Section 260.140.114.1 - Sales, Leases and Loans(a) Sales and Leases to Program. A program shall not purchase or lease property in which a sponsor has an interest unless:(1) The transaction occurs at the formation of the program and is fully disclosed in its prospectus, and(2) The property is sold upon terms fair to the program and at a price not in excess of its appraised value, and(3) The cost of the property and any improvements thereon to the sponsor is clearly established. If the sponsor's cost was less than the price to be paid by the program, the price to be paid by the program will not be deemed fair, regardless of the appraised value, unless some material change has occurred to the property which would increase the value since the sponsor acquired the property. Material factors may include the passage of a significant amount of time (but in no event less than 2 years) the assumption by the promoter of the risk of obtaining a re-zoning of the property and its subsequent re-zoning, or some other extraordinary event which in fact increases the value of the property.(4) The provisions of this paragraph notwithstanding, the sponsor may purchase property in its own name (and assume loans in connection therewith) and temporarily hold title thereto for the purpose of facilitating the acquisition of such property or the borrowing of money or obtaining of financing for the program, or completion of construction of the property, or any other purpose related to the business of the program, provided that such property is purchased by the program for a price no greater than the cost of such property to the sponsor, except for compensation permitted by Sections 260.140.113.3 and 260.140.114.6 hereof, and provided there is no difference in interest rates of the loans secured by the property at the time acquired by the sponsor and the time acquired by the program, nor any other benefit arising out of such transaction to the sponsor apart from compensation otherwise permitted by these Rules. Accordingly, all income and expenses allocable to the period during which the property was held by the sponsor shall be treated as belonging to the program upon the purchase of the property by the program. In no event shall the program purchase property from the sponsor pursuant to this subparagraph (a)(4) if the sponsor has held the property for a period in excess of 12 months prior to commencement of the offering. The sponsor shall not sell property to the program pursuant to this subparagraph (a)(4) if the cost of the property exceeds the funds reasonably anticipated to be available to the program to purchase the property. The prospectus and program agreement shall set forth a reasonable and satisfactory methodology to be utilized for determining which properties will ultimately be transferred to the program when the cost of the property acquired by the sponsor on behalf of the program exceeds program funds available to purchase the property.
(5) Notwithstanding subparagraphs (a)(1) through (4) of this Section, the program may purchase property from a program formed by the sponsor upon exercise of the rights of first refusal required by Section 260.140.114.9. In such a case the cost of the property to the program shall not exceed its appraised value at the time such rights are exercised.(b) Sales and Leases to Sponsor. A program shall not sell or lease property to the sponsor except as provided herein. (1) The program may lease property to the sponsor pursuant to a lease-back arrangement made at the outset, the terms of which are fully disclosed in the prospectus and not less favorable to the program than those offered to and accepted by persons who are not affiliates of the sponsor.(2) Not more than 10% of aggregate leasable space owned by the program may be under lease to the sponsor pursuant to terms not less favorable to the program than those offered to and accepted by persons who are not affiliates of the sponsor; provided that the sponsor may not sublet such properties unless all profits derived from such subleases in excess of rentals due on the master lease are paid to the program.(3) A sponsor may purchase property (or contract rights related thereto) from the program only if all of the following criteria are met:(A) The program does not have sufficient offering proceeds available to retain the property (or contract rights related thereto).(B) The sponsor pays the program an amount in cash equal to the cost of the property (or contract rights) to the program (including all cash payments and carrying costs related thereto).(C) The sponsor assumes all of the program's obligations and liabilities incurred in connection with the holding of the property (or contract rights) by the program.(D) The sale to the sponsor occurs not later than 90 days following the termination date of the offering.(E) A reasonable and satisfactory methodology to be used by the sponsor in determining which properties it will purchase in the event that the program's offering proceeds are insufficient to retain all properties must be fully disclosed in the prospectus.(c) Loans. No loans may be made by the program to the sponsor, except as permitted by Section 260.140.111.4(d).(d) Dealings with Related Programs. A program shall not acquire property from a program in which the sponsor has an interest, except as permitted by Section 260.140.114.1(a)(5).Cal. Code Regs. Tit. 10, § 260.140.114.1
1. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).
2. Editorial correction inserting "Conflicts of Interest and Investment Restrictions" subheading (Register 92, No. 34).
3. Change without regulatory effect amending subsections (c)-(d) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).
4. Amendment of subsection (c) filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39). Note: Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.
1. Amendment filed 5-18-92; operative 6-17-92 (Register 92, No. 22).
2. Editorial correction inserting "Conflicts of Interest and Investment Restrictions" subheading (Register 92, No. 34).
3. Change without regulatory effect amending subsections (c)-(d) filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).
4. Amendment of subsection (c) filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).