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— Health Care Properties Quarterly — January 2018

www.crej.com

EKS&H provides five-star service

and an unmatched client experience.

To help you improve business

outcomes and enhance stakeholder

value, our real estate practice includes

industry-specific audit, tax, technology,

and consulting solutions.

To learn more, please contact

RJ McArthur a

t rmcarthur@eksh.com

or 303.740.9400.

www.eksh.com

This article is Part 1 of a series of

articles discussing real estate issues

that are unique to senior living facili-

ties transactions.

T

he number of U.S. citizens

over the age of 65 is project-

ed to increase by 79 percent

by 2030. By 2050, those over

the age of 60 globally will

outnumber those under the age of

15 – an unprecedented event. This

demographic shift, together with

the market’s perception of future

demand for housing options for

an aging population, is driving a

marked increase in the number

of senior housing developments

across Colorado.

Senior living facilities encompass

several different types of housing

arrangements and levels of care.

Independent living communities

are designed for residents who do

not need individual services or

care, but offer amenities and pro-

gramming appealing to seniors,

including meal services and enter-

tainment options. Assisted living

facilities are multifamily properties

that provide a midrange of services

for residents who are unable to live

independently. Some assisted liv-

ing facilities include memory care

floors for residents suffering from

Alzheimer’s disease and dementia.

Skilled nursing facilities provide a

higher level of care that includes

daily nursing care and rehabilita-

tion services. A modern trend in

senior housing is continuing care

retirement communities, which

offer a combination of the fore-

going level of services, with the

intent that resi-

dents can age in a

single facility and

move to a more

intensive level of

care if and when

needed.

Because certain

senior housing

facilities provide

medical care,

they are regulated

and licensed at

the state level

(and even for

those that are not

licensed at the state level, such

as an independent living facil-

ity in Colorado, issues associated

with the Fair Housing Act and the

Americans with Disabilities Act

take on a clearer focus and impor-

tance). To help preempt regulatory

and licensing roadblocks, there are

several key considerations for par-

ties when drafting purchase and

sale agreements for licensed senior

living facilities due to the unique

regulatory requirements that vary

by state.

One key consideration when

structuring a purchase and sale of

a licensed senior living facility is

whether the sale will constitute

a “change of ownership.” If so,

the purchaser will be required to

apply for and obtain a license for

the operation of the facility post-

closing. Therefore, it is imperative

to understand what constitutes a

“change of ownership” in the appli-

cable state. For example, in some

states, such as Arizona, California

and Florida, the sale of the prop-

erty comprising

the facility does

not, alone, con-

stitute a change

of ownership. In

these states, the

operator of the

property holds the

license. As long as

the operator does

not change, there

is no change of

ownership. If the

facility is being

acquired from an

owner-operator,

the parties may

be able to avoid a change of owner-

ship by structuring the transaction

as a sale-leaseback transaction.

If the property is managed by or

leased to a third party, the parties

may be able to avoid a change of

ownership if the purchaser can

assume or enter into a new man-

agement agreement or lease with

the existing operator.

If the transaction is not struc-

tured to avoid a change of owner-

ship, then the parties must draft

the purchase and sale agreement

to address the purchaser’s applica-

tion for an operational license for

the facility (a “CHOW application”).

A major issue in processing CHOW

applications is timing. Most states

have regulations or statutes that

state the number of days in which

the regulatory agency will process

a CHOW application. Accordingly,

the seller will want to include

provisions in the purchase agree-

ment that require the purchaser

to submit a “completed” CHOW

application by a certain date to

accommodate the parties’ targeted

closing date. The purchaser, on the

other hand, will want to negotiate

for flexibility regarding the clos-

ing date if the CHOW application

is not processed by the regulatory

agency in a timely fashion. Another

issue that must be addressed is

what happens if the purchaser

is unable to obtain the required

licensure. A purchaser will want

to include issuance of a license or

regulatory approval as a condition

to the purchaser’s obligation to

close. The seller, on the other hand,

should require that the buyer use

commercially reasonable and good

faith efforts to obtain all required

licenses and regulatory approval.

If the purchaser is financing the

acquisition with a loan, it must

address several additional issues.

For example, most lenders require

the issuance of an opinion let-

ter stating that the facility will be

licensed and able to operate on the

closing date. The purchaser should

arrange for health care counsel to

issue this opinion early in the due

diligence process.

While the above represents sev-

eral key issues relevant to the

purchase and sale of senior living

facilities, it is not an exhaustive

discussion of the issues that need

to be addressed when negotiating

and structuring the transaction.

Senior living facilities are spe-

cialized properties and, as such,

transactions related thereto must

be carefully tailored, taking into

account the various regulatory

requirements and hurdles.

Considerations for purchase, sale agreements

Rick Thomas

Associate,

Brownstein Hyatt

Farber Schreck,

Denver

Noelle

Riccardella

Shareholder,

Brownstein Hyatt

Farber Schreck,

Denver

Senior Housing & Care