Cal. Code Regs. Tit. 4, § 7326 - Requirements for Construction Projects on Leased Property

(a) A Grantee may use Grant funds for construction or renovation on property that is leased to the Grantee. The following requirements shall be satisfied prior to release of Grant funds:

(1) The lease agreement shall provide the Grantee, as lessee, full access to the site to carry out the Project.

(2) The term of the lease agreement shall be equal to or greater than the useful life of the Project.

(3) The lease agreement shall provide that any existing or subsequent encumbrance on the property (e.g., deed of trust) or sale of the property shall be subject to the lease agreement.

(4) The lease agreement shall provide that the only remedy for any default by Grantee, including failure to pay rent, is suit for rent or specific performance to remedy specific breach. The landlord's remedies for any default by Grantee may not include cancellation of lease agreement, retaking of property, or eviction of Grantee.

(5) 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.

(B) No easements, exceptions or restrictions on the use of the site that shall interfere with or impair the operation of the Project.

(C) A restrictive covenant recorded in the chain of title that the property shall be used only for Crisis Residential Treatment, Crisis Stabilization or Family Respite Care during the useful life of the leasehold improvements funded by the Grant.

(D) Fee title is subject to the lease agreement and recorded in the chain of title.

(6) The Grantee's legal counsel or an authorized officer of the Grantee shall sign a letter certifying that the lease agreement conforms to Section 7326, subdivision (a)(1) through (a)(5), and include a statement of the projected useful life of the Project.

(A) If the letter is signed by an authorized officer of the Grantee, a statement shall be included that the Grantee's legal counsel has been consulted.

(b) If the lease agreement terminates prior to the end of the useful life of the Project and the property that was subject to the lease agreement is not simultaneously released under a new lease agreement that complies with the requirements of this Section or fee title to the property that was subject to the lease agreement is not simultaneously transferred to the Grantee, the Authority is entitled to recover the Grant funds.

(c) 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 Grantee, the Grant funds shall be limited only to the proportionate costs of the Project which exclude the costs related to such areas.

Notes

Cal. Code Regs. Tit. 4, § 7326

1. New section filed 11-26-2018 as an emergency; operative 11-26-2018 (Register 2018, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2019 or emergency language will be repealed by operation of law on the following day.
2. Certificate of Compliance as to 11-26-2018 order transmitted to OAL 4-22-2019 and filed 5-20-2019 (Register 2019, No. 21).

Note: Authority cited: Sections 5848.5 and 5848.6, Welfare and Institutions Code. Reference: Section 5848.5, Welfare and Institutions Code.

1. New section filed 11-26-2018 as an emergency; operative 11/26/2018 (Register 2018, No. 48). A Certificate of Compliance must be transmitted to OAL by 5-28-2019 or emergency language will be repealed by operation of law on the following day.
2. Certificate of Compliance as to 11-26-2018 order transmitted to OAL 4-22-2019 and filed 5/20/2019 (Register 2019, No. 21).