California Code of Regulations › Title 4 - Business Regulations › Division 10 - California Health Facilities Financing Authority › Chapter 2.5 - The Children's Hospital Program of 2008 › Section 7068 - Requirements for Construction Projects on Leased Property

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) If a
				Children's Hospital proposes to use Grant funds for a Project other than
				equipment acquisition on property where the Children's Hospital or the
				California nonprofit corporation of which the Children's Hospital 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 7066 or
				7067:
(1) The lease agreement shall provide the
				Children's Hospital or the California nonprofit corporation of which the
				Children's Hospital is an operating entity, as lessee, full access to the site
				to carry on its healthcare purposes.
(2) The term of the lease agreement must 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 Children's Hospital 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 Children's Hospital or the California nonprofit corporation of which the
				Children's Hospital 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
				Children's Hospital or the California nonprofit corporation of which the
				Children's Hospital 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 Children's Hospital or the California nonprofit corporation
				of which the Children's Hospital 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 Children's Hospital or the
				California nonprofit corporation of which the Children's Hospital is an
				operating entity is obligated to pay all taxes and assessments on the
				property.
(B) The landlord will
				provide the lessee Children's Hospital or the California nonprofit corporation
				of which the Children's Hospital is an operating entity with notice of any
				failure to pay taxes or assessments on the property and an opportunity for the
				lessee Children's Hospital or the California nonprofit corporation of which the
				Children's Hospital 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 that
				is acceptable to the Authority.
(8)
				The lessee Children's Hospital shall demonstrate that the lease agreement is
				legally authorized and has been properly approved and executed and enforceable
				against the lessee Children's Hospital or the California nonprofit corporation
				of which the Children's Hospital is an operating entity. Lessee Children's
				Hospital shall provide a legal opinion of qualified counsel to this effect that
				is acceptable to the Authority.
(9)
(A) Except as provided in (9)(B), the
				Children's Hospital shall provide a legal opinion that either:
1. the landlord is a special purpose entity
				which cannot enter bankruptcy proceedings under the federal Bankruptcy Code,
				or
2. the lease agreement will not
				be an executory contract and cannot be rejected by the landlord in the event of
				bankruptcy. The legal opinion shall be acceptable to the
				Authority.
(B) For so
				long as the landlord is an Affiliate of lessee Children's Hospital or the
				California nonprofit corporation of which the Children's Hospital 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
				7068 or fee title to the property
				that was subject to the lease agreement is not simultaneously transferred to
				the Children's Hospital, the Authority is entitled to recover the Grant funds
				pursuant to Section
				7070.
(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 Children's Hospital or the California
				nonprofit corporation of which the Children's Hospital 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.