Section 260.140.114.5 - Program Expenses and Other Goods and Services Provided by the Sponsor(a) All expenses of the program shall be billed directly to and paid by the program. Reimbursements to the sponsor may be permitted for the following: (1) Organization and offering expenses subject to Section 260.140.113.2.(2) Acquisition expenses subject to Section 260.140.113.4.(3) The actual cost of goods and materials used for or by the program and obtained from unaffiliated persons.(4) Administrative and transfer agency type services provided by the sponsor, such as legal, accounting, and investor communications services, which meet the following conditions: (A) The sponsor undertakes to maintain an adequate staff to perform such services;(B) Such services are necessary to the prudent operations of the program; and(C) The price paid to the sponsor for such services does not exceed the lesser of the actual cost of such services to the sponsor or 90% of the competitive rate charged by unaffiliated persons rendering similar services in the same geographic location.(5) The actual cost of on site property management personnel if such amounts are customarily reimbursed for similar property in the same geographical location in addition to payment of the property management fee permitted by Section 260.140.113.8 of these Rules and the sponsor is compensated for property management services pursuant to that Section. Such reimbursements may not exceed a competitive rate for comparable services for similar property in the same geographic location.(b) No reimbursement shall be permitted for any services for which the sponsor is entitled to compensation by way of a separate fee. Excluded from allowable reimbursement shall be: (1) Rent or depreciation, utilities, capital equipment, and other administrative items generally falling under the category of overhead; and(2) Salaries, fringe benefits, travel expenses, and other administrative items incurred or allocated to any controlling persons of the sponsor.(c) For purposes of this Section, controlling person includes, but is not limited to, any person, whatever their title, who performs functions for the sponsor similar to those for: (1) Chairman or member of the Board of Directors;(2) Executive management, such as the president, vice-president or senior vice-president, corporate secretary, and treasurer;(3) Senior management, such as the vice-president of an operating division who reports directly to executive management; or(4) Those holding 5% or more equity interest in the sponsor or a person having the power to direct or cause the direction of the sponsor, whether through the ownership of voting securities, by contract, or otherwise.(d) Except as provided in Sections 260.140.113.3 through 260.140.113.9 and 260.140.114.6 and paragraph (a) of this Section, the sponsor may not provide other goods or services to the program unless all of the following conditions are satisfied: (1) The goods or services are necessary to the prudent operation of the program.(2) The goods or services must be provided at a price which does not exceed the lesser of the actual cost of such goods and services to the sponsor or 90% of the compensation, price or fee charged by unaffiliated persons for providing comparable goods or services on competitive terms in the same geographic location.(3) The goods or services for which the sponsor is to receive compensation shall be embodied in a written contract, fully disclosed in the prospectus, which precisely describes the goods or services to be provided and all compensation to be paid. Such contract may only be modified in any material respect by the vote of a majority in interest of limited partners and shall be terminable without penalty on 60 days' notice.(4) The sponsor must be previously engaged in the business of rendering such services, or providing such goods, independently of the program and as an ordinary and ongoing business.(5) For purposes of this paragraph (d) only, the actual cost of services means the pro rata cost of personnel, including an allocation of overhead directly attributable to such personnel, based on the amount of time the personnel spent on such services, or other method of allocation acceptable to the program's certified public accountant. The actual cost of goods includes the price of goods and materials paid to unaffiliated persons, and direct costs incurred by the sponsor in the transaction, including an allocation of overhead directly attributable to the transaction. Actual cost shall exclude all of the items set forth in paragraph (b)(2) hereof, and the items set forth in paragraph (b)(1) hereof to the extent the items are not directly attributable to the rendering of such services.(e) Notwithstanding paragraph (d) of this Section, the sponsor may provide other goods and services to the program in compliance with Section V.E.2. of the NASAA Statement of Policy on Real Estate Programs and the Comments thereto, as amended through October 12, 1988.(f) The annual program report must contain a breakdown of the costs reimbursed to the sponsor. Within the scope of the annual audit of the sponsor's financial statement, the independent certified public accountants must verify the allocation of such costs to the program. The method of verification shall at minimum provide: (A) A review of the time records of individual employees, the costs of whose services were reimbursed; and(B) A review of the specific nature of the work performed by each such employee. The methods of verification shall be in accordance with generally accepted auditing standards and shall accordingly include such tests of the accounting records and such other auditing procedures which the sponsor's independent certified public accountants consider appropriate in the circumstance. The additional costs of such verification will be itemized by said accountants on a program by program basis and may be reimbursed to the sponsor by the program in accordance with this subparagraph only to the extent that such reimbursement when added to the cost for such goods and services does not exceed 90% of the competitive rate for such goods or services as determined above. The prospectus must disclose in tabular form an estimate of such proposed expenses for the next fiscal year together with a breakdown by year of such expenses reimbursed in each of the last five public programs formed by the sponsor.Cal. Code Regs. Tit. 10, § 260.140.114.5
1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).
2. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22). Note: Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.
1. Amendment filed 1-27-84; effective thirtieth day thereafter (Register 84, No. 4).
2. Repealer and new section filed 5-18-92; operative 6-17-92 (Register 92, No. 22).