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— Health Care Properties Quarterly — January 2018
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www.eksh.comThis 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 agreementsRick Thomas
Associate,
Brownstein Hyatt
Farber Schreck,
Denver
Noelle
Riccardella
Shareholder,
Brownstein Hyatt
Farber Schreck,
Denver
Senior Housing & Care