N.Y. Comp. Codes R. & Regs. Tit. 10 § 86-4.26 - Sales, leases and realty transactions
(a) If a facility is sold or leased or is the
subject of any other realty transaction before a rate for the facility has been
determined and certified by the commissioner, the capital cost component of
such rate shall be determined in accordance with the provisions of sections
86-4.20,
86-4.23,
86-4.24 and
86- 4.25 of this Subpart.
(b) If a
facility is sold or leased or is the subject of any other realty transaction
after a rate for the facility has been determined and certified by the
commissioner, the capital cost component of such rate shall continue with the
same force and effect as if such sale, lease or other realty transaction had
not occurred. This subdivision shall not be construed as limiting the powers
and rights of the commissioner to change rate computations based upon previous
error, deceit or any other misrepresentation or misstatement that has let the
commissioner to determine and certify a rate which he would otherwise not have
determined or certified. Further, this subdivision shall not be construed as
limiting the powers and rights of the commissioner to reduce rates when one or
more of the original property right aspects related to a facility is
terminated.
(c) If a facility
enters into a sale and leaseback agreement with a nonrelated purchaser
involving plant facilities or equipment prior to October 23, 1992 the incurred
rental specified in the agreement shall be included in allowable costs if the
following conditions are met:
(1) the rental
charges are reasonable based on consideration of rental charges of comparable
equipment and market conditions in the area; the type, expected life, condition
and value of the equipment rented and other provisions of the rental
agreements;
(2) adequate alternate
equipment which would serve the purpose are not or were not available at lower
cost; and
(3) the leasing was based
on economic and technical considerations.
(4) If all these conditions were not met, the
rental charge cannot exceed the amount which the facility would have included
in reimbursable costs had it retained legal title to the equipment, such as
interest, taxes, depreciation, insurance and maintenance costs.
(5) If a facility enters into a sale and
leaseback agreement with a nonrelated purchaser involving land, the incurred
rental costs associated with the land are not includable in allowable
costs.
(d) An arms
length lease purchase agreement with a nonrelated lessor involving plant
facilities or equipment entered into on or after October 23, 1992 which meets
any one of the four following conditions, establishes the lease as a virtual
purchase.
(1) The lease transfers title of
the facilities or equipment to the lessee during the lease term.
(2) The lease contains a bargain purchase
option.
(3) The lease term is at
least 75 percent of the useful life of the facilities or equipment. This
provision is not applicable if the lease begins in the last 25 percent of the
useful life of the facilities or equipment.
(4) The present value of the minimum lease
payments (payments to be made during the lease term including bargain purchase
option, guaranteed residual value and penalties for failure to renew) equals at
least 90 percent of the fair market value of the leased property. This
provision is not applicable if the lease begins in the last 25 percent of the
useful life of the facilities or equipment. Present value is computed using the
lessee's incremental borrowing rate, unless the interest rate implicit in the
lease is known and is less than the lessee's incremental borrowing rate, in
which case the interest rate implicit in the lease is used.
(e) If a lease is established as a
virtual purchase under subdivision (d) of this section, the rental charge is
includable in capital-related costs to the extent that it does not exceed the
amount that the provider would have included in capital-related costs if it had
legal title to the asset (the cost of ownership). The cost of ownership shall
be limited to depreciation and interest. Further, the amounts to be included in
capital-related costs are determined as follows:
(1) The difference between the amount of rent
paid and the amount of rent allowed as capital-related costs is considered a
deferred charge and is capitalized as part of the historical cost of the asset
when the asset is purchased.
(2) If
an asset is returned to the owner instead of being purchased, the deferred
charge may be included in capital-related costs in the year the asset is
returned.
(3) If the term of the
lease is extended for an additional period of time at a reduced lease cost and
the option to purchase still exists, the deferred charge may be included in
capital-related costs to the extent of increasing the reduced rental to an
amount not in excess of the cost of ownership.
(4) If the term of the lease is extended for
an additional period of time at a reduced lease cost and the option to purchase
no longer exists, the deferred charge may be included in capital-related costs
to the extent of increasing the reduced rental to a fair rental
value.
(5) If the lessee becomes
the owner of the leased asset (either by operation of the lease or by other
means), the amount considered as depreciation for the purpose of having
computed the limitation on rental charges under this subdivision, must be used
in calculating the limitation on adjustments for the purpose of determining any
gain or loss upon disposal of an asset.
(6) In the aggregate, the amount of rental or
lease costs included in capital-related costs may not exceed the amount of the
costs of ownership that the provider could have included in capital-related
costs had the provider legal title to the asset.
(f) If a facility enters into a sale and
leaseback agreement involving plant facilities or equipment on or after October
23, 1992, the amounts to be included in capital-related costs both on an annual
basis and over the useful life of the asset shall not exceed the costs of
ownership, which shall be limited to depreciation and interest, and shall be
determined as follows:
(1) If the annual
rental or lease cost in the early years of the lease are less than the annual
costs of ownership, but in the later years of the lease the annual rental or
lease costs are more than the annual costs of ownership, in the years that the
annual rental or lease costs are more than the annual costs of ownership, the
facility may include in capital-related costs annually the actual amount of
rental for lease costs, except that in any given year, the amount included in
capital-related costs is limited to an amount which would not cause the
aggregate rental or lease costs included up to that year in capital-related
costs to exceed the costs of ownership that would have been included in
capital-related costs up to that year if the provider had retained legal title
to the asset.
(2) If the annual
rental or lease costs in the early years of the lease exceed the annual costs
of ownership, which shall be limited to depreciation and interest, but in the
later years of the lease the annual rental or lease costs are less than the
annual costs of ownership, the facility may carry forward amounts of rental or
lease costs that were not included in capital-related costs in the early years
of the lease due to the costs of ownership limitation, and include these
amounts in capital-related costs in the years of the lease when the annual
rental or lease costs are less than the annual costs of ownership, provided,
however, in any given year the amount of actual annual rental or lease costs
plus the amount carried forward to that year may not exceed the amount of the
costs of ownership for that year.
(3) In the aggregate, the amount of rental or
lease costs included in capital-related costs may not exceed the amount of the
costs of ownership that the provider could have included in capital-related
costs if the provider had retained legal title to the asset.
(4) If a facility enters into a sale and
leaseback agreement involving land, the incurred rental for the cost of land is
not includable in allowable costs.
Notes
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