the Premises, Tenant shall forthwith notify
Landlord and diligently repair or reconstruct the same to a like or better
condition than existed prior to such damage or destruction. Any net insurance
proceeds payable with respect to the casualty shall be used for the repair or
reconstruction of the applicable Facility pursuant to reasonable disbursement
controls in favor of Landlord. If such proceeds are insufficient for such
purposes, Tenant shall provide the required additional funds.

              12.2 SURPLUS PROCEEDS. If there remains any surplus of insurance
proceeds after the completion of the repair or reconstruction of the applicable
portion of the Premises to Landlord's reasonable satisfaction, such surplus
shall belong to and be paid to Tenant.

              12.3 NO RENT ABATEMENT. The rent payable under this Lease shall
not abate by reason of any damage or destruction of the Premises by reason of an
insured or uninsured casualty. Tenant hereby waives all rights under applicable
law to abate, reduce or offset rent by reason of such damage or destruction.

              12.4 END OF TERM. Notwithstanding any other provision of this
Section 12, if any Facility is more than fifty percent (50%) destroyed (measured
by square footage) by casualty during the last six (6) months of the Initial
Term or any Renewal Term, Tenant may terminate this Lease by written notice to
Landlord delivered within thirty (30) days after the date of such casualty, in
which event Landlord shall retain all insurance proceeds. The foregoing shall in
no way limit or otherwise affect any right or remedy available to Landlord for
Tenant's failure to maintain such insurance as may be required under this Lease.

         13.  CONDEMNATION.

              13.1 COMPLETE TAKING. If during the Term all or substantially all
of any Facility is taken or condemned by any competent public or quasi-public
authority, then Tenant may, at Tenant's election, made within thirty (30) days
of such taking by condemnation, terminate this Lease with respect to the
affected Facility only, and the current Minimum Rent and Additional Rent shall
be equitably rated as of the date of such termination. The award payable upon
such taking shall be allocated between Landlord and Tenant as so allocated by
the



                                       27
<PAGE>

taking authority. In the absence of such allocation by the taking authority, the
award shall be allocated to Landlord in an amount equal to the applicable
portion of Landlord's Original Investment, and then, to the extent of any
surplus, as agreed by Landlord and Tenant. Failing such agreement within thirty
(30) days after the effective date of such taking, the award shall be allocated
between Landlord and Tenant pursuant to the appraisal procedure described on
Exhibit B attached hereto. Landlord's Original Investment will be reduced for
all purposes under this Lease by reason of any award paid to Landlord under this
Section 13.1.

              13.2 PARTIAL TAKING. In the event such condemnation proceeding
or right of eminent domain results in a taking of less than all or substantially
all of any Facility, the Minimum Rent and Additional Rent thereto shall be
abated to the same extent as the diminution in the fair market value of the
Facility affected by reason of the condemnation. Such diminution in the fair
market value shall be as agreed between Landlord and Tenant, but failing such
agreement within thirty (30) days of the effective date of the condemnation the
same will be determined by appraisal pursuant to Exhibit B attached hereto.
Landlord shall be entitled to receive and retain any and all awards for the
partial taking and damage and Tenant shall not be entitled to receive or retain
any such award for any reason. Landlord's Original Investment will be reduced
for all purposes under this Lease by reason of any award paid to Landlord under
this Section 13.2.

              13.3 LEASE REMAINS IN EFFECT. Except as provided above, this
Lease shall not terminate and shall remain in full force and effect in the event
of a taking or condemnation of the Premises, or any portion thereof, and Tenant
hereby waives all rights under applicable law to abate, reduce or offset rent by
reason of such taking.

         14.  PROVISIONS ON TERMINATION OF TERM.

              14.1 SURRENDER OF POSSESSION. Tenant shall, on or before the last
day of the Term, or upon earlier termination of this Lease (except with respect
to any portion of the Premises that Tenant has purchased pursuant to any
provision of this Lease), surrender to Landlord the Premises (including all
resident charts and records along with appropriate resident consents) in good
condition and repair, excepting only (i) ordinary wear and tear, (ii) any damage
caused by condemnation pursuant to Section 13.1 above, or (iii) any damage
caused by fire or other casualty resulting in the termination of the Lease
pursuant to Section 12.4 above.

              14.2 REMOVAL OF PERSONAL PROPERTY. If Tenant is not then in
default hereunder Tenant shall have the right in connection with the surrender
of the Premises to remove from the Premises all Tenant Personal Property but not
the Landlord Personal Property (including the Landlord Personal Property
replaced by Tenant or required by any applicable state or any other governmental
entity to operate the Premises for the purpose set forth in Section 5.3 above).
Any such removal shall be done in a workmanlike manner leaving the Premises in
good and presentable condition and appearance, including repair of any damage
caused by such removal. At the end of the Term or upon the earlier termination
of this Lease, (except with respect to any portion of the Premises that Tenant
has purchased pursuant to any provision of this Lease), Tenant shall return the
Premises to Landlord with the Landlord Personal Property (or replacements
thereof) in the same condition and utility as was delivered to Tenant at the
commencement of the Term, normal wear and tear excepted.



                                       28
<PAGE>

              14.3 TITLE TO PERSONAL PROPERTY NOT REMOVED. Title to any of
Tenant Personal Property which is not removed by Tenant upon the expiration of
the Term shall, at Landlord's election, vest in Landlord; provided, however,
that Landlord may remove and dispose at Tenant's expense of any or all of such
Tenant Personal Property which is not so removed by Tenant without obligation or
accounting to the Tenant.

              14.4 MANAGEMENT OF PREMISES. Upon the expiration or earlier
termination of the Term (except with respect to any portion of the Premises that
Tenant has purchased pursuant to any provision of this Lease), Landlord or its
designee, upon written notice to Tenant, may elect to assume the
responsibilities and obligations for the management and operation of the
Premises and Tenant agrees to cooperate fully with Landlord or its designee to
accomplish the transfer of such management and operation without interrupting
the operation of the Premises. Tenant shall not commit any act or be remiss in
the undertaking of any act that would jeopardize any licensure or certification
of the facility, and Tenant shall comply with all requests for an orderly
transfer of the Personal Care Facilities licenses, Medicare and Medicaid (or any
successor program) certifications and possession at the time of any such
surrender. Upon the expiration or earlier termination of the Term, Tenant shall
promptly deliver copies of all of Tenant's books and records relating to the
Premises and its operations to Landlord.

              14.5 CORRECTION OF DEFICIENCIES. Upon termination or cancellation
of this Lease, Tenant shall indemnify Landlord for any loss, damage, cost or
expense incurred by Landlord to correct all deficiencies of a physical nature
identified by the governmental agency responsible for licensing Personal Care
Facilities in the state in which the applicable Facility is located, local
health, fire and safety agencies or any other government agency or Medicare or
Medicaid (or any successor program) providers in the course of the change of
ownership inspection and audit.

         15.  NOTICES AND DEMANDS. All notices and demands, certificates,
requests, consents, approvals, and other similar instruments under this Lease
shall be in writing and shall be deemed to have been properly given upon actual
receipt thereof or within two (2) business days of being placed in the United
States certified or registered mail, return receipt requested, postage prepaid
(a) if to Tenant, addressed to:

                                      American Retirement Corporation
                                      111 Westwood Place, Suite 402
                                      Brentwood, Tennessee 37027
                                      Attention: Mr. W.E. Sheriff
                                      Facsimile: (615) 221-2269

              with a copy to:         Bass, Berry & Sims PLC
                                      315 Deaderick Street, Suite 2700
                                      Nashville, Tennessee 37238-3001
                                      Attention: T. Andrew Smith, Esq.
                                      Facsimile: (615) 742-2766

or at such other address as Tenant from time to time may have designated by
written notice to Landlord; (b) if to Landlord, addressed to:



                                       29
<PAGE>

                                      c/o Nationwide Health Properties, Inc.
                                      610 Newport Center Drive, Suite 1150
                                      Newport Beach, California 92660
                                      Attention: General Counsel
                                      Fax No. (949) 759-6887

              with a copy to:         O'Melveny & Myers LLP
                                      610 Newport Center Drive, Suite 1700
                                      Newport Beach, California 92660
                                      Attention: Real Estate Department Chairman
                                      Fax No. (949) 823-6994

or at such address as Landlord may from time to time have designated by written
notice to Tenant. Refusal to accept delivery shall be deemed delivery. If Tenant
is not an individual, notice may be made to any senior officer, general partner
or principal thereof. Notice to any one co-Tenant shall be deemed notice to all
co-Tenants.

         16.  RIGHT OF ENTRY; EXAMINATION OF RECORDS. Landlord and its
representative may enter any portion of the Premises at any reasonable time
after reasonable notice to Tenant for the purpose of inspecting the Premises for
any reason including, without limitation, Tenant's default under this Lease, or
to exhibit any portion of the Premises for sale, lease or mortgage financing, or
posting notices of default, or non-responsibility under any mechanic's or
materialman's lien law or to otherwise inspect any portion of the Premises for
compliance with the terms of this Lease. Any such entry shall not unreasonably
interfere with residents, resident care, or any other of Tenant's operations.
During normal business hours, Tenant will permit Landlord and Landlord's
representatives, inspectors and consultants to examine all contracts, books and
records relating to Tenant's operations at any portion of the Premises, whether
kept at the Premises or at some other location, including, without limitation,
Tenant's financial records.

         17.  LANDLORD MAY GRANT LIENS. Without the consent of Tenant, Landlord
may, subject to the terms and conditions set forth below in this Section 17,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("ENCUMBRANCE") upon the
Premises, or any portion thereof or interest therein (including this Lease),
whether to secure any borrowing or other means of financing or refinancing or
otherwise. Any such Encumbrance shall provide that it is subject to the rights
of Tenant under this Lease, and shall further provide that so long as no Event
of Default shall have occurred under this Lease, Tenant's occupancy hereunder,
including but without limitation Tenant's right of quiet enjoyment provided in
Section 18, shall not be disturbed in the event any such lienholder or any other
person takes possession of the Premises through foreclosure proceeding or
otherwise. Upon the request of Landlord, Tenant shall subordinate this Lease to
the lien of a new Encumbrance on the Premises, on the condition that the
proposed lender agrees not to disturb Tenant's rights under this Lease so long
as Tenant is not in default hereunder.

         18.  QUIET ENJOYMENT. So long as there is no Event of Default which is
existing and continuing by Tenant, Landlord covenants and agrees that Tenant
shall peaceably and quietly have, hold and enjoy the Premises for the Term, free
of any claim or other action not caused or




                                       30
<PAGE>

created by Tenant (excepting, however, intrusion of Tenant's quiet enjoyment
occasioned by condemnation or destruction of the property as referred to in
Section 12 and 13 hereof).

         19.  APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the internal laws of the State of California without regard to
the conflict of laws rules of such State. Notwithstanding the foregoing, the
parties agree that:

              19.1 The law of the State in which each Facility is located
(each a "SITUS STATE") shall govern procedures for enforcing, in the respective
Situs State, provisional and other remedies directly related to such Facility
and related personal property as may be required pursuant to the law of such
Situs State, including without limitation the appointment of a receiver; and

              19.2 The law of the Situs State also applies to the extent, but
only to the extent, necessary to create, perfect and foreclose the security
interests and liens created under this Lease.

         20.  PRESERVATION OF GROSS REVENUES.

              20.1 Tenant acknowledges that a fair return to Landlord on its
investment in the Premises is dependent, in part, on the concentration on each
Facility comprising the Premises during the Term of the Personal Care Facilities
business of Tenant and its Affiliates in the geographical area of such Facility.
Tenant further acknowledges that the diversion of resident care activities from
any Facility comprising the Premises to other facilities owned or operated by
Tenant or its Affiliates will have a material adverse impact on the value and
utility of the Premises.

                  20.1.1 Therefore, Tenant agrees that during the Term, and for
         a period of one (1) year thereafter (except with respect to any portion
         of the Premises that Tenant has purchased pursuant to any provision of
         this Lease), neither Tenant nor any of its Affiliates shall, without
         the prior written consent of Landlord, operate, own, participate in or
         otherwise receive revenues from any other facility or institution
         providing services or similar goods to those provided on or in
         connection with the Facilities comprising the Premises and the
         permitted use (including each use included in the definition of
         Personal Care Facilities) thereof as contemplated under this Lease,
         within a four (4) mile radius of any Facility; provided, however the
         facilities listed on Exhibit D attached hereto which are either in
         existence or under development as of the date hereof are exempted from
         the operation of this Section 20.1.1.

                  20.1.2 In addition, Tenant hereby covenants and agrees that
         for a period of one year following the expiration or earlier
         termination of this Lease (except with respect to any portion of the
         Premises that Tenant has purchased pursuant to any provision of this
         Lease), neither Tenant nor any of its Affiliates shall, without prior
         written consent of Landlord, hire, engage or otherwise employ any
         management or supervisory personnel working on or in connection with
         any Facility, except at facilities exempted from the operation of
         Section 20.1.1. This Section 20.1.2 does not apply to corporate
         managers and multi-facility employees




                                       31
<PAGE>

         to the extent such managers and employees are employed at other
         facilities operated by Tenant or an Affiliate of Tenant.

              20.2 Notwithstanding the foregoing, Landlord acknowledges that
Tenant operates certain home health agencies and offers certain therapy services
out of its offices on the Premises. Section 20.1.1 does not apply to such home
health activities or therapy services operated by the Tenant or an Affiliate of
Tenant out of the Premises.

              20.3 Except as required for medically appropriate reasons, prior
to and after Lease termination, neither Tenant nor any of its Affiliates will
recommend or solicit the removal or transfer of any resident from any Facility
to any other facility. Tenant hereby specifically acknowledges and agrees that
the temporal, geographical and other restrictions contained in this Section 20
are reasonable and necessary to protect the business and prospects of Landlord,
and that the enforcement of the provisions of this Section 20 will not work an
undue hardship on Tenant. Tenant further agrees that in the event either the
length of time, geographical or any other restrictions, or portion thereof, set
forth in this Section 20 is overly restrictive and unenforceable in any court
proceeding, the court may reduce or modify such restrictions, but only to the
extent necessary, to those which it deems reasonable and enforceable under the
circumstances, and the parties agree that the restrictions of this Section 20
will remain in full force and effect as reduced or modified. Tenant further
agrees and acknowledges that Landlord does not have an adequate remedy at law
for the breach or threatened breach by Tenant of the covenants contained in this
Section 20, and Tenant therefore specifically agrees that Landlord may, in
addition to other remedies which may be available to Landlord hereunder, file a
suit in equity to enjoin Tenant from such breach or threatened breach, without
the necessity of posting any bond. Tenant further agrees, in the event that any
provision of this Section 20 is held to be invalid or against public policy, the
remaining provisions of this Section 20 and the remainder of this Lease shall
not be affected thereby.

         21.  HAZARDOUS MATERIALS.

              21.1 HAZARDOUS MATERIAL COVENANTS. Tenant's use of the Premises
shall comply in all material respects with all Hazardous Materials Laws. In the
event any Environmental Activities occur or are suspected to have occurred in
violation in any material respect of any Hazardous Materials Laws or if Tenant
has received any Hazardous Materials Claim against any portion of the Premises,
Tenant shall promptly obtain all permits and approvals necessary to remedy any
such actual or suspected problem through the removal of Hazardous Materials or
otherwise, and upon Landlord's approval of the remediation plan, remedy any such
problem to the satisfaction of Landlord, in accordance with all Hazardous
Materials Laws and good business practices.

              21.2 TENANT NOTICES TO LANDLORD. Tenant shall immediately advise
Landlord in writing of:

                  21.2.1 Any Environmental Activities in violation of any
         Hazardous Materials Laws,



                                       32
<PAGE>

                  21.2.2 Any Hazardous Materials Claims against Tenant or any
         portion of the Premises,

                  21.2.3 Any remedial action taken by Tenant in response to any
         Hazardous Materials Claims or any Hazardous Materials on, under or
         about any portion of the Premises in violation of any Hazardous
         Materials Laws,

                  21.2.4 Tenant's discovery of any occurrence or condition on or
         in the vicinity of any portion of the Premises that materially increase
         the risk that any portion of the Premises will be exposed to Hazardous
         Materials,

                  21.2.5 All communications to or from Tenant, any governmental
         authority or any other person relating to Hazardous Materials Laws or
         Hazardous Materials Claims with respect to any portion of the Premises,
         including copies thereof.

              21.3 EXTENSION OF TERM. Notwithstanding any other provision of
this Lease, in the event any Hazardous Materials are discovered on, under or
about any portion of the Premises in violation of any Hazardous Materials Law,
the Term shall be automatically extended and this Lease shall remain in full
force and effect until the earlier to occur of the completion of all remedial
action or monitoring, as approved by Landlord in its reasonable discretion, in
accordance in all material respects with all Hazardous Materials Laws, or the
date specified in a written notice from Landlord to Tenant terminating this
Lease (which date may be subsequent to the date upon which the Term was to have
expired).

              21.4 PARTICIPATION IN HAZARDOUS MATERIALS CLAIMS. Landlord shall
have the right, at Tenant's sole cost and expense and with counsel chosen by
Landlord, to join and participate in, as a party if it so elects, any legal
proceedings or actions initiated in connection with any Hazardous Materials
Claims.

              21.5 ENVIRONMENTAL ACTIVITIES shall mean the use, generation,
transportation, handling, discharge, production, treatment, storage, release or
disposal of any Hazardous Materials at any time to or from any portion of the
Premises or located on or present on or under any portion of the Premises.
Nothing contained in the foregoing or elsewhere in this Section 21 is intended
to, nor shall it, limit the liability of Tenant, if any, to Landlord with
respect to any representation or warranty given by Tenant to Landlord with
respect to Hazardous Materials or environmental matters generally as set forth
in any other agreement between any entity comprising Landlord and any entity
comprising Tenant.

              21.6 HAZARDOUS MATERIALS shall mean (i) any petroleum products
and/or by-products (including any fraction thereof), flammable substances,
explosives, radioactive materials, hazardous or toxic wastes, substances or
materials, known carcinogens or any other materials, contaminants or pollutants
which pose a hazard to any portion of the Premises or to persons on or about any
portion of the Premises or cause any portion of the Premises to be in violation
of any Hazardous Materials Laws; (ii) asbestos in any form which is friable;
(iii) urea formaldehyde in foam insulation or any other form; (iv) transformers
or other equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts





                                       33
<PAGE>

per million or any other more restrictive standard then prevailing; (v) medical
wastes and biohazards; (vi) radon gas; (vii) underground storage tanks which
pose a hazard to any portion of the Premises or to persons on or about any
portion of the Premises or cause any portion of the Premises to be in violation
of any Hazardous Materials Laws; (viii) anything that qualifies as a "Hazardous
Waste," "Hazardous Substances," "Hazardous Material" or the like under any
applicable law, and; (ix) any other chemical, material or substance, exposure to
which is prohibited, limited or regulated by any governmental authority or may
or could pose a hazard to the health and safety of the occupants of any portion
of the Premises or the owners and/or occupants of property adjacent to or
surrounding any portion of the Premises.

              21.7 HAZARDOUS MATERIALS CLAIMS shall mean any and all
enforcement, clean-up, removal or other governmental or regulatory actions or
orders threatened, instituted or completed pursuant to any Hazardous Material
Laws, together with all claims made or threatened by any third party against any
portion of the Premises, Landlord or Tenant relating to damage, contribution,
cost recovery compensation, loss or injury resulting from any Hazardous
Materials.

              21.8 HAZARDOUS MATERIALS LAWS shall mean any laws, ordinances,
regulations, rules, orders, guidelines or policies relating to the environment,
health and safety, Environmental Activities, Hazardous Materials, air and water
quality, waste disposal and other environmental matters, if the failure to
comply with the same does or would have a material adverse effect on any portion
of the Premises or the operation thereof.

         22.  ASSIGNMENT AND SUBLETTING.

              22.1 Tenant shall not, without the prior written consent of
Landlord, which may be withheld at Landlord's sole discretion, voluntarily or
involuntarily assign or hypothecate this Lease or any interest herein or sublet
the Premises or any part thereof. For the purposes of this Lease, a management
or similar agreement shall be considered to be an assignment of this Lease by
Tenant. Any of the foregoing acts without such consent shall be void but shall,
at the option of Landlord in its sole discretion, constitute an Event of Default
giving rise to Landlord's right, among other things, to terminate this Lease.
Without limiting the foregoing, this Lease shall not, nor shall any interest of
Tenant herein, be assigned or encumbered by operation of law without the prior
written consent of Landlord which may be withheld at Landlord's sole discretion.

              22.2 Notwithstanding the foregoing, the following may be done
without Landlord's consent:

                  22.2.1 Tenant may assign this Lease or sublet the Premises or
         any portion thereof to Guarantor, to a Successor (as such term is
         defined below) or to a wholly-owned subsidiary of Guarantor, provided
         that (i) such Successor, subsidiary or Guarantor fully assumes the
         obligations of Tenant under this Lease, (ii) Tenant remains fully
         liable under this Lease, (iii) the use of the Premises remains
         unchanged, and (iv) no such assignment or sublease shall be valid and
         no such subsidiary, Successor or Guarantor shall take possession of the
         Premises until an executed counterpart of such assignment or sublease
         has been delivered to Landlord; further provided that, without
         limitation of the foregoing, American Retirement Corporation, a
         Tennessee corporation (in such capacity "ARC"), as




                                       34
<PAGE>

         one of the entities comprising Tenant under this Lease, may transfer
         its interest in (including its interests under this Lease), and the
         Personal Care Facility licenses for the operation of, the Bay Pines
         Facility, as identified on Schedule 2, to a wholly-owned subsidiary of
         ARC, provided that (i) such subsidiary fully assumes the obligations of
         ARC under this Lease with respect to the Bay Pines Facility, (ii) the
         other entities comprising Tenant shall remain fully liable under this
         Lease, (iii) Guarantor shall guaranty the obligations of such
         subsidiary, and shall otherwise remain fully liable under the Guaranty,
         (iv) the use of the Bay Pines Facility remains unchanged, and (v) no
         such assignment shall be valid and no such subsidiary shall take
         possession of the Bay Pines Facility until an executed counterpart of
         such assignment and a ratification of the Guaranty have been delivered
         to Landlord.

                  22.2.2 Guarantor, a Successor or a wholly-owned subsidiary of
         Guarantor may acquire all of the outstanding equity interests of any
         entity comprising Tenant (or any partners, shareholders, members or
         other persons owning equity interests in such entity, directly or
         indirectly), provided that (i) Tenant remains fully liable under this
         Lease, (ii) the use of the Premises remains unchanged, and (iii) prior
         written notice of such acquisition of equity interests has been
         delivered to Landlord.

              22.3 Anything contained in this Lease to the contrary
notwithstanding, Tenant shall not sublet the Premises on any basis such that the
rental to be paid by the sublessee thereunder would be based, in whole or in
part, on either the income or profits derived by the business activities of the
sublessee, or any other formula, such that any portion of the sublease rental
received by Landlord would fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the U.S. Internal Revenue Code, or any similar
or successor provision thereto.

              22.4 For the purpose of this Lease, the transfer, assignment,
sale, hypothecation or other disposition of any partnership, stock or other
ownership interest in any entity comprising Tenant that results in a change in
the Person (as hereinafter defined), which ultimately exerts effective Control
(as hereinafter defined) over the management of the affairs of any entity
comprising Tenant as of the date hereof, shall be deemed to be an assignment of
the Lease. For purposes herein, "CONTROL" shall mean, as applied to any
individual, partnership, association, corporation or other entity (collectively,
"PERSON"), the possession, directly or indirectly, of the power to direct the
management and policies of that Person, whether through ownership, voting
control, by contract or otherwise.

              22.5 Notwithstanding anything to the contrary contained in
Section 22.1, none of the following shall be deemed to be an assignment of the
Lease: (i) an initial public offering ("IPO") of Guarantor or any Successor
thereto, or (ii) any secondary public offering(s) of Guarantor or any Successor
thereto, or (iii) subsequent to an IPO by Guarantor or any Successor thereto,
and so long as Guarantor or its Successor is a publicly-traded entity on a
national exchange, a change in the Person or Persons exercising Control of
Guarantor or its Successor or any public trading of Guarantor stock, or (iv) a
lease of a unit or bed to a resident of the Premises in the ordinary course of
Tenant's business.



                                       35
<PAGE>

              22.6 As used herein, a "SUCCESSOR" is any entity which
succeeds to materially all of the assets, operations and business of Guarantor
by merger or reorganization and which is Controlled by the same Person or
Persons as Control Guarantor prior to such merger or reorganization.

         23.  INDEMNIFICATION. To the fullest extent permitted by law, Tenant
agrees to protect, indemnify, defend and save harmless Landlord, its directors,
officers, shareholders, agents and employees from and against any and all
foreseeable or unforeseeable liability, expense loss, costs, deficiency, fine,
penalty, or damage (including without limitation punitive or consequential
damages) of any kind or nature, including reasonable attorneys' fees, from any
suits, claims or demands, on account of any matter or thing, action or failure
to act arising out of or in connection with this Lease (including, without
limitation, the breach by Tenant of any of its obligations hereunder), the
Ground Lease, any portion of the Premises, or the operations of Tenant on any
portion of the Premises, including without limitation all Environmental
Activities on any portion of the Premises, all Hazardous Materials Claims or any
violation by Tenant of a Hazardous Materials Law with respect to any portion of
the Premises. Upon receiving knowledge of any suit, claim or demand asserted by
a third party that Landlord believes is covered by this indemnity, Landlord
shall give Tenant notice of the matter. Tenant shall defend Landlord against
such matter at Tenant's sole cost and expense with legal counsel satisfactory to
Landlord. Landlord may elect to defend the matter with its own counsel at
Tenant's expense.

         24.  HOLDING OVER. If Tenant shall for any reason remain in possession
of any portion of the Premises after the expiration or earlier termination of
this Lease, such possession shall be a month-to-month tenancy during which time
Tenant shall pay as rental each month, 1 1/2 times the aggregate of the monthly
Minimum Rent for the entire Premises payable with respect to the last Lease Year
plus Additional Rent allocable to the month (based on the Additional Rent in
effect as of the end of the most recently ended calendar quarter), all
additional charges accruing during the month and all other sums, if any, payable
by Tenant pursuant to the provisions of this Lease with respect to the Premises.
Nothing contained herein shall constitute the consent, express or implied, of
Landlord to the holding over of Tenant after the expiration or earlier
termination of this Lease, nor shall anything contained herein be deemed to
limit Landlord's remedies pursuant to this Lease or otherwise available to
Landlord at law or in equity.

         25.  ESTOPPEL CERTIFICATES. Tenant shall, at any time upon not less
than five (5) days prior written request by Landlord, execute, acknowledge and
deliver to Landlord or its designee a statement in writing, executed by an
officer or general partner of Tenant, certifying that this Lease is unmodified
and in full force and effect (or, if there have been any modifications, that
this Lease is in full force and effect as modified, and setting forth such
modifications), the dates to which Minimum Rent, Additional Rent and additional
charges hereunder have been paid, certifying that no default by either Landlord
or Tenant exists hereunder or specifying each such default and as to other
matters as Landlord may reasonably request.

         26.  CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the
Premises shall convey any portion of the Premises in accordance with the terms
hereof, Landlord or such successor owner shall thereupon be released from all
future liabilities and obligations of Landlord under this Lease arising or
accruing from and after the date of such conveyance or




                                       36
<PAGE>

other transfer as to such portion of the Premises and all such future
liabilities and obligations shall thereupon be binding upon the new owner.

         27.  WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive any rights
to trial by jury in any action, proceedings or counterclaim brought by either of
the parties against the other in connection with any matter whatsoever arising
out of or in any way connected with this Lease, including, without limitation,
the relationship of Landlord and Tenant, Tenant's use and occupancy of the
Premises, or any claim of injury or damage relating to the foregoing or the
enforcement of any remedy hereunder.

         28.  ATTORNEYS' FEES. If Landlord or Tenant brings any action to
interpret or enforce this Lease, or for damages for any alleged breach hereof,
the prevailing party in any such action shall be entitled to reasonable
attorneys' fees and costs as awarded by the court in addition to all other
recovery, damages and costs.

         29.  SEVERABILITY. In the event any part or provision of the Lease
shall be determined to be invalid or enforceable, the remaining portion of this
Lease shall nevertheless continue in full force and effect.

         30.  COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.

         31.  BINDING EFFECT. Subject to the provisions of Section 22 above,
this Lease shall be binding upon and inure to the benefit of Landlord and Tenant
and their respective heirs, personal representatives, successors in interest and
assigns.

         32.  WAIVER AND SUBROGATION. Landlord and Tenant hereby waive to each
other all rights of subrogation which any insurance carrier, or either of them,
may have as to the Landlord or Tenant by reason of any provision in any policy
of insurance issued to Landlord or Tenant, provided such waiver does not thereby
invalidate the policy of insurance.

         33.  MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into short form memoranda of the Lease, in form
suitable for recording under the laws of the State in which the Facilities are
located in which reference to this Lease shall be made. The party requesting
such recordation shall pay all costs and expenses of preparing and recording
such memoranda of this Lease.

         34.  INCORPORATION OF RECITALS AND ATTACHMENTS. The recitals and
exhibits, schedules, addenda and other attachments to this Lease are hereby
incorporated into this Lease and made a part hereof.

         35.  TITLES AND HEADINGS. The titles and headings of sections of this
Lease are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Lease.

         36.  NATURE OF RELATIONSHIP; USURY SAVINGS CLAUSE. The parties intend
that their relationship shall be that of lessor and lessee only. Nothing
contained in this Lease shall be




                                       37
<PAGE>

deemed or construed to constitute an extension of credit by Landlord to Tenant,
nor shall this Lease be deemed to be a partnership or venture agreement between
Landlord and Tenant. Notwithstanding the foregoing, in the event any payment
made to Landlord hereunder is deemed to violate any applicable laws regarding
usury, the portion of any payment deemed to be usurious shall be held by
Landlord to pay the future obligations of Tenant as such obligations arise and,
in the event Tenant discharges and performs all obligations hereunder, such
funds will be reimbursed to Tenant upon the expiration of the Term. No interest
shall be paid on any such funds held by Landlord.

         37.  JOINT AND SEVERAL. If more than one person or entity is the Tenant
hereunder, the liability and obligations of such persons or entities under this
Lease shall be joint and several.

         38.  SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All of the
obligations, representations, warranties and covenants of Tenant under this
Lease shall survive the expiration or earlier termination of the Term.

         39.  INTERPRETATION. Both Landlord and Tenant have been represented by
counsel and this Lease has been freely and fairly negotiated. Consequently, all
provisions of this Lease shall be interpreted according to their fair meaning
and shall not be strictly construed against any party.



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<PAGE>


         Executed as of the date indicated above.


                                TENANT:

                                AMERICAN RETIREMENT CORPORATION,
                                a Tennessee corporation

                                By:
                                   -----------------------------------------
                                Name:
                                     ---------------------------------------
                                Title:
                                      --------------------------------------












                                      S-1
<PAGE>


                               ARC NAPLES, LLC,
                               a Tennessee limited liability company



                               By:
                                  -----------------------------------------
                               Name:
                                    ---------------------------------------
                               Title:
                                     --------------------------------------


                               ARC AURORA, LLC,
                               a Tennessee limited liability company


                               By:
                                  -----------------------------------------
                               Name:
                                    ---------------------------------------
                               Title:
                                     --------------------------------------


                               ARC LAKEWOOD, LLC,
                               a Tennessee limited liability company


                               By:
                                  -----------------------------------------
                               Name:
                                    ---------------------------------------
                               Title:
                                     --------------------------------------


                               ARC HERITAGE CLUB, INC.,
                               a Tennessee corporation

                               By:
                                  -----------------------------------------
                               Name:
                                    ---------------------------------------
                               Title:
                                     --------------------------------------


                               ARC COUNTRYSIDE, LLC,
                               a Tennessee limited liability company


                               By:
                                  -----------------------------------------
                               Name:
                                    ---------------------------------------
                               Title:
                                     --------------------------------------


                               ARC CLEVELAND PARK, LLC,
                               a Tennessee limited liability company


                               By:
                                  -----------------------------------------
                               Name:
                                    ---------------------------------------
                               Title:
                                     --------------------------------------



                                      S-2
<PAGE>


                               LANDLORD:

                               NATIONWIDE HEALTH PROPERTIES, INC.,
                               a Maryland corporation

                               By:
                                  ---------------------------------
                                  Donald D. Bradley
                                  Senior Vice President and General Counsel



                               MLD DELAWARE TRUST,
                               a Delaware business trust

                               By:
                                  -----------------------------------------
                               Name:
                                    ---------------------------------------
                               Title:
                                     --------------------------------------









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