California Code of Regulations › Title 4 - Business Regulations › Division 10 - California Health Facilities Financing Authority › Chapter 1 - The Children's Hospital Program of 2018 › Section 7014 - Requirements for Construction Projects on Leased Property

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) If an
				Applicant proposes to use Grant funds for a Project other than equipment
				acquisition on property where the Applicant, or the California nonprofit
				corporation of which the Applicant is an operating entity, is a lessee under a
				lease agreement, the following requirements shall be satisfied prior to any
				release of Grant funds pursuant to Sections
				7013,
				7013.1, or
				7013.2, as applicable.
(1) The lease agreement shall provide the
				Applicant, or the California nonprofit corporation of which the Applicant is an
				operating entity, as lessee, full access to the site to carry on its healthcare
				purposes.
(2) The term of the lease
				agreement shall meet one of the following:
(A) The term of the lease agreement shall be
				at least as long as the useful life of the Project under the Grant.
(B) If the landlord under the lease agreement
				is an Affiliate, the term of the lease agreement must be at least 74% of useful
				life of the Project under the Grant.
(3) A current title report on the site,
				brought up to date as of the effective date of the lease agreement shall be
				provided to the Authority. The title report shall show all of the following:
(A) No delinquent taxes or assessments or, if
				there are delinquent taxes or assessments, these are being contested in good
				faith and the Applicant has set aside on its books adequate reserves to pay
				these taxes or assessments.
(B) No
				easements, exceptions or restrictions on the use of the site that will
				interfere with or impair the operation of the Project.
(C) No superior liens (deeds of trust or
				other rights) in the property. If there are any superior liens, they shall be
				subordinated to the lease agreement. The lease agreement shall provide that any
				subsequent encumbrance on the property (e.g. deed of trust) or sale of the
				property shall be subject to the lease agreement.
(4) Any one of the following shall be
				satisfied:
(A) The lease agreement shall
				provide for a nominal rent (e.g. $1 per year).
(B) Full rent under the lease agreement shall
				be paid in a lump sum up front.
(C)
				The Applicant, or the California nonprofit corporation of which the Applicant
				is an operating entity, shall covenant in the Grant Agreement to budget for
				payment of rent each year.
(5) The lease agreement shall provide that
				the only remedy for any default, including failure to pay rent, by lessee
				Applicant, or the California nonprofit corporation of which the Applicant is an
				operating entity, is suit for rent or specific performance to remedy any
				specific breach. The landlord's remedies for any default by lessee Applicant,
				or the California nonprofit corporation of which the Applicant is an operating
				entity, may not include cancellation of lease agreement, retaking of property
				or eviction of the lessee.
(6) The
				lease agreement shall provide for either one of the following:
(A) The lessee Applicant, or the California
				nonprofit corporation of which the Applicant is an operating entity, is
				obligated to pay all taxes and assessments on the property.
(B) The landlord will provide the lessee
				Applicant, or the California nonprofit corporation of which the Applicant is an
				operating entity, with notice of any failure to pay taxes or assessments on the
				property and an opportunity for the lessee Applicant, or the California
				nonprofit corporation of which the Applicant is an operating entity, to cure
				the failure.
(7) The
				landlord shall demonstrate that the lease agreement is legally authorized and
				has been properly approved and executed and enforceable against the landlord.
				The landlord shall provide a legal opinion of qualified counsel to this effect
				to the Authority.
(8) The lessee
				Applicant shall demonstrate that the lease agreement is legally authorized and
				has been properly approved and executed and enforceable against the lessee
				Applicant, or the California nonprofit corporation of which the Applicant is an
				operating entity. Lessee Applicant shall provide a legal opinion of qualified
				counsel to this effect to the Authority.
(9)
(A)
				Except as provided in (9)(B), the Applicant shall provide a legal opinion that
				either:
(i) The landlord is a special purpose
				entity which cannot enter federal bankruptcy proceedings, or
(ii) The lease agreement will not be an
				executory contract and cannot be rejected by the landlord in the event of
				bankruptcy.
(B) For so
				long as the landlord is an Affiliate of lessee Applicant, or the California
				nonprofit corporation of which the Applicant is an operating entity, the
				requirements of (9)(A) do not apply.
(10) The Grant Agreement shall provide that
				if the lease agreement terminates prior to the end of the useful life of the
				Project under the Grant and the property that was subject to the lease
				agreement is not simultaneously re-leased under a new lease agreement that
				complies with the requirements of this Section
				7014 or fee title to the property
				that was subject to the lease agreement is not simultaneously transferred to
				the Applicant, the Authority is entitled to recover the Grant funds pursuant to
				Section 7016.
(11) When a Project on leased property
				includes improvements to any common areas that are shared with other tenants or
				areas that are not leased by the lessee Applicant, or the California nonprofit
				corporation of which the Applicant is an operating entity, under the lease
				agreement, the Grant funds shall be limited only to the proportionate costs of
				the Project which exclude the costs related to such areas.
(12) Prior to approval of the Grant by the
				Authority, the Applicant shall submit the proposed lease agreement for review
				and demonstrate compliance with all of the above conditions and any other
				conditions required by the Authority.