Document:

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                                                                    EXHIBIT 10.7

                                 LEASE AGREEMENT

                                 by and between

                        FREEDOM PLAZA LIMITED PARTNERSHIP

                         an Arizona limited partnership

                                  as "Landlord"

                                       and

                         AMERICAN RETIREMENT CORPORATION

                             a Tennessee corporation

                                   as "Tenant"

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                                TABLE OF CONTENTS

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<S>      <C>                                                                    <C>
1.       TERM....................................................................3
         1.1      TERM...........................................................3
         1.2      RENEWAL TERMS..................................................3

2.       RENT....................................................................3
         2.1      ADDITIONAL CHARGES.............................................3
         2.2      DIRECT PAYMENT TO GROUND LESSORS...............................4
         2.3      PRORATION FOR PARTIAL PERIODS..................................4
         2.4      ABSOLUTE NET LEASE.............................................4
         2.5      DELINQUENT NOTE PAYMENT........................................5

3.       TAXES, ASSESSMENTS AND OTHER CHARGES:...................................5
         3.1      TENANT'S OBLIGATIONS...........................................5
         3.2      PRORATION......................................................5
         3.3      RIGHT TO PROTEST...............................................6
         3.4      TAX BILLS......................................................6
         3.5      OTHER CHARGES..................................................6

4.       INSURANCE...............................................................6
         4.1      REQUIRED COVERAGE..............................................6
         4.2      NOTICE TO LANDLORD.............................................7
         4.3      NAMED INSUREDS.................................................7
         4.4      NOTICE OF CLAIMS...............................................7

5.       USE, MAINTENANCE AND ALTERATION OF THE PREMISES.........................8
         5.1      TENANT'S MAINTENANCE OBLIGATIONS...............................8
         5.2      REGULATORY COMPLIANCE..........................................8
         5.3      PERMITTED USE..................................................9
         5.4      NO LIENS; PERMITTED CONTESTS...................................9
         5.5      ALTERATIONS BY TENANT..........................................9

6.       CONDITION AND TITLE OF PREMISES........................................10
         6.1      CONDITION AND TITLE OF PREMISES...............................10
         6.2      RIGHT OF FIRST REFUSAL TO PURCHASE PREMISES...................11

7.       TENANT PERSONAL PROPERTY...............................................11
         7.1      TENANT PERSONAL PROPERTY......................................11
         7.2      REQUIREMENTS FOR TENANT PERSONAL PROPERTY.....................11
</TABLE>

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<TABLE>
<S>      <C>                                                                    <C>
8.       REPRESENTATIONS, WARRANTIES AND COVENANTS..............................12
         8.1      MUTUAL REPRESENTATIONS AND WARRANTIES.........................12
         8.2      COVENANTS OF LANDLORD.........................................13

9.       FINANCIAL REPORTS......................................................15
         9.1      QUARTERLY STATEMENTS..........................................15
         9.2      MONTHLY REPORTS...............................................15
         9.3      ANNUAL STATEMENTS.............................................16
         9.4      BUDGETS.......................................................16
         9.5      REPORTS RECEIVED BY LANDLORD..................................20
         9.6      AUDITED FINANCIAL STATEMENTS OF LANDLORD.  ...................20

10.      EVENTS OF DEFAULT; REMEDIES............................................20
         10.1     EVENTS OF DEFAULT.............................................20
         10.2     LANDLORD'S REMEDIES...........................................22
         10.3     RECEIVERSHIP..................................................24
         10.4     REMEDIES CUMULATIVE; NO WAIVER................................24
         10.5     PERFORMANCE OF TENANT'S OBLIGATIONS BY LANDLORD...............25
         10.6     TENANT'S RIGHT OF SETOFF......................................26

11.      DAMAGE BY FIRE OR OTHER CASUALTY.......................................26
         11.1     RECONSTRUCTION USING INSURANCE................................26
         11.2     SURPLUS PROCEEDS..............................................26
         11.3     NO RENT ABATEMENT.............................................26
         11.4     END OF TERM...................................................26

12.      CONDEMNATION...........................................................27
         12.1     COMPLETE TAKING...............................................27
         12.2     PARTIAL TAKING................................................27
         12.3     LEASE REMAINS IN EFFECT.......................................28

13.      PROVISIONS ON TERMINATION OF TERM......................................28
         13.1     SURRENDER OF POSSESSION.......................................28
         13.2     REMOVAL OF PERSONAL PROPERTY..................................28
         13.3     MANAGEMENT OF PREMISES........................................29
         13.4     ASSIGNMENT OF RESIDENCY AGREEMENTS............................31
         13.5     CERTAIN AGREEMENTS RELATING TO THE NOTE.......................32

14.      NOTICES AND DEMANDS....................................................32

15.      RIGHT OF ENTRY; EXAMINATION OF RECORDS.................................33

16.      QUIET ENJOYMENT........................................................33
</TABLE>

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<TABLE>
<S>      <C>                                                                    <C>
17.      APPLICABLE LAW.........................................................34

18.      HAZARDOUS MATERIALS....................................................34
         18.1     HAZARDOUS MATERIAL COVENANTS..................................34
         18.2     TENANT NOTICES TO LANDLORD....................................34
         18.3     PARTICIPATION IN HAZARDOUS MATERIALS CLAIMS...................35
         18.4     ENVIRONMENTAL ACTIVITIES......................................35
         18.5     HAZARDOUS MATERIALS...........................................35
         18.6     HAZARDOUS MATERIALS CLAIMS ...................................36
         18.7     HAZARDOUS MATERIALS LAWS......................................36

19.      ASSIGNMENT AND SUBLETTING..............................................36
         19.1     ..............................................................37
         19.2     ..............................................................38

20.      INDEMNIFICATION........................................................38
         20.1     ..............................................................38
         20.2     ..............................................................38

21.      TENANT AS PROVIDER; MLR DEPOSITS.......................................39
         21.1     PROVIDER......................................................39
         21.2     MLR DEPOSITS..................................................39
         21.3     TENANT MLR DEPOSITS...........................................39
         21.4     MLR INCOME....................................................39

22.      EXISTING LOAN; REFINANCING INDEBTEDNESS................................40
         22.1     ..............................................................40
         22.2     ..............................................................40
         22.3     ..............................................................41

23.      HOLDING OVER...........................................................42

24.      ESTOPPEL CERTIFICATES..................................................42

25.      ATTORNEYS' FEES........................................................43

26.      SEVERABILITY...........................................................43

27.      COUNTERPARTS...........................................................43

28.      BINDING EFFECT.........................................................43
</TABLE>

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<TABLE>
<S>      <C>                                                                    <C>
29.      WAIVER AND SUBROGATION.................................................43

30.      MEMORANDUM OF LEASE....................................................44

31.      INCORPORATION OF RECITALS AND ATTACHMENTS..............................44

32.      TITLES AND HEADINGS....................................................44

33.      NATURE OF RELATIONSHIP; USURY SAVINGS CLAUSE...........................44

34.      ENTIRE AGREEMENT.......................................................45

35.      SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..................45

36.      RIGHT TO RELY ON TENANT WITHOUT JOINDER OF LANDLORD....................45

37.      INTERPRETATION, ETC....................................................45
         37.1     ..............................................................45
         37.2     ..............................................................45
         37.3     ..............................................................46

38.      .......................................................................46
</TABLE>

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EXHIBITS

EXHIBIT A-1 - LEGAL DESCRIPTION OF PREMISES
EXHIBIT A-2 - LANDLORD PERSONAL PROPERTY
EXHIBIT A-3 - PERMITTED EXCEPTIONS
EXHIBIT B-    APPRAISAL PROCEDURE
SCHEDULE 1-   MINIMUM RENT

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                                 LEASE AGREEMENT

         THIS LEASE AGREEMENT ("LEASE") is made and entered into as of the 1st
day of April, 2002 by and between FREEDOM PLAZA LIMITED PARTNERSHIP, an Arizona
limited partnership ("LANDLORD"), and AMERICAN RETIREMENT CORPORATION, a
Tennessee corporation ("TENANT").

                              W I T N E S S E T H:

         WHEREAS, pursuant to that certain Ground Lease dated August 1, 1988, by
and between Plaza II Limited Partnership, an Arizona limited partnership ("PLAZA
II"), as lessor, and Landlord, as lessee, as amended by that certain Amendment
to Ground Lease dated August 1, 1988 by and between Plaza II and Landlord, as
further amended by that certain Amendment to Ground Lease effective September 1,
1992, by and between Plaza III Limited Partnership, an Arizona limited
partnership (successor in interest to Plaza II) ("FREEDOM PLAZA GROUND LESSOR"),
and Landlord, and as further amended by that certain Amendment to Ground Lease
dated January 31, 1996, by and between Freedom Plaza Ground Lessor and Landlord
(as amended, the "FREEDOM PLAZA GROUND LEASE"), Landlord has a long-term
leasehold interest (the "INDEPENDENT LIVING LEASEHOLD INTEREST") in and to that
certain real property located in Maricopa County, Arizona and more specifically
described in Exhibit "A-1" attached hereto, together with all improvements
thereon and all appurtenances thereto, presently used as a continuing care
retirement community known as "FREEDOM PLAZA";

         WHEREAS, pursuant to that certain Ground Lease (as the same amended
from time to time, the "PLAZA DEL RIO GROUND LEASE"; the Freedom Plaza Ground
Lease and the Plaza del Rio Ground

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Lease sometimes referred to herein individually or collectively as the "GROUND
LEASE") dated 1998, by and between Sun Health Properties Leasing, an Arizona
corporation (the "PLAZA DEL RIO GROUND LESSOR"; the Freedom Plaza Ground Lessor
and the Plaza del Rio Ground Lessor sometimes referred to herein individually or
collectively as the "GROUND LESSOR"), Landlord has a long-term leasehold
interest (the "PLAZA DEL RIO LEASEHOLD INTEREST") in and to that certain real
property located in Maricopa County, Arizona and more specifically described in
Exhibit "A-1" attached hereto, together with all improvements thereon and all
appurtenances thereto, presently used as a skilled nursing facility known as
"PLAZA DEL RIO".

         WHEREAS, Landlord owns the existing furniture, machinery, equipment,
appliances, fixtures, and other personal property currently used in connection
with the operation of Freedom Plaza and/or Plaza del Rio ("LANDLORD PERSONAL
PROPERTY"), which includes, without limitation, those items described in Exhibit
"A-2" attached hereto. The Freedom Plaza Leasehold Interest and the Plaza del
Rio Leasehold Interest and the Landlord Personal Property shall be collectively
referred to in this Lease as the "PREMISES"; and

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

         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.

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         1.       TERM.

                  1.1      TERM. The term of this Lease shall commence on April
1, 2002 (the "COMMENCEMENT Date") and shall end on July 13, 2018 (the "INITIAL
TERM") unless extended pursuant to Section 1.2 of this Lease or earlier
terminated in accordance with the provisions hereof. The Initial Term and all
Renewal Terms (as hereinafter defined) are referred to collectively as the
"TERM". (The 12 month period commencing on the first day of the first full month
of the Initial Term and each subsequent 12 month period shall be referred to
herein as a "LEASE YEAR".)

                  1.2      RENEWAL TERMS. The Term may be extended for two (2)
separate renewal terms (each a "RENEWAL TERM"), the first Renewal Term being for
a term of ten (10) years (which shall extend the Term through July 13, 2028),
and the second Renewal Term being for a term of five (5) years, five (5) months
and eighteen (18) days (which shall extend the Term through December 31, 2033),
upon the satisfaction of all of the following terms and conditions:

                           1.2.1 Not less than one hundred eighty (180) days
         before the date on which the then current Term expires, 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 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, if applicable, all Renewal
Terms, minimum rent ("MINIMUM RENT") shall be paid by Tenant to Landlord monthly
in advance on the first business day of each month in the amounts set forth on
Schedule 1 attached hereto and incorporated herein.

                  2.1      ADDITIONAL CHARGES. Tenant will also pay, and
discharge as and when due, (a) all other amounts, liabilities, obligations and
taxes which Tenant assumes or agrees to pay under this

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Lease directly to the applicable taxing authority or other appropriate payee,
and (b) in the event of any failure on the part of Tenant to pay any of those
items referred to in clause (a) above, Tenant will also promptly pay and
discharge every fine, penalty, interest and cost which may be added for
non-payment or late payment of such items (such liabilities, charges, etc. being
referred to as "ADDITIONAL CHARGES"). Landlord shall have all rights, powers and
remedies provided in this Lease, by statute or otherwise, in the case of
non-payment of the Additional Charges, as well as the Minimum Rent. To the
extent that Tenant pays any Additional Charges to Landlord pursuant to any
requirement of this Lease, Tenant shall be relieved of its obligation to pay
such Additional Charges to the entity to which such Additional Charges would
otherwise be due.

                  2.2      DIRECT PAYMENT TO GROUND LESSORS. Tenant shall pay
any rent or additional charges due under the Ground Lease (the "GROUND LEASE
RENT") directly to the Ground Lessor(s) entitled thereto.

                  2.3      PRORATION FOR PARTIAL PERIODS. The Rent for any month
during the Term that begins or ends on other than the first or last calendar day
of a month shall be prorated based on actual days elapsed.

                  2.4      ABSOLUTE NET LEASE. All Rent payments shall be
absolutely net to the Landlord free of taxes (other than federal or state
income, or similar taxes calculated on the income, revenue or receipts 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 in connection with the Premises (including
without limitation all expenses and charges due under the Ground Lease) whether
for upkeep, maintenance, repair, refurnishing, refurbishing,

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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.

                  2.5      DELINQUENT NOTE PAYMENT. Notwithstanding anything to
the contrary set forth herein, in the event Landlord shall fail to make any
payments of principal and/or interest under that certain Promissory Note (the
"NOTE") of even date herewith in the principal amount of $18,756,374 when due
(each a "DELINQUENT NOTE PAYMENT"), and so long as no Event of Default then
exists under this Lease, Tenant shall have the right to reduce the next monthly
installment of Minimum Rent by an amount equal to the Delinquent Note Payment.
The reduction in Minimum Rent set forth in this Section 2.5 shall not be
construed as a novation of the Note or as a waiver of the right of acceleration
thereunder or of the right of any holder thereafter to insist upon strict
compliance with the terms of the Note or to prevent the exercise of such right
of acceleration or any other right granted thereunder or by applicable laws

         3.       TAXES, ASSESSMENTS AND OTHER CHARGES:

                  3.1      TENANT'S OBLIGATIONS. 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 and lease
or rent taxes (but excluding federal or state income, franchise, excise or
similar taxes calculated on the income, revenue, or receipts 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.

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                  3.3      RIGHT TO PROTEST. 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, this Lease or the
Rent payable hereunder; 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 shall provide
security satisfactory to Landlord in connection with such protest.

                  3.4      TAX BILLS. Tenant shall endeavor to have all tax
bills relating to the Premises delivered directly to Tenant by the applicable
taxing authorities; provided, however, that Landlord shall promptly forward to
Tenant copies of all tax bills and payment receipts relating to the Premises
received by Landlord. Notwithstanding anything to the contrary herein, Landlord
shall be solely responsible for any fees, penalties or interest that accrue
solely as a result of Landlord's failure to promptly forward such copies.

                  3.5      OTHER CHARGES. Tenant agrees to pay and discharge,
prior to delinquency, 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.

         4.       INSURANCE.

                  4.1      REQUIRED COVERAGE. Tenant shall maintain insurance of
such kinds and amounts as Tenant and Tenant's affiliates maintain for similar
communities that they own or manage and as required pursuant to the provisions
of any Approved Loan Documents (as hereinafter defined). Notwithstanding the
foregoing, Tenant shall at all times maintain so-called "all-risk" casualty

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insurance, with reasonable deductibles, in an amount equal to the full insurable
value of the Premises (as determined by Tenant in its reasonable discretion).

                  4.2      NOTICE TO LANDLORD. At the commencement of the Term,
and, upon Landlord's request, promptly following each anniversary of the date of
this Lease, Tenant shall furnish Landlord with a schedule setting forth the
kinds and amounts of insurance Tenant intends to procure in connection with the
operation of the Premises, which schedule shall include, in addition to the
kinds and amounts of insurance required to be maintained pursuant to any
Approved Loan Documents, such other kinds and amounts of insurance as may be
required under the terms of this Lease.

                  4.3      NAMED INSUREDS. All policies of liability insurance
shall name the Landlord, Tenant and such other parties as may be required by the
provisions of any note, loan agreement or mortgage as the insured thereunder, as
their respective interests may appear. All policies of hazard insurance and
business interruption insurance shall include loss payment clauses in the form
required by any Approved Loan Documents. All insurance shall be obtained at the
Tenant's expense. The originals of all policies of insurance and duplicates
thereof shall be delivered to Landlord and to any lender, as Landlord shall
direct.

                  4.4      NOTICE OF CLAIMS. Landlord and Tenant each shall give
prompt notice to the other of any third party claims made against either or both
of them, and shall cooperate fully with each other and with any insurance
carrier to the end that all such claims will be properly investigated, defended
and adjusted.

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         5.       USE, MAINTENANCE AND ALTERATION OF THE PREMISES.

                  5.1      TENANT'S MAINTENANCE OBLIGATIONS.

                           5.1.1 Except as provided in Sections 11 and 12,
         Tenant will keep and maintain the Premises in good appearance, repair
         and condition. Tenant shall make or cause to be made all repairs,
         interior and exterior, structural and nonstructural, ordinary and
         extraordinary, foreseen and unforeseen, necessary to keep the Premises
         in good order and condition, ordinary wear and tear excepted.

                           5.1.2 As part of Tenant's obligations under this
         Section 5.1, Tenant shall maintain in good condition, repair and
         replace all material items of personal property, ordinary wear and tear
         excepted, consistent with prudent business practices.

                  5.2      REGULATORY COMPLIANCE.

                           5.2.1 Tenant shall comply in all material respects
         with any federal, state and local licensing and other laws and
         regulations applicable to the continuing care retirement community on
         the Premises (the "RETIREMENT CARE FACILITIES"). Tenant shall maintain,
         subject to all applicable notice or cure periods or procedures, all
         licenses, certificates, permits and approvals necessary for the
         operation of the Retirement Care Facilities issued by the State of
         Arizona or any other governmental authority having jurisdiction over
         the Retirement Care Facilities. Neither Landlord nor Tenant shall
         commit any act or omission that would in any way violate such
         compliance.

                           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.

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                  5.3      PERMITTED USE. Tenant shall use and occupy the
Premises during the Term primarily as a facility for senior housing, retirement
housing, independent living, assisted living, skilled and intermediate nursing,
subacute care, Alzheimer's care, and/or related or ancillary uses (the
"PERMITTED USE").

                  5.4      NO LIENS; PERMITTED CONTESTS. Except as contemplated
by Section 22 hereof, Tenant shall not cause or permit any liens, levies or
attachments to be placed or assessed against Landlord's interest in the Premises
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 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. Tenant shall provide Landlord with
security satisfactory to Landlord in Landlord's reasonable judgment to assure
the foregoing if the amount in dispute exceeds $150,000. Each contest permitted
by this Section 5.4 shall be promptly and diligently prosecuted to a final
conclusion by Tenant.

                  5.5      ALTERATIONS BY TENANT. Tenant shall have the right of
altering, improving, replacing, modifying or expanding the facilities, equipment
or appliances in the Premises from time to time as it may determine in its
discretion; provided, however, that any structural alteration or modification to
the Premises that materially alters or changes the character or use of any
material portion of the improvements comprising the Premises shall require the
prior written consent of the Landlord, which consent shall not be unreasonably
withheld, conditioned, or delayed. The cost of all alterations, improvements,
replacements, modifications, expansions or other purchases covered by this
Section 5.5 shall be borne solely and exclusively by Tenant and shall
immediately become a part

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of the Premises and be subject to the terms and conditions of this Lease. All
work performed in connection therewith shall be done in a good and workmanlike
manner and in material compliance with all existing codes and regulations
pertaining to the Premises and shall comply with the requirements of insurance
policies required under this Lease. In the event any material item of the
Premises has become inadequate, obsolete or worn out or requires replacement (by
direction of any regulatory body or otherwise), Tenant shall remove such item(s)
and exchange or replace the same at Tenant's sole cost and the same shall become
part of the Premises.

         6.       CONDITION AND TITLE OF PREMISES.

                  6.1      CONDITION AND TITLE OF PREMISES. Tenant accepts the
Premises 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 has made any representations, warranties,
agreements, statements, or expressions of opinions in any way or manner
whatsoever

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related to the condition of the Premises. Tenant acknowledges that title to the
Premises is subject to the encumbrances and other exceptions to title set forth
more fully on Exhibit "A-3" (the "PERMITTED EXCEPTIONS").

                  6.2      RIGHT OF FIRST REFUSAL TO PURCHASE PREMISES.
Intentionally Omitted.

         7.       TENANT PERSONAL PROPERTY.

                  7.1      TENANT PERSONAL PROPERTY. Tenant shall install,
place, and use on the Premises such fixtures, furniture, equipment, inventory
and other personal property in addition to Landlord Personal Property as Tenant
may, from time to time, deem necessary or useful to operate the Premises for its
permitted purposes. All fixtures, furniture, equipment, inventory, and other
personal property installed, placed, or used on the Premises which is owned by
Tenant or leased by Tenant from third parties is hereinafter referred to as
"TENANT PERSONAL PROPERTY."

                  7.2      REQUIREMENTS FOR TENANT PERSONAL PROPERTY. Tenant
shall comply with all of the following requirements in connection with Tenant
Personal Property:

                           7.2.1 Tenant shall, at Tenant's sole cost and
         expense, maintain, repair, and replace Tenant Personal Property;

                           7.2.2 Tenant shall, at Tenant's sole cost and
         expense, keep Tenant Personal Property insured against loss or damage
         by fire, vandalism and malicious mischief, and other physical loss
         perils commonly covered by "all risk" insurance. Tenant shall use the
         proceeds for any such policy for the repair and replacement of Tenant
         Personal Property. The insurance shall meet the requirements of Section
         4.1.

                           7.2.3 Tenant shall pay all taxes applicable to Tenant
         Personal Property.

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                           7.2.4 Unless an Event of Default has occurred, Tenant
         may remove Tenant Personal Property from the Premises from time to time
         provided that (i) the items removed are not required to operate the
         Premises for the Permitted Use hereunder (unless such items are being
         replaced by Tenant); and (ii) Tenant repairs any damage to the Premises
         resulting from the removal of Tenant Personal Property.

         8.       REPRESENTATIONS, WARRANTIES AND COVENANTS.

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

                           8.1.1 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.

                           8.1.2 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 State of Arizona.

                           8.1.3 NO BREACH OF OTHER AGREEMENTS. Neither this
         Lease nor any agreement, document or instrument executed or to be
         executed in connection herewith by either Landlord or Tenant, 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.

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                  8.2      COVENANTS OF LANDLORD. Landlord hereby makes the
following covenants and agreements:

                           8.2.1 NO CONVEYANCE. During the Term, the Premises
         will not be sold, transferred, encumbered or conveyed by Landlord, nor
         shall Landlord permit the sale, transfer, encumbrance, pledge,
         hypothecation or conveyance of any interest in Landlord or any interest
         in any equity holder in Landlord, without, in each instance, Tenant's
         prior written consent, which consent shall not be unreasonably
         withheld. Without limiting the foregoing, any such sale, transfer,
         encumbrance, pledge, hypothecation or conveyance shall be made
         expressly subject to the terms and provisions of this Lease. Landlord
         shall not sell, transfer, take, remove or convey any assets or items or
         personal property associated with, or comprising any portion of, the
         Premises, or associated or related to, the Premises without first
         obtaining the prior written consent of Tenant, which shall be granted
         or denied in Tenant's sole discretion.

                           8.2.2 NO INDEPENDENT LANDLORD ACTIONS. For so long as
         Tenant is in compliance with the terms of this Lease, Landlord shall
         take no action with respect to any aspect of the business or operation
         of the Premises without Tenant's prior written consent, which may be
         granted or denied by Tenant in its sole discretion. Neither party shall
         take any action that constitutes, or could constitute or give rise to,
         a breach under any Approved Loan Document or any other agreement that
         is material to the Premises.

                           8.2.3 NO INCURRENCE OF INDEBTEDNESS. Landlord will
         not incur any indebtedness, obligation or liability, directly or
         indirectly, that is secured or to be secured by

                                       13
<PAGE>

         all or a portion of the Premises, without the prior written consent of
         Tenant, which may be granted or denied in Tenant's sole discretion.

                           8.2.4 NO OTHER ACTIVITIES. Landlord will not engage
         in any business activity other than those activities required to own
         the Premises subject to the provisions of this Lease and performance of
         its obligations hereunder.

                           8.2.5 TAX ACCOUNTING POLICIES. Landlord will not
         change any federal or state tax accounting policies without Tenant's
         prior written consent, which may be granted or denied in Tenant's sole
         discretion.

                           8.2.6 COOPERATION. Landlord shall cooperate with
         Tenant in good faith with respect to all aspects of the operation of
         the Premises.

                           8.2.7 PERMITTED EXCEPTIONS. There are no liens or
         encumbrances affecting the Premises, other than the Permitted
         Exceptions, and Landlord shall not allow any liens or encumbrances to
         affect the Premises other than the Permitted Exceptions.

                           8.2.8 RESIDENCY AGREEMENTS; LANDLORD'S SUBORDINATION.
         As used in this Lease, "RESIDENCY AGREEMENTS" shall mean all residency
         agreements, lifecare contracts, service agreements, occupancy
         agreements, leases or similar agreements with residents, tenants or
         occupants, of any unit or portion of the Premises, whether now or
         hereafter existing. Landlord has assigned to Tenant all Residency
         Agreements existing on the date of this Lease, and Tenant has assumed
         Landlord's obligations thereunder, all pursuant to the Assignment and
         Assumption Agreement of even date herewith (the "ASSIGNMENT AND
         ASSUMPTION AGREEMENT"). During the term of this Lease, Tenant shall
         have the right to enter

                                       14
<PAGE>

         into Residency Agreements with tenants, residents or occupants of the
         Premises on such terms as Tenant shall deem advisable or desirable in
         Tenant's sole discretion and without the consent of Landlord. All of
         Landlord's right, title and interest in the Premises (including,
         without limitation, Landlord's reversion interest in the Premises)
         shall automatically be subordinate to the rights of residents, tenants
         and occupants under the Residency Agreements and Landlord shall
         recognize the rights of, and shall not disturb, the residents, tenants
         and occupants under the Residency Agreements before and after
         termination of this Lease. At the request of any such resident, tenant
         or occupant, Landlord shall deliver satisfactory evidence that Landlord
         has so subordinated all of its right, title and interest in the
         Premises. The residents under the Residency Agreements are express,
         intended third-party beneficiaries of the provisions of this Section
         8.2.8.

         9.       FINANCIAL REPORTS.

                  9.1      QUARTERLY STATEMENTS. On or before the twenty-fifth
(25th) day after the end of each calendar quarter, Tenant shall deliver to
Landlord, and to any persons designated by Landlord, a balance sheet of the
Premises as of the end of such quarter, and a statement of income and a
statement of changes in cash flows and capital accounts of the Premises for such
quarter and for the portion of the operating year ended on the last day of such
quarter.

                  9.2      MONTHLY REPORTS. Tenant shall deliver to the Landlord
monthly a written summary of results as reasonably necessary to inform Landlord
of the status of the affairs of the Premises and of the status and resolution of
any written, material complaints received by Tenant from

                                       15
<PAGE>

residents of the Premises, the Department (as hereinafter defined) or any other
governmental authorities having jurisdiction over the Premises.

                  9.3      ANNUAL STATEMENTS. Tenant shall deliver to Landlord,
        and to any persons designated by Landlord, within three (3) months after
        the end of each operating year, a balance sheet of the Premises as of
        the end of such year, and a statement of income and a statement of
        changes in cash flows and capital accounts for such year, in form
        reasonably satisfactory to Landlord. Landlord may, at Landlord's
        expense, request an audited financial statement prepared by certified
        public accountants designated by Landlord and approved by Tenant. Tenant
        shall prepare and timely submit for Landlord's approval the annual
        report (the "ANNUAL REPORT") to be submitted to the Arizona Insurance
        Department (the "DEPARTMENT") and any reports required in connection
        with the Existing Loan (as hereinafter defined) or Refinancing
        Indebtedness (as hereinafter defined).

                  9.4      BUDGETS.

                           9.4.1 Upon Landlord's request, not more than 60 days
         prior to commencement of each full fiscal year during the term of this
         Lease (commencing with fiscal year 2003), Tenant shall submit to
         Landlord, for Landlord's approval in accordance with the standards set
         forth below, a proposed annual operating budget for the Premises (the
         "ANNUAL BUDGET"), which Annual Budget shall include estimated revenues,
         operating expenses, capital expenditures and any proposed new
         indebtedness for the ensuing fiscal year. Tenant may revise the Annual
         Budget from time to time to reflect any unanticipated items of revenue
         or expense or any unanticipated or other unforeseen event or
         circumstance. Any such revision shall be

                                       16
<PAGE>

         submitted to Landlord for approval based upon the standards set forth
         below. Tenant may reallocate all or any portion of any amount budgeted
         with respect to any item(s) in the Annual Budget to another item(s)
         budgeted therein provided that the aggregate expenditures in the Annual
         Budget are not increased by more than ten percent (10%) during any
         fiscal year. Upon the request of Landlord, Tenant shall provide
         Landlord with the data and information utilized in preparing the Annual
         Budget (or any revisions thereto) to the extent reasonably necessary to
         allow Landlord to evaluate the proposed Annual Budget (or revisions
         thereto).

                  9.4.2 Tenant agrees that Tenant will establish an appropriate
         rate structure (in compliance with any required regulatory approvals)
         and/or secure financing or capital through other prudent means set
         forth in the Annual Budget (or revisions thereto) to provide sufficient
         funds for the maintenance and operation of the Premises as a "first
         class" community and in accordance with the terms of this Lease.

                  9.4.3 Tenant shall not be deemed to have made, and Tenant
         specifically disclaims, any assurance, guarantee, warranty or
         representation whatsoever in connection with the Annual Budget, any
         revision thereto, or with respect to any item or matter shown or
         reflected therein, including (without limitation) any guaranty or
         assurance that actual results or performance will be consistent with
         any Annual Budget. Landlord acknowledges that the Annual Budget
         (including revisions thereto)

                                       17
<PAGE>

         and all estimates and projections furnished in connection therewith or
         reflected therein are intended only to be reasonable estimates based on
         Tenant's professional judgment at the time of preparation, and that
         actual results will differ. Under no circumstance shall a difference
         between actual results and those projected or forecast in an Annual
         Budget (or any revision thereto) result in an Event of Default
         hereunder or give rise to a cause of action by Landlord against Tenant.

                  9.4.4 Any approval of Landlord required under this Section 9.4
         shall not be unreasonably withheld, conditioned or delayed, and shall
         be deemed given unless a specific written objection (including a
         detailed explanation of the reasons underlying such objection) is
         delivered by Landlord to Tenant within thirty (30) days after
         submission of the proposed Annual Budget or revisions thereto, as the
         case may be. Notwithstanding anything herein to the contrary, Landlord
         may disapprove any Annual Budget (or revision thereto) only if Landlord
         reasonably and in good faith determines that (i) the operating plans
         and assumptions underlying such Annual Budget are materially
         detrimental to the long-term financial viability of the Retirement Care
         Facilities, and (ii) Tenant does not have the financial resources
         necessary to satisfy its obligations under this Lease as and when they
         come due.

                  9.4.5 Neither Landlord's disapproval or objection to any
         proposed Annual Budget (or revision thereto) or any dispute relating to
         matters referred to in this Section 9.4 shall under any circumstances
         be deemed to be an Event of Default

                                       18
<PAGE>

         under this Lease. In the event Landlord shall disapprove any proposed
         Annual Budget (or revision thereto), or in the event of a dispute with
         respect to the matter referred to in this Section 9.4, and Landlord and
         Tenant are unable to resolve the disputed matters submitted by Landlord
         within fifteen (15) days, then such disputed or objectionable matters
         shall be settled by arbitration in accordance with the Commercial
         Arbitration Rules of the American Arbitration Association, and judgment
         upon the award rendered by the arbitrator(s) may be entered in any
         court having jurisdiction thereof. Any such arbitration shall be
         conducted in Phoenix, Arizona. Until such time as Landlord and Tenant
         are able to resolve the disputed or objectionable matters, through
         arbitration or otherwise, the aggregate amount of expenses reflected in
         the Annual Budget for the preceding fiscal year, plus or minus, at
         Tenant's discretion, the greater of (x) ten percent (10%) thereof or
         (y) the increase in the cost of living from the first day of the
         preceding fiscal year based upon the Consumer Price Index - United
         States (1982=100), Medical Costs, published by the bureau of Labor
         Statistics of the United States Department of Labor, shall be the
         amount of expenses authorized by the Annual Budget in effect until such
         time as a new Annual Budget has been approved by Landlord.

                  9.4.6 Notwithstanding anything to the contrary herein,
         Landlord's approval of any Annual Budget (or revision thereto) shall
         not be required if the Premises had an actual debt service coverage
         ratio of 1.6 to 1.0 for the previous fiscal year and the

                                       19
<PAGE>

         Premises are reasonably projected to have a debt service coverage ratio
         of 1.6 to 1.0 for the current fiscal year.

                  9.5      REPORTS RECEIVED BY LANDLORD. Landlord shall within
five (5) days of receipt thereof deliver to the Tenant all federal, state and
local licensing, regulatory, reimbursement or other governmental reports
received by Landlord as to the Premises or any portion thereof, and all written
complaints received by Landlord from residents of the Premises.

                  9.6      AUDITED FINANCIAL STATEMENTS OF LANDLORD. For each
fiscal year of Landlord during the Term of this Lease (which shall be the
calendar year), Landlord shall prepare annual audited financial statements of
Landlord, and shall timely deliver such statements to Tenant to be filed by
Tenant as a supplement to the Annual Report. So long as Landlord is in
compliance with this provisions of this Lease, (a) the cost of such audit shall
be paid by Tenant and (b) Tenant shall, with all reasonable assitance of
Landlord, maintain the books and records of Landlord to the extent reasonably
practicable based upon Tenant's knowledge of Landlord's interest in the
Premises.

         10.      EVENTS OF DEFAULT; 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;

                           10.1.2 The appointment of a receiver, trustee, or
         liquidator for Tenant, or any of the property of Tenant, if within ten
         (10) business days of such appointment Tenant does

                                       20
<PAGE>

         not inform Landlord in writing that Tenant intends to cause such
         appointment to be discharged or Tenant does not thereafter diligently
         prosecute such discharge to completion within one hundred and twenty
         (120) days after the date of such appointment;

                           10.1.3 The filing by Tenant 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 by any other party and Tenant does not within ten
         (10) business days of any such filing inform Landlord in writing of the
         intent by Tenant to cause such petition to be dismissed, if Tenant does
         not thereafter diligently prosecute such dismissal, or if such filing
         is not dismissed within one hundred and twenty (120) days after filing
         thereof;

                           10.1.4 The failure to make any payment required under
         the Ground Lease or under the Existing Loan, subject in each case to
         all applicable grace and/or notice and cure periods or procedures;

                           10.1.5 The failure to make any monetary payment
         required by Tenant under this Lease not covered in Section 10.1.1 or
         Section 10.1.4 or the failure to perform or comply in any material
         respect with any other term or provision of this Lease not requiring
         the payment of money, or the breach of any representation or warranty
         of Tenant in this Lease; provided, however, if the default described in
         this Section 10.1.5 is curable it shall be deemed cured, if within
         thirty (30) business days of Tenant's receipt of a notice of default
         from Landlord, Tenant cures such default; provided, further, that if
         such default cannot with due

                                       21
<PAGE>

         diligence be cured within a period of thirty (30) days because of the
         nature of the default or delays beyond the control of Tenant, then 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;

                           10.1.6 In the event that any resident or former
         resident does not timely receive any refund of entry fees pursuant to
         the terms of any applicable Residency Agreement (an "ENTRY FEE REFUND")
         that is due during the Term of this Lease, and Tenant does not promptly
         make such Entry Fee Refund after receiving notice of such failure;

                           10.1.7 If Tenant shall vacate, abandon or otherwise
         cease to operate the Premises for a period of twenty-four (24)
         consecutive hours or shall notify Landlord that Tenant intends to
         vacate, abandon or cease to transact business from and upon the
         Premises (a "VOLUNTARY ABANDONMENT"); and

                           10.1.8 If the Department initiates proceedings to
         assume control over Plaza del Rio and Freedom Plaza, and any such
         proceeding is not dismissed or stayed within ninety (90) days of
         commencement of such proceeding.

                  10.2     LANDLORD'S REMEDIES. Upon the occurrence of an Event
of Default and during the continuance thereof, Landlord may exercise all rights
and remedies under this Lease and the laws of the State of Arizona available to
a lessor of real and personal property in the event of a default by its lessee.
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;

                                       22
<PAGE>

                           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 such reletting. Tenant agrees to pay
         Landlord, immediately upon demand, all reasonable 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 If the Event of Default shall be or include a
         Voluntary Abandonment,

                                       23
<PAGE>

         Landlord may, in addition to any other remedy authorized or permitted
         herein or by applicable law, either directly or acting by and through a
         duly appointed Receiver, enter upon and take possession of the Premises
         without terminating this Lease and thereupon and thereafter, Section
         8.2.2 hereof notwithstanding, conduct and operate the business and
         operations of the Premises on behalf of and for the account of Tenant,
         and for such purposes Tenant shall and does hereby designate,
         constitute and appoint Landlord and/or such Receiver, as Tenant's true
         and lawful attorney in fact, which appointment shall conclusively be
         deemed coupled with an interest, and which appointment shall not be
         revocable prior to the expiration of a period of one (1) year from and
         after the occurrence of such 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. 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.

                  10.4     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

                                       24
<PAGE>

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 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.

                  10.5     PERFORMANCE OF TENANT'S OBLIGATIONS BY LANDLORD. If
Tenant at any time after applicable notice and cure periods 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 as reported daily
by the Wall Street Journal 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.

                  10.6     TENANT'S RIGHT OF SETOFF. In addition to any other
right or remedy that Tenant

                                       25
<PAGE>

may have at law, equity or otherwise, Tenant shall have the express right to
offset against Rent or other sums due hereunder any amount(s) to which Tenant is
due, directly or indirectly, as a result of Landlord's breach of any provision
of this Lease.

         11.      DAMAGE BY FIRE OR OTHER CASUALTY.

                  11.1     RECONSTRUCTION USING INSURANCE. In the event of
damage or destruction of the Premises, Tenant shall forthwith notify Landlord
and diligently repair or reconstruct the same to a condition similar to that
which existed prior to such damage or destruction. In the event of any material,
structural damage or destruction of the Premises, Tenant shall undertake such
repair or reconstruction work pursuant to plans and specifications reasonably
acceptable to Landlord. Any net insurance proceeds payable with respect to the
casualty shall be used for the repair or reconstruction of the Premises. If such
proceeds are insufficient for such purposes, Tenant shall provide the required
additional funds.

                  11.2     SURPLUS PROCEEDS. If there remains any surplus of
insurance proceeds after the completion of the repair or reconstruction of the
Premises, such surplus shall belong to and be paid to Tenant.

                  11.3     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.

                  11.4 END OF TERM. Notwithstanding any other provision of this
Section 11, if the

                                       26
<PAGE>

Premises are more than 30% destroyed (measured by square footage) by casualty
during the last twenty-four (24) 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 and Tenant shall have no obligation to repair or
reconstruct the Premises.

         12.      CONDEMNATION.

                  12.1     COMPLETE TAKING. If during the Term all or
substantially all of the Premises is taken or condemned by any competent public
or quasi-public authority (which shall include a taking of a part of the
Premises such that the remaining portion is unsuitable or not economically
feasible for continued operation by Tenant as contemplated hereby, as determined
by Tenant), then Tenant may, at Tenant's election, made within thirty (30) days
of such taking by condemnation, terminate this Lease, and the current Minimum
Rent shall be prorated 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 taking authority. In the absence of such allocation by the taking
authority, the award shall be allocated 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.

                  12.2     PARTIAL TAKING. If during the Term any portion of the
Premises it taken or condemned and this Lease is not terminated pursuant to
ss. 12.1, the Minimum Rent shall be abated to the same extent as the diminution
in the fair market value of the Premises by reason of the

                                       27
<PAGE>

condemnation; provided, however, in no event shall Minimum Rent be reduced to an
amount less than $1,268,076 per annum. 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.

                  12.3     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.

         13.      PROVISIONS ON TERMINATION OF TERM.

                  13.1     SURRENDER OF POSSESSION. Tenant shall, on or before
the last day of the Term, or upon earlier termination of this Lease, surrender
to Landlord the Premises (including all resident charts and records) in good
condition and repair, excepting only (i) ordinary wear and tear, (ii) any damage
caused by condemnation pursuant to Section 12 above, or (iii) any damage caused
by fire or other casualty resulting in the termination of the Lease pursuant to
Section 11.4 above.

                  13.2     REMOVAL OF PERSONAL PROPERTY. If Tenant is not then
the subject of an Event of 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). Any such removal shall be done
in a

                                       28
<PAGE>

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 (unless Tenant has
terminated this Lease pursuant to Sections 11.4 or 12.1) 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.

                  13.3     MANAGEMENT OF PREMISES.

                           13.3.1 Upon the expiration or earlier termination of
         the Term (unless Tenant has purchased the Premises), Landlord shall use
         its best efforts to enter into a management, lease or other agreement
         with an entity qualified under the laws of the State of Arizona
         (including without limitation A.R.S. ss.ss. 20-1802 and 20-1808(A) or
         any successor statutes) and other applicable laws (a "QUALIFIED
         MANAGER") to assume the responsibilities and obligations for the
         management and operation of the Premises (including all obligations
         under all Residency Agreements affecting the Premises).

                           13.3.2 Until such time as Landlord enters into a
         management agreement for the management and operation of the Premises
         with a Qualified Manager, Tenant and Landlord shall enter into a
         management agreement the ("ARC MANAGEMENT AGREEMENT") for the
         management and operation of the Premises, which management agreement
         shall be in a form that is substantially the same as the customary form
         of management agreement then in use by Tenant and its affiliates,
         subject to the provisions of this Section 13.3.2. The ARC

                                       29
<PAGE>

         Management Agreement shall provide that it shall terminate
         simultaneously with a Qualified Manager's assumption of all
         responsibilities and obligations relating to the operation of the
         Premises. The ARC Management Agreement shall further provide that, in
         consideration of Tenant's management and operation of the Premises,
         Tenant shall be entitled to receive a management fee equal to (a) if
         this Lease is terminated prior to the expiration of the Term on account
         of an Event of Default pursuant to Section 10.2.2 hereof, One Thousand
         Dollars ($1,000.00) per month; or (b) for each month, one hundred
         percent (100%) of the Available Cash Flow from the Premises (as
         hereinafter defined), in all other circumstances (including Tenant's
         management following the expiration of the Term). Furthermore, if this
         Lease is terminated for any reason other than Tenant's Event of Default
         pursuant to Section 10.2.2, then the provisions of Section 8.2 shall
         remain effective and be incorporated into the ARC Management Agreement.
         As used in this section 13.3, "AVAILABLE CASH FLOW FROM THE PREMISES"
         means the amount by which (i) all income and revenue of any kind
         whatsoever directly or indirectly arising or derived from or out of the
         ownership, operation or use of the Premises, exceeds (ii) all expenses
         of operating the Premises, including any debt service on any loan
         directly associated with the Premises that is incurred in compliance
         with this Lease, all as calculated on a cash basis.

                           13.3.3 Tenant agrees to cooperate 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

                                       30
<PAGE>

         would jeopardize any licensure or certification of the facility, and
         Tenant shall comply with all reasonable requests for an orderly
         transfer of the licenses and certifications for the Premises, and
         possession at the time of any such surrender. Upon the expiration or
         earlier termination of the Term, Tenant shall deliver copies of all of
         Tenant's books and records relating to the Premises and its operations
         to Landlord.

                  13.4     ASSIGNMENT OF RESIDENCY AGREEMENTS. Automatically
upon the expiration or termination of this Lease (unless Tenant has purchased
the Premises), the Residency Agreements shall be deemed to have been assigned by
Tenant to Landlord, and to have been assumed by Landlord, to the extent
permitted by applicable law, all as more particularly set forth in the
Assignment and Assumption Agreement.

                                       31
<PAGE>

                  13.5     CERTAIN AGREEMENTS RELATING TO THE NOTE.
Notwithstanding any provision of the Note to the contrary and so long as
Landlord is not in default thereunder, if Tenant elects not to exercise its
right to extend the Term for the first or second Renewal Term so that the Term
expires on either July 13, 2018 or July 13, 2028, then (a) Landlord shall have
the right to reduce the outstanding principal amount of the Note as of the day
that the Term expires by the Offset Amount (as hereinafter defined), and (b) to
the extent that the Offset Amount exceeds the principal balance of the Note as
of the expiration of the Term, Tenant shall issue to Landlord on the date the
Term expires a promissory note in the amount of such excess (the "EXCESS NOTE").
The Excess Note shall be in the same form as the Note and shall bear interest at
the rate of six percent (6%) per annum, shall mature 37 years after issuance,
with level payments of the principal and interest due under a 37-year
amortization schedule. As used herein, the term "OFFSET AMOUNT" shall mean
Tenant's tax basis (as reflected in Tenant's tax books and records) in any
liabilities to residents of the Premises that are actually assumed by Landlord
pursuant to Section 13.4 of this Lease or the Assignment and Assumption
Agreement, which liabilities will include, if applicable, all refundable
entrance fee deposits and the amount of nonrefundable entrance fees that Tenant
has not reported as taxable income as of the date of termination. The terms of
this Section 13.5 shall control over any inconsistent provision(s) in the Note.

         14.      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

                                       32
<PAGE>

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 200, Brentwood, Tennessee
37027, Attn: Chief Executive Officer Facsimile No. (615) 221-2269 with a copy to
Bass, Berry & Sims PLC, 315 Deaderick Street, Suite 2700, AmSouth Center,
Nashville, Tennessee 37238, Attn: T. Andrew Smith, Esq., Facsimile No. (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
Freedom Plaza Limited Partnership, 1226 North Tamiami Trail, Suite 100,
Sarasota, Florida 34236 Attn: Chief Executive Officer, Fax No. (941) 954-0909
with a copy to 1226 North Tamiami Trail, Suite 100, Sarasota, Florida 34236,
Attn: Gregory L. Patterson, Fax No. (941) 954-0909, 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.

         15.      RIGHT OF ENTRY; EXAMINATION OF RECORDS. Landlord and its
representative may enter 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. Any such entry
shall not unreasonably interfere with residents, resident care, or any of
Tenant's operations.

         16.      QUIET ENJOYMENT. So long as no Event of Default is existing
and continuing 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 created by Tenant (excepting, however,

                                       33
<PAGE>

intrusion of Tenant's quiet enjoyment occasioned by condemnation or destruction
of the property as referred to in Sections 11 and 12 hereof).

         17.      APPLICABLE  LAW. This Lease shall be governed by and construed
in accordance with the internal laws of the State of Arizona without regard to
the conflict of laws rules of such State.

         18.      HAZARDOUS MATERIALS.

                  18.1     HAZARDOUS MATERIAL COVENANTS. Tenant's use of the
Premises shall comply in all material respects with all Hazardous Materials Laws
(as hereinafter defined). In the event any Environmental Activities (as
hereinafter defined) 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 (as hereinafter defined) against 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 (as
hereinafter defined) 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.

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

                           18.2.1 any Environmental Activities in violation of
         any Hazardous Materials Laws,

                           18.2.2 any Hazardous Materials Claims against Tenant
         or the Premises,

                                       34
<PAGE>

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

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

                           18.2.5 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 the
         Premises, including copies thereof.

                  18.3     PARTICIPATION IN HAZARDOUS MATERIALS CLAIMS. Landlord
shall have the right, at Landlord's 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.

                  18.4     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 the
Premises or located on or present on or under the Premises.

                  18.5     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 the Premises or to persons on or about the
Premises

                                       35
<PAGE>

or cause 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 per million or any other more restrictive standard then
prevailing; (v) medical wastes and biohazards; (vi) radon gas; and (vii) 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 the Premises or the owners and/or
occupants of property adjacent to or surrounding the Premises.

                  18.6     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 the
Premises, Landlord or Tenant relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials.

                  18.7     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
the Premises or the operation thereof.

         19.      ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, which Landlord may not unreasonably withhold,
condition or delay, voluntarily or involuntarily assign or hypothecate this
Lease or any interest herein or sublet the Premises. Any of

                                       36
<PAGE>

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 be assigned or encumbered by
operation of law without the prior written consent of Landlord which may be
withheld at Landlord's reasonable discretion. Notwithstanding the foregoing to
the contrary, the provisions of this Section 19 shall be subject to the
provisions of Section 22 hereof, and Tenant may without Landlord's consent
assign this Lease or sublet the Premises or any portion thereof to a Successor
(as such term is defined below) of Tenant, or a direct or indirect, wholly-owned
subsidiary of Tenant (including a Successor of Tenant) (each, a "SUBSIDIARY"),
provided that such Successor or Subsidiary fully assumes the obligations of
Tenant under this Lease, no such assignment or sublease shall relieve Tenant of
its obligations hereunder or be valid (and no such Successor shall take
possession of the Premises) until an executed counterpart of such assignment or
sublease has been delivered to Landlord, and each such sublease shall be
expressly subordinate to this Lease.

                  19.1     Notwithstanding anything in this Section 19 to the
contrary, Tenant may undertake the following without Landlord's prior consent:
(i) enter into Residency Agreements, as contemplated by Section 8.2.8 hereof,
(ii) lease a unit or bed to a resident of the Premises pursuant to agreements
that are terminable upon 30 days notice, (iii) sublease any space in the
Premises to an individual or entity that provides services to residents or
occupants of the Premises, and (iv) sublease any space for uses ancillary or
incidental to the primary use of the Premises.

                                       37

<PAGE>

                  19.2     As used herein, a "SUCCESSOR" is any entity which
succeeds to materially all of the assets, operations and business of Tenant by
merger, reorganization, recapitalization or similar transaction.

         20.      INDEMNIFICATION.

                  20.1     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
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 arising
out of any action or inaction on the part of Tenant or caused by any negligence,
willful misconduct or bad faith of Tenant, or the breach by Tenant of any of its
obligations hereunder. 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 and with counsel
reasonably acceptable to Landlord.

                  20.2     Landlord agrees to indemnify and save Tenant and its
officers, directors, shareholders and employees harmless from and against any
and all claims, losses, damages and expenses, including reasonable attorney's
fees through all appeals, arising out of any action or inaction on the part of
Landlord or attributable to the negligence, willful misconduct or bad faith or
Landlord or breach of this Lease by Landlord.

                                       38

<PAGE>

         21.      TENANT AS PROVIDER; MLR DEPOSITS.

                  21.1     PROVIDER. Landlord and Tenant intend that Tenant be
the sole "provider" at the Premises for purposes of A.R.S. ss. 20-1801, et seq.,
and any successor or replacement statute.

                  21.2     MLR DEPOSITS. Landlord has previously made so called
"minimum liquid reserve deposits" with respect to the Premises as required by
applicable Arizona statutes in an aggregate amount of $1,763,153.00 (the
"LANDLORD MLR DEPOSITS"). The Landlord MLR Deposits shall constitute Landlord's
Personal Property, but shall remain on deposit for the benefit of the Premises
pursuant to applicable Arizona statutes for the Term of this Lease. The Landlord
shall not allow Landlord MLR Deposits to have a value that is at any time less
than $1,763,153.00.

                  21.3     TENANT MLR DEPOSITS. In the event that applicable
Arizona statutes require minimum liquid reserve deposits that exceed the
Landlord MLR Deposits, Tenant shall make, from time to time as required, such
excess deposits (the "TENANT MLR DEPOSITS"). The parties acknowledge that as of
the date hereof Tenant has made Tenant MLR Deposits in the aggregate amount of
$-0-. The Tenant MLR Deposits, whether now in existence or hereafter made, shall
constitute, and shall remain, Tenant's personal property. So long as Tenant is
not in default hereunder, in the event that the amount of the minimum liquid
reserve deposits required for the Premises pursuant to applicable Arizona law is
ever reduced in the future the Tenant MLR Deposits shall be returned first to
Tenant, before reduction in the amount of Landlord MLR Deposits. Upon expiration
of this Lease, and so long as Tenant is not in default hereunder, Tenant shall
be entitled to receive the Tenant MLR Deposits.

                  21.4     MLR INCOME. Landlord hereby guarantees that the
Landlord MLR Deposits shall generate actual, collected interest or investment
income (the "LANDLORD MLR INTEREST

                                       39

<PAGE>

INCOME") in each calendar year that equals or exceeds $40,000 (the "THRESHOLD
AMOUNT"). In the event that the Landlord MLR Interest Income is less than the
Threshold Amount in any calendar year (an "MLR INTEREST INCOME DEFICIT"), then
the Landlord shall pay to Tenant the amount of such MLR Interest Income Deficit
before December 31 of each year. In the event that the Landlord MLR Interest
Income is greater than the Threshold Amount in any calendar year, such excess
shall be paid directly to Landlord. Tenant shall be entitled to retain all
interest and investment income relating to Tenant's MLR Deposits, which deposits
(including all interest and investment income thereon) shall remain Tenant's
personal property, and Landlord shall have no interest therein.

         22.      EXISTING LOAN; REFINANCING INDEBTEDNESS.

                  22.1     The Premises is currently subject to a loan (the
"EXISTING LOAN") from Aid Association for Lutherans, a Wisconsin corporation
("AAL") in the original principal amount of $11,850,000. Tenant shall cause the
Premises to be in compliance with the provisions of the documents evidencing or
securing the Existing Loan (such documents, together with any documents
evidencing or securing a hereinafter described Refinancing Indebtedness, being
referred to herein as the "APPROVED LOAN DOCUMENTS"). Without limiting the
generality of the foregoing sentence, Tenant shall be responsible for making
payments on the Existing Loan in accordance with the terms of the Approved Loan
Documents and such payments shall be tendered directly to AAL.

                  22.2     Subject to the terms of this Section 22.2, Tenant
shall have the right from time to time to incur additional indebtedness(es) and
to refinance the Existing Loan, all secured by the Premises, including
Landlord's and Tenant's interest therein (a "REFINANCING INDEBTEDNESS"). Tenant
shall have the right, from time to time, to direct Landlord to execute and
deliver all documents

                                       40

<PAGE>

necessary to consummate a Refinancing Indebtedness. Tenant shall pay all costs
incurred in connection with any Refinancing Indebtedness, including, without
limitation, any prepayment penalties. Landlord shall have the right to approve
the incurrence of any such indebtedness in excess of the original principal
balance of the Existing Loan (i.e., $11,850,000); provided, however, that such
approval shall not be unreasonably withheld, conditioned or delayed if the
reasonably projected debt service coverage ratio of the Premises equals or
exceeds 1.6 to 1.0 (after giving effect to the incurrence of the additional
indebtedness). Landlord shall not be obligated to execute and deliver documents
in connection with Refinancing Indebtedness unless (i) the terms provided
therein are reasonable and customary (including reasonable amortization
provisions); (ii) interest on such Refinancing Indebtedness is payable not less
often than quarterly and (iii) the principal of such Refinancing Indebtedness is
amortized such that the principal amount of the Existing Loan (if still
outstanding) and any Refinancing Indebtedness outstanding on the expiration of
the Initial Term will not be greater than the principal amount of the Existing
Loan that would be outstanding on such date under the documents relating to the
Existing Loan currently in effect (the parties agree that such amount is
$10,743,216), and (iv) such Refinancing Indebtedness does not require the
guaranty of any limited partner of Landlord.

                  22.3     If (a) this Lease is terminated by Landlord due to
Tenant's breach hereof prior to the expiration of the Initial Term, (b) the
principal amount of any Refinancing Indebtedness outstanding on the date of such
termination exceeds the principal amount of the Existing Loan that would have
been outstanding on such date if the Existing Loan had not been refinanced and
the Landlord had continued to make principal payments on the Existing Loan in
accordance with the

                                       41
<PAGE>

terms of the documents relating thereto as of the date of this Lease (the
"EXCESS INDEBTEDNESS"), and (c) the present value of the remaining scheduled
debt service payments on the Refinancing Indebtedness (discounted at the
interest rate applicable to the Existing Loan) as of the date of such
termination exceeds the present value of the debt service payments on the
Existing Loan that would have remained outstanding as of the date of such
termination if the Existing Loan had not been refinanced (discounted at the
interest rate applicable to the Existing Loan) (the "EXCESS DEBT SERVICE"),
Tenant shall either (x) deposit with Landlord or make a principal payment on the
Refinancing Indebtedness in an amount equal to the Excess Indebtedness, or (y)
deposit with Landlord an amount equal to the Excess Debt Service.

         23.      HOLDING OVER.  Intentionally Omitted.

         24.      ESTOPPEL CERTIFICATES. Tenant shall, at any time upon not less
than fifteen (15) 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 Charges and
additional amounts due 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.

         Landlord shall, at any time upon not less than fifteen (15) days prior
written request by Tenant, execute, acknowledge and deliver to Tenant or its
designee a written statement certifying that this Lease is unmodified and in
full force and effect (or, if there have been any modifications, that this

                                       42
<PAGE>

Lease is in full force and effect as modified, and setting forth such
modifications), the dates to which Minimum Rent, Additional Charges and
additional amounts due 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 Tenant may reasonably request.

         25.      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.

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

         27.      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.

         28.      BINDING EFFECT. Subject to the provisions of Section 19 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.

         29.      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.

                                       43
<PAGE>

         30.      MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon
the request of either, enter into a short form or memorandum of the Lease, in
form suitable for recording under the laws of the State of Arizona in which
reference to this Lease shall be made. Such memorandum may provide written
notice of Landlord's covenants in this Agreement, and may further provide that
any person or entity that deals directly with Landlord and does not ensure
compliance with the provisions of this Lease shall, among other things, be
liable to Tenant for tortious interference with this Lease. The party requesting
such recordation shall pay all costs and expenses of preparing and recording
such memorandum of this Lease.

         31.      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.

         32.      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.

         33.      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 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

                                       44
<PAGE>

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.

         34.      ENTIRE AGREEMENT. This Lease sets forth the entire agreement
of the parties hereto with respect to the Premises and cannot be changed or
modified by except by another agreement in writing signed by the party sought to
be charged therewith or by its duly authorized agent.

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

         36.      RIGHT TO RELY ON TENANT WITHOUT JOINDER OF LANDLORD. No
person, entity or governmental authority dealing with the Premises shall be
required to inquire into, or obtain any other documentation as to, the authority
of Tenant acting alone to take any action relating to the Premises, or to obtain
the signature of Landlord on any instrument or agreement relating to, or
affecting, the Premises.

         37.      INTERPRETATION, ETC.

                  37.1     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.

                  37.2     All consents or approvals to be granted or withheld
under this Lease shall not be unreasonably withheld, conditioned or delayed,
except to the extent that any consent or approval is expressly conditioned
pursuant to the terms hereof upon the sole discretion of the "consenting" party.

                                       45
<PAGE>

                  37.3     Except as explicitly set forth in Section 8.2.8
above, it is the intention of the parties that there shall be no third-party
beneficiaries of this Lease, and that no third party shall have the benefit of,
or any rights under, any provision hereof.

         38.      FURTHER ASSURANCES. Both parties hereto shall take all actions
reasonably requested by the other party to give effect to the agreement
contemplated in this Lease.

                                       46
<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Lease Agreement to be
executed as of the day and year first above written.

                                       TENANT:

                                       AMERICAN RETIREMENT CORPORATION, a
                                       Tennessee corporation

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

                                       LANDLORD:

                                       FREEDOM PLAZA LIMITED PARTNERSHIP, an
                                       Arizona limited partnership

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

<PAGE>

     Acknowledgment and Consent

     Sun Health Properties, as lessor of Plaza del Rio under the Plaza del Rio
Ground Lease hereby joins in the execution of this Lease for the purpose of
consenting to the execution of this Lease, and for the purpose of agreeing that,
in the event the Plaza del Rio Ground Lease expires or terminates for any reason
whatsoever prior to the expiration or termination of the term (including renewal
terms) of this Lease, Sun Health Properties, its successors and assigns, shall
honor the terms of this Lease and shall not disturb Tenant's possession of the
Plaza del Rio Leasehold Interest under the terms of this Lease, except in
accordance with the terms of this Lease.

     SUN HEALTH PROPERTIES LEASING,
     an Arizona corporation

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

     Acknowledgment and Consent

     Plaza III Limited Partnership, as lessor of Freedom Plaza under the Freedom
Plaza Ground Lease joins in the execution of this Lease for the purpose of
consenting to the execution of this Lease, and for the purpose of agreeing that,
in the event the Freedom Plaza Ground Lease expires or terminates for any reason
whatsoever prior to the expiration or termination of the term (including renewal
terms) of this Lease, Plaza III Limited Partnership, its successors and assigns,
shall honor the terms of this Lease and shall not disturb Tenant's possession of
the Freedom Plaza Leasehold Interest under the terms of this Lease, except in
accordance with the terms of this Lease.

     PLAZA III LIMITED PARTNERSHIP,
     an Arizona limited partnership

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

<PAGE>

                                  EXHIBIT "A-1"

                          LEGAL DESCRIPTION OF PREMISES

         1.       FREEDOM PLAZA

         2.       PLAZA DEL RIO

<PAGE>

                                  EXHIBIT "A-2"

                           LANDLORD PERSONAL PROPERTY

<PAGE>

                                  EXHIBIT "A-3"

                              PERMITTED EXCEPTIONS

<PAGE>

                                   EXHIBIT "B"

                                APPRAISAL PROCESS

         If Landlord and Tenant are unable to agree upon the fair market value
of the Premises within any relevant period provided in this Lease, each shall
within ten (10) days after written demand by the other select one MAI Appraiser
to participate in the determination of fair market value. For all purposes under
this Lease, the fair market value of the Premises shall be based on the fair
market value of the Premises unencumbered by this Lease. Within ten (10) days of
such selection, the MAI Appraisers so selected by Landlord and Tenant shall
select a third MAI Appraiser. The three (3) selected MAI Appraisers shall each
determine the fair market value of the Premises within thirty (30) days of the
selection of the third appraiser. Each of Tenant and Landlord shall pay the fees
and expenses of any MAI Appraiser which such party appoints pursuant to this
Exhibit plus 50% of the cost of the third appraiser.

         In the event either Landlord or Tenant fails to select a MAI Appraiser
within the time period set forth in the foregoing paragraph, the MAI Appraiser
selected by the other party shall alone determine the fair market value of the
Premises in accordance with the provisions of this Exhibit and the fair market
value so determined shall be binding upon Landlord and Tenant.

         In the event the MAI Appraisers selected by Landlord and Tenant are
unable to agree upon a third MAI Appraiser within the time period set forth in
the first paragraph of this Exhibit, either Landlord or Tenant shall have the
right to apply at their mutual expense to the presiding judge of the court of
original trial jurisdiction in the county in which the Premises is located to
name the third MAI Appraiser.

         Within five (5) days after completion of the third MAI Appraiser's
appraisal, all three MAI Appraisers shall meet and a majority of the MAI
Appraisers shall attempt to determine the fair market value of the Premises. If
a majority are unable to determine the fair market value at such meeting, the
three appraisals shall be added together and their total divided by three. The
resulting quotient shall be the fair market value of the Premises. If, however,
either or both of the low appraisal or the high appraisal are more than ten
percent (10%) lower or higher than the middle appraisal, any such lower or
higher appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two appraisals shall be added together and their total divided by two,
and the resulting quotient shall be such fair market value. If both the lower
appraisal and higher appraisal are disregarded as provided herein, the middle
appraisal shall be such fair market value. In any event, the result of the
foregoing appraisal process shall be final and binding.

         Landlord and Tenant will exercise their respective best efforts to
expedite the appraisal process and will cooperate fully and with all deliberate
speed with each other and with all appraisers in order to allow the
determination of fair market value to be finally completed. Notwithstanding

<PAGE>

anything else in this Exhibit, if any appraiser appointed hereunder fails to
complete his or her report within 60 days of his or her appointment, the fair
market value of the Premises will be determined by reference to the other report
or reports completed within such period.

         "MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified
to do business in Arizona and who has substantial experience in performing
appraisals of facilities similar to the Premises and is certified as a member of
the American Institute of Real Estate Appraisers or certified as a SRPA by the
Society of Real Estate Appraisers, or, if such organizations no longer exist or
certify appraisers, such successor organization or such other organization as is
approved by Landlord.

<PAGE>

                                   SCHEDULE 1

Minimum Rent for any month included in this Schedule 1 that precedes the
Commencement Date shall be inapplicable to Tenant's obligation to pay Rent
under this Lease.

<TABLE>
<CAPTION>
MONTH      MONTH       RENT           MONTH       MONTH       RENT            MONTH        MONTH      RENT
                    PAYMENT                                PAYMENT                                 PAYMENT
<S>       <C>       <C>               <C>         <C>      <C>                <C>         <C>      <C>
1         Jan-02                                           217,053              44        Aug-05
                   210,592
                                        23        Nov-03                                           223,907
2         Feb-02
                   210,592                                 217,053              45        Sep-05

3         Mar-02                        24        Dec-03                                           223,907

                   210,592                                 217,053              46        Oct-05

4         Apr-02                        25        Jan-04                                           223,907

                   210,592                                 217,053              47        Nov-05

5         May-02                        26        Feb-04                                           223,907

                   210,592                                 217,053              48        Dec-05

6         Jun-02                        27        Mar-04                                           223,907

                   210,592                                 217,053              49        Jan-06

7         Jul-02                        28        Apr-04                                           223,907

                   213,775                                 217,053              50        Feb-06

8         Aug-02                        29        May-04                                           223,907

                   213,775                                 217,053              51        Mar-06

9         Sep-02                        30        Jun-04                                           223,907

                   213,775                                 217,053              52        Apr-06

10        Oct-02                        31        Jul-04                                           223,907

                   213,775                                 220,429              53        May-06

11        Nov-02                        32        Aug-04                                           223,907

                   213,775                                 220,429              54        Jun-06

12        Dec-02                        33        Sep-04                                           223,907

                   213,775                                 220,429              55        Jul-06

13        Jan-03                        34        Oct-04                                           227,489

                   213,775                                 220,429              56        Aug-06

14        Feb-03                        35        Nov-04                                           227,489

                   213,775                                 220,429              57        Sep-06

15        Mar-03                        36        Dec-04                                           227,489

                   213,775                                 220,429              58        Oct-06

16        Apr-03                        37        Jan-05                                           227,489

                   213,775                                 220,429              59        Nov-06

17        May-03                        38        Feb-05                                           227,489

                   213,775                                 220,429              60        Dec-06

18        Jun-03                        39        Mar-05                                           227,489

                   213,775                                 220,429              61        Jan-07

19        Jul-03                        40        Apr-05                                           227,489

                   217,053                                 220,429              62        Feb-07

20        Aug-03                        41        May-05                                           227,489

                   217,053                                 220,429              63        Mar-07

21        Sep-03                        42        Jun-05                                           227,489

                   217,053                                 220,429              64        Apr-07

22        Oct-03                        43        Jul-05                                           227,489

                                                           223,907              65        May-07
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
MONTH      MONTH      RENT     MONTH      MONTH       RENT      MONTH      MONTH        RENT
                   PAYMENT                         PAYMENT                           PAYMENT
<S>       <C>      <C>         <C>        <C>      <C>          <C>        <C>       <C>
                   227,489      70        Oct-07                                     231,179

66        Jun-07                                   231,179        75        Mar-08

                   227,489      71        Nov-07                                     231,179

67        Jul-07                                   231,179        76        Apr-08

                   231,179      72        Dec-07                                     231,179

68        Aug-07                                   231,179

                   231,179      73        Jan-08

69        Sep-07                                   231,179

                   231,179      74        Feb-08

77        May-08                99        Mar-10                 121        Jan-12

                   231,179                         238,894                           247,078

78        Jun-08               100        Apr-10                 122        Feb-12

                   231,179                         238,894                           247,078

79        Jul-08               101        May-10                 123        Mar-12

                   234,979                         238,894                           247,078

80        Aug-08               102        Jun-10                 124        Apr-12

                   234,979                         238,894                           247,078

81        Sep-08               103        Jul-10                 125        May-12

                   234,979                         242,925                           247,078

82        Oct-08               104        Aug-10                 126        Jun-12

                   234,979                         242,925                           247,078

83        Nov-08               105        Sep-10                 127        Jul-12

                   234,979                         242,925                           251,355

84        Dec-08               106        Oct-10                 128        Aug-12

                   234,979                         242,925                           251,355

85        Jan-09               107        Nov-10                 129        Sep-12

                   234,979                         242,925                           251,355

86        Feb-09               108        Dec-10                 130        Oct-12

                   234,979                         242,925                           251,355

87        Mar-09               109        Jan-11                 131        Nov-12

                   234,979                         242,925                           251,355

88        Apr-09               110        Feb-11                 132        Dec-12

                   234,979                         242,925                           251,355

89        May-09               111        Mar-11                 133        Jan-13

                   234,979                         242,925                           251,355

90        Jun-09               112        Apr-11                 134        Feb-13

                   234,979                         242,925                           251,355

91        Jul-09               113        May-11                 135        Mar-13

                   238,894                         242,925                           251,355

92        Aug-09               114        Jun-11                 136        Apr-13

                   238,894                         242,925                           251,355

93        Sep-09               115        Jul-11                 137        May-13

                   238,894                         247,078                           251,355

94        Oct-09               116        Aug-11                 138        Jun-13

                   238,894                         247,078                           251,355

95        Nov-09               117        Sep-11                 139        Jul-13

                   238,894                         247,078                           255,761

96        Dec-09               118        Oct-11                 140        Aug-13

                   238,894                         247,078                           255,761

97        Jan-10               119        Nov-11                 141        Sep-13

                   238,894                         247,078                           255,761

98        Feb-10               120        Dec-11                 142        Oct-13

                   238,894                         247,078                           255,761
</TABLE>

<PAGE>

<TABLE>
<S>        <C>      <C>          <C>        <C>      <C>                <C>        <C>      <C>
143        Nov-13                171        Mar-16                      199        Jul-18

                    255,761                          264,973                                279,853

144        Dec-13                172        Apr-16                      200        Aug-18

                    255,761                          264,973                                279,853

145        Jan-14                173        May-16                      201        Sep-18

                    255,761                          264,973                                279,853

146        Feb-14                174        Jun-16                      202        Oct-18

                    255,761                          264,973                                279,853

147        Mar-14                175        Jul-16                      203        Nov-18

                    255,761                          269,787                                279,853

148        Apr-14                176        Aug-16                      204        Dec-18

                    255,761                          269,787                                279,853

149        May-14                177        Sep-16                      205        Jan-19

                    255,761                          269,787                                279,853

150        Jun-14                178        Oct-16                      206        Feb-19

                    255,761                          269,787                                279,853

151        Jul-14                179        Nov-16                      207        Mar-19

                    260,299                          269,787                                279,853

152        Aug-14                180        Dec-16                      208        Apr-19

                    260,299                          269,787                                279,853

153        Sep-14                181        Jan-17                      209        May-19

                    260,299                          269,787                                279,853

154        Oct-14                182        Feb-17                      210        Jun-19

                    260,299                          269,787                                279,853

155        Nov-14                183        Mar-17                      211        Jul-19

                    260,299                          269,787                                285,113

156        Dec-14                184        Apr-17                      212        Aug-19

                    260,299                          269,787                                285,113

157        Jan-15                185        May-17                      213        Sep-19

                    260,299                          269,787                                285,113

158        Feb-15                186        Jun-17                      214        Oct-19

                    260,299                          269,787                                285,113

159        Mar-15                187        Jul-17                      215        Nov-19

                    260,299                          274,745                                285,113

160        Apr-15                188        Aug-17                      216        Dec-19

                    260,299                          274,745                                285,113

161        May-15                189        Sep-17                      217        Jan-20

                    260,299                          274,745                                285,113

162        Jun-15                190        Oct-17                      218        Feb-20

                    260,299                          274,745                                285,113

163        Jul-15                191        Nov-17                      219        Mar-20

                    264,973                          274,745                                285,113

164        Aug-15                192        Dec-17                      220        Apr-20

                    264,973                          274,745                                285,113

165        Sep-15                193        Jan-18                      221        May-20

                    264,973                          274,745                                285,113

166        Oct-15                194        Feb-18                      222        Jun-20

                    264,973                          274,745                                285,113

167        Nov-15                195        Mar-18                      223        Jul-20

                    264,973                          274,745                                290,531

168        Dec-15                196        Apr-18                      224        Aug-20

                    264,973                          274,745                                290,531

169        Jan-16                197        May-18                      225        Sep-20

                    264,973                          274,745                                290,531

170        Feb-16                198        Jun-18                      226        Oct-20

                    264,973                          274,745                                290,531
</TABLE>

<PAGE>

<TABLE>
<S>        <C>      <C>              <C>        <C>      <C>                <C>        <C>      <C>
227        Nov-20                    255        Mar-23                      283        Jul-25

                    290,531                              301,861                                320,161

228        Dec-20                    256        Apr-23                      284        Aug-25

                    290,531                              301,861                                320,161

229        Jan-21                    257        May-23                      285        Sep-25

                    290,531                              301,861                                320,161

230        Feb-21                    258        Jun-23                      286        Oct-25

                    290,531                              301,861                                320,161

231        Mar-21                    259        Jul-23                      287        Nov-25

                    290,531                              307,781                                320,161

232        Apr-21                    260        Aug-23                      288        Dec-25

                    290,531                              307,781                                320,161

233        May-21                    261        Sep-23                      289        Jan-26

                    290,531                              307,781                                320,161

234        Jun-21                    262        Oct-23                      290        Feb-26

                    290,531                              307,781                                320,161

235        Jul-21                    263        Nov-23                      291        Mar-26

                    296,112                              307,781                                320,161

236        Aug-21                    264        Dec-23                      292        Apr-26

                    296,112                              307,781                                320,161

237        Sep-21                    265        Jan-24                      293        May-26

                    296,112                              307,781                                320,161

238        Oct-21                    266        Feb-24                      294        Jun-26

                    296,112                              307,781                                320,161

239        Nov-21                    267        Mar-24                      295        Jul-26

                    296,112                              307,781                                326,631

240        Dec-21                    268        Apr-24                      296        Aug-26

                    296,112                              307,781                                326,631

241        Jan-22                    269        May-24                      297        Sep-26

                    296,112                              307,781                                326,631

242        Feb-22                    270        Jun-24                      298        Oct-26

                    296,112                              307,781                                326,631

243        Mar-22                    271        Jul-24                      299        Nov-26

                    296,112                              313,880                                326,631

244        Apr-22                    272        Aug-24                      300        Dec-26

                    296,112                              313,880                                326,631

245        May-22                    273        Sep-24                      301        Jan-27

                    296,112                              313,880                                326,631

246        Jun-22                    274        Oct-24                      302        Feb-27

                    296,112                              313,880                                326,631

247        Jul-22                    275        Nov-24                      303        Mar-27

                    301,861                              313,880                                326,631

248        Aug-22                    276        Dec-24                      304        Apr-27

                    301,861                              313,880                                326,631

249        Sep-22                    277        Jan-25                      305        May-27

                    301,861                              313,880                                326,631

250        Oct-22                    278        Feb-25                      306        Jun-27

                    301,861                              313,880                                326,631

251        Nov-22                    279        Mar-25                      307        Jul-27

                    301,861                              313,880                                333,295

252        Dec-22                    280        Apr-25                      308        Aug-27

                    301,861                              313,880                                333,295

253        Jan-23                    281        May-25                      309        Sep-27

                    301,861                              313,880                                333,295

254        Feb-23                    282        Jun-25                      310        Oct-27

                    301,861                              313,880                                333,295
</TABLE>

<PAGE>

<TABLE>
<S>        <C>      <C>              <C>        <C>      <C>                <C>        <C>      <C>
311        Nov-27                    339        Mar-30                      367        Jul-32

                    333,295                              347,228                                369,735

312        Dec-27                    340        Apr-30                      368        Aug-32

                    333,295                              347,228                                369,735

313        Jan-28                    341        May-30                      369        Sep-32

                    333,295                              347,228                                369,735

314        Feb-28                    342        Jun-30                      370        Oct-32

                    333,295                              347,228                                369,735

315        Mar-28                    343        Jul-30                      371        Nov-32

                    333,295                              354,510                                369,735

316        Apr-28                    344        Aug-30                      372        Dec-32

                    333,295                              354,510                                369,735

317        May-28                    345        Sep-30                      373        Jan-33

                    333,295                              354,510                                369,735

318        Jun-28                    346        Oct-30                      374        Feb-33

                    333,295                              354,510                                369,735

319        Jul-28                    347        Nov-30                      375        Mar-33

                    340,158                              354,510                                369,735

320        Aug-28                    348        Dec-30                      376        Apr-33

                    340,158                              354,510                                369,735

321        Sep-28                    349        Jan-31                      377        May-33

                    340,158                              354,510                                369,735

322        Oct-28                    350        Feb-31                      378        Jun-33

                    340,158                              354,510                                369,735

323        Nov-28                    351        Mar-31                      379        Jul-33

                    340,158                              354,510                                377,692

324        Dec-28                    352        Apr-31                      380        Aug-33

                    340,158                              354,510                                377,692

325        Jan-29                    353        May-31                      381        Sep-33

                    340,158                              354,510                                377,692

326        Feb-29                    354        Jun-31                      382        Oct-33

                    340,158                              354,510                                377,692

327        Mar-29                    355        Jul-31                      383        Nov-33

                    340,158                              362,010                                377,692

328        Apr-29                    356        Aug-31                      384        Dec-33

                    340,158                              362,010                                377,692

329        May-29                    357        Sep-31                      385        Jan-34

                    340,158                              362,010                                377,692

330        Jun-29                    358        Oct-31                      386        Feb-34

                    340,158                              362,010                                377,692

331        Jul-29                    359        Nov-31                      387        Mar-34

                    347,228                              362,010                                377,692

332        Aug-29                    360        Dec-31                      388        Apr-34

                    347,228                              362,010                                377,692

333        Sep-29                    361        Jan-32                      389        May-34

                    347,228                              362,010                                377,692

334        Oct-29                    362        Feb-32                      390        Jun-34

                    347,228                              362,010                                377,692

335        Nov-29                    363        Mar-32                      391        Jul-34

                    347,228                              362,010                                385,888

336        Dec-29                    364        Apr-32                      392        Aug-34

                    347,228                              362,010                                385,888

337        Jan-30                    365        May-32                      393        Sep-34

                    347,228                              362,010                                385,888

338        Feb-30                    366        Jun-32                      394        Oct-34

                    347,228                              362,010                                385,888

</TABLE>

<PAGE>

<TABLE>
<S>        <C>      <C>              <C>        <C>      <C>                <C>        <C>      <C>
 395        Nov-34                   411        Mar-36                      427        Jul-37

                     385,888                             394,330                                411,980

 396        Dec-34                   412        Apr-36                      428        Aug-37

                     385,888                             394,330                                411,980

 397        Jan-35                   413        May-36                      429        Sep-37

                     385,888                             394,330                                411,980

 398        Feb-35                   414        Jun-36                      430        Oct-37

                     385,888                             394,330                                411,980

 399        Mar-35                   415        Jul-36                      431        Nov-37

                     385,888                             403,025                                411,980

 400        Apr-35                   416        Aug-36                      432        Dec-37

                     385,888                             403,025                                411,980

 401        May-35                   417        Sep-36                      433        Jan-38

                     385,888                             403,025                                411,980

 402        Jun-35                   418        Oct-36                      434        Feb-38

                     385,888                             403,025                                411,980

 403        Jul-35                   419        Nov-36                      435        Mar-38

                     394,330                             403,025                                411,980

 404        Aug-35                   420        Dec-36                      436        Apr-38

                     394,330                             403,025                                411,980

 405        Sep-35                   421        Jan-37                      437        May-38

                     394,330                             403,025                                411,980

 406        Oct-35                   422        Feb-37                      438        Jun-38

                     394,330                             403,025                                411,980

 407        Nov-35                   423        Mar-37

                     394,330                             403,025

 408        Dec-35                   424        Apr-37

                     394,330                             403,025

 409        Jan-36                   425        May-37

                     394,330                             403,025

 410        Feb-36                   426        Jun-37

                     394,330                             403,025
</TABLE><PAGE>
                                                                    EXHIBIT 10.8

                                 PROMISSORY NOTE

$18,548,483                                                       April 1, 2002

         FOR VALUE RECEIVED, on or before June 1, 2038 (the "Maturity Date"),
the undersigned, FREEDOM PLAZA LIMITED PARTNERSHIP, an Arizona limited
partnership, ("Maker"), promises to pay to the order of AMERICAN RETIREMENT
CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), without
grace, at 111 Westwood Place, Suite 200, Brentwood, Tennessee 37027 or at such
other place as Holder may designate to Maker in writing from time to time, the
principal sum of EIGHTEEN MILLION FIVE HUNDRED FORTY-EIGHT THOUSAND FOUR HUNDRED
EIGHTY-THREE AND NO/100 DOLLARS ($18,548,483.00), together with interest on the
outstanding principal balance hereof from date at the rate of six percent (6%)
per annum.

         Equal payments of principal and interest in the amount of $104,502 each
shall be due and payable in consecutive monthly installments, with the first
installment being due and payable on April 1, 2002, and subsequent installments
being due and payable on the first day of each calendar month thereafter until
the Maturity Date, on which date the entire unpaid principal balance plus all
accrued and unpaid interest shall be immediately due and payable in full.

         The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, at the option of Maker, without premium or
penalty.

MAKER AND, BY ITS ACCEPTANCE HEREOF, PAYEE, HEREBY FURTHER COVENANT AND AGREE AS
FOLLOWS:

         1.       This Note and the indebtedness evidenced hereby shall be in
default if:

                  (a)      Maker defaults in the payment of interest or
         principal as stipulated above and such default shall continue for ten
         (10) days following notice thereof to Maker;

                  (b)      Maker or any endorser, surety or guarantor of this
         Note or the indebtedness evidenced hereby (a) shall generally not pay
         or shall be unable to pay its debts as such debts become due, or (b)
         shall make an assignment for the benefit of creditors or petition or
         apply to any tribunal for the appointment of a custodian, receiver or
         trustee for it or a substantial part of its assets, or (c) shall
         commence any proceeding under any bankruptcy, reorganization,
         arrangement, readjustment of debt, dissolution or liquidation law or
         statute of any jurisdiction, whether now or hereafter in effect, or (d)
         shall have had any such petition or application filed or any such
         proceeding commenced against it in which an order for relief is entered
         or an adjudication or appointment is made, or (e) shall indicate, by
         any act or omission, its consent to, approval of or acquiescence in any
         such petition, application, proceeding or order for relief or the
         appointment of a custodian, receiver or trustee for it or a substantial
         part of its assets, or (f) shall suffer any such custodianship,
         receivership or trusteeship to continue undischarged for a period of
         thirty (30) days or more; or

                  (c)      Maker shall be liquidated, dissolved, partitioned or
         terminated, or the certificate of authority thereof shall expire or be
         revoked (excluding any administrative revocation that is remedied with
         reasonable promptness by reinstatement).
<PAGE>

Upon the occurrence of any default as set forth above, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder and/or under any other instrument or document now or
hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby, together with all unpaid interest accrued thereon, shall, at
the option of Holder and without notice to Maker, at once become due and payable
and may be collected forthwith, regardless of the stipulated date of maturity.
Upon the occurrence of any default as set forth above, at the option of Holder
and without notice to Maker, all accrued and unpaid interest, if any, shall be
added to the outstanding principal balance hereof, and the entire outstanding
principal balance, as so adjusted, shall bear interest thereafter until paid at
an annual rate (the "Default Rate") equal to the lesser of (1) six percentage
points (6.0%) in excess of the Prime Rate as reported daily by The Wall Street
Journal, as such rate varies from time to time, or (2) the maximum rate of
interest from time to time allowed by applicable law to be charged in respect of
the indebtedness evidenced hereby in effect from time to time (the "Maximum
Rate"), regardless of whether there has been an acceleration of the payment of
principal as set forth herein. All such interest shall be paid at the time of
and as a condition precedent to the curing of any such default. Time is of the
essence of this Note.

         2.       The indebtedness and other obligations of Maker evidenced
hereby are absolute and unconditional and shall be paid and performed when due,
without credit or offset, except as set forth in this paragraph 2.

         Maker and Payee are parties to a certain Lease Agreement dated as of
the date hereof, relating to a continuing care retirement community in Peoria,
Arizona known as Freedom Plaza (as the same may be amended, modified, restated,
supplemented, extended, renewed or replaced, the "Lease"). If an Event of
Default by Payee has occurred and is continuing under the Lease, Maker shall
have the right to set off the amount of any Rent, Additional Rent (as such terms
are defined in the Lease) or other sums due Maker under the Lease against
principal and interest due and payable hereunder. Maker shall exercise the
foregoing right of setoff by written notice to Payee, specifying in reasonable
detail the basis therefor and the amount thereof.

         Furthermore, if the Lease is terminated prior to the expiration of its
stated term as a direct result of an Event of Default by Payee thereunder, then
this Note shall expire and terminate contemporaneously with the termination of
the Lease, and Maker shall have no further obligation whatsoever to Holder
hereunder.

         Nothing herein shall be deemed to modify, amend, alter or impair the
Lease, Payee's obligations thereunder or Maker's remedies for an Event of
Default under the Lease. Without limiting the foregoing, the insufficiency of
any setoff hereunder or the termination hereof shall not discharge Payee from
its obligations under the Lease, except to the extent of the amounts offset.

         3.       In the event this Note is placed in the hands of an attorney
for collection or for enforcement or protection of the security, if any, or if
Holder incurs any costs incident to the collection of the indebtedness evidenced
hereby or the enforcement or protection of any security, Maker and any indorsers
hereof agree to pay a reasonable attorney's fees, all court and other costs, and
the reasonable costs of any other collection efforts.

                                      -2-
<PAGE>

         4.       Presentment for payment, demand, protest and notice of demand,
protest and nonpayment are hereby waived by Maker and all other parties hereto.
No failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. Unless otherwise specifically agreed by Holder in writing, the liability
of Maker and all other persons now or hereafter liable for payment of the
indebtedness evidenced hereby, or any portion thereof, shall not be affected by
(1) any renewal hereof or other extension of the time for payment of the
indebtedness evidenced hereby or any amount due in respect thereof, (2) the
release of all or any part of any collateral, if any, now or hereafter securing
the payment of the indebtedness evidenced hereby or any portion thereof, or (3)
the release of or resort to any person now or hereafter liable for payment of
the indebtedness evidenced hereby or any portion thereof. This Note may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification or discharge is sought.

         5.       To the extent permitted by applicable law, Maker hereby waives
and renounces, for itself and its successors and assigns, all rights to the
benefits of any appraisement, exception and homestead now provided, or that may
hereafter be provided by the Constitution and laws of the United States of
America and of any state thereof in and to all of its property, real and
personal, against the enforcement and collection of the obligations evidenced by
this Note.

         6.       All agreements herein made are expressly limited so that in no
event whatsoever, whether by reason of advancement of proceeds hereof,
acceleration of maturity of the unpaid balance hereof or otherwise, shall the
interest and loan charges agreed to be paid to Holder for the use of the money
advanced or to be advanced hereunder exceed the maximum amounts collectible
under applicable laws in effect from time to time. If for any reason whatsoever
the interest or loan charges paid or contracted to be paid in respect of the
indebtedness evidenced hereby shall exceed the maximum amounts collectible under
applicable laws in effect from time to time, then, ipso facto, the obligation to
pay such interest and/or loan charges shall be reduced to the maximum amounts
collectible under applicable laws in effect from time to time, and any amounts
collected by Holder that exceed such maximum amounts shall be applied to the
reduction of the principal balance remaining unpaid hereunder and/or refunded to
Maker so that at no time shall the interest or loan charges paid or payable in
respect of the indebtedness evidenced hereby exceed the maximum amounts
permitted from time to time by applicable law. This provision shall control
every other provision in any and all other agreements and instruments now
existing or hereafter arising between Maker and Holder with respect to the
indebtedness evidenced hereby.

         7.       Any and all notices or other communications permitted or
required to be made under this Note shall be in writing and shall be delivered
personally or sent by facsimile transmission, mail or nationally recognized
courier service (such as Federal Express) using the intended recipient's address
set forth below, or such other address as may have been supplied in writing by
the intended recipient and of which receipt has been acknowledged in writing.
Unless otherwise expressly provided herein, notices or other communications
shall be deemed to have been duly given or made (a) upon personal delivery, (b)
when sent by facsimile (confirmation of receipt received), (c) on the

                                      -3-
<PAGE>

third (3rd) day after the date of mailing, or (d) on the day after the date of
delivery to such courier service, as the case may be. Rejection, refusal to
accept or inability to deliver because of a changed address of which no notice
was given shall not affect the validity of any notice or other communication
given in accordance with the provisions of this Note. For purposes of this Note:

                           The address of the Maker is:

                                    Freedom Plaza Limited Partnership
                                    1226 North Tamiami Trail, Suite 100
                                    Sarasota, FL  34236
                                    Attention: Chief Executive Officer
                                    Facsimile Number: (941) 954-0909

                                    with a copy to:

                                    Gregory L. Patterson
                                    1226 North Tamiami Trail, Suite 100
                                    Sarasota, FL  34236
                                    Facsimile Number: (941) 954-0909

                           The address of the Payee is:

                                    American Retirement Corporation
                                    111 Westwood Place, Suite 200
                                    Brentwood, Tennessee 37027
                                    Attention:  Chief Executive Officer
                                    Facsimile Number:  (615) 221-2269

                                    with a copy to:

                                    Bass, Berry & Sims PLC
                                    2700 AmSouth Center
                                    315 Deaderick Street
                                    Nashville, Tennessee 37238
                                    Attention:  T. Andrew Smith
                                    Facsimile Number:  (615) 742-2766

         8.       This Note is intended as a contract under and shall be
construed and enforceable in accordance with the laws of the State of Tennessee,
except to the extent that federal law may be applicable to the determination of
the Maximum Rate.

         9.       As used herein, the terms "Maker" and "Holder" shall be deemed
to include their respective successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law. In the event
that more than one person, firm or entity is a maker hereunder, then all
references to "Maker" shall be deemed to refer equally to each of said persons,
firms and/or

                                      -4-
<PAGE>

entities, all of whom shall be jointly and severally liable for all of the
obligations of Maker hereunder.

         10.      Notwithstanding anything herein to the contrary, this Note
shall not be effective, and shall have no legal force and effect, except as
described in that certain Irrevocable Agreement to Enter Into Lease dated
January 1, 2002, by and between Maker and Payee.

       [THIS SPACE LEFT BLANK INTENTIONALLY; SIGNATURE APPEARS NEXT PAGE]

                                      -5-
<PAGE>

         IN WITNESS WHEREOF, the undersigned Maker has caused this Note to be
executed by its duly authorized representative as of the date first above
written

                                     MAKER:

                                     FREEDOM PLAZA LIMITED PARTNERSHIP,
                                     an Arizona limited partnership

                                     By:
                                        ---------------------------------------

                                     Title:
                                           ------------------------------------

                                      -6-

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