California Department Of General Services

There are a number of task shipment approaches that can be used by the state to build capital properties: Design-Bid-Build (Section 6828), Design-Build (Section 6829), and Lease-Based Development Agreements. This area explains the procedure for pursuing a Lease-Based Development structure.

In basic, when a brand-new state-owned capital facility is proposed, the state's preferred method is to acquire residential or commercial property for the subject task. For this technique, an acquisition phase is moneyed through the annual budget plan process, and the proper department will engage with the Department of General Services (DGS) to look for suitable sites. Once a residential or commercial property is obtained, future stages for the task will be funded through the budget plan process, and the task will be developed and built with DGS as the job manager, (or by the suitable firm for non-DGS handled jobs), with oversight by the PWB. Government Code § 14669 licenses the DGS to hire, lease, lease-purchase, or lease with the option to acquire any genuine or personal residential or commercial property for making use of any state agency, subject to defined limitations.

However, in circumstances where the state is unable to identify and get an ideal site that supports a specific capital project, a lease-based development alternative may be thought about. This kind of lease structure is normally referred to as a Build-to-Suit Lease. Under this lease structure, the state is not required to make any payments, including interim financing, till occupancy.
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Generally, there are two kinds of Build-to-Suit lease options the state may pursue:

Capitalized Lease Resulting in Ownership: Sometimes described as an "in-substance purchase" or "Lease-Purchase", a capitalized lease is one where the personal sector is accountable for obtaining, establishing, and constructing a center that is developed to state-issued specs. The lease defines that ownership of the center transfers to the state at the end of the lease term. Capitalized Lease with a Purchase Option: Similar to a capitalized lease as specified above, however the lease offers the lessee the option to acquire the rented asset at a defined value eventually throughout or at the end of the lease duration, in some cases referred to as a "Lease with Option to Purchase".

Features of a Build-to-Suit Lease:
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The state, in cooperation with the developer, completes CEQA. The state is accountable for completing property due diligence activities. A lease-based project is subject to the normal state style and building oversight (e.g. Construction Inspections Management Branch of DGS, State Fire Marshal, and so on). The state's sovereign status applies, and a lease-based task must not go through local zoning, permitting or examination. Developer costs, and revenues are folded into the lease payments. Repair, maintenance and total operating expense are generally folded into the lease until the lease ends. The regards to a capitalized lease should guarantee the facility remains in excellent repair at the end of the lease term, through the lease requirement for a Computerized Maintenance Management System.

Requirements for a Financing Lease: As with lease-revenue bonds, the state's debt commitments under the lease can not be structured in a manner which would categorize them as constitutional financial obligation. The conditions in the lease need to be comparable to the lease terms discovered in an industrial context for similar kinds of facilities. Features of a financing lease include:

Rental payments are paid only for those durations in which useful use and occupancy of the rented residential or commercial property is offered to the lessee. If there is no yearly appropriation for lease when the rented residential or commercial property is readily available for use and occupancy, the state will be in default under the lease, and treatments may be available versus the state. These remedies might consist of the vendor's or lessor's right to continue the lease around and take legal action against the state for each installment of rent as it becomes due. Acceleration of rental payments is not permitted. The responsibility to pay rental payments may be from any lawfully readily available funds of the department. The lease term must not extend beyond the anticipated helpful life of the leased residential or commercial property, and reasonable market rental worth should be paid.

Steps in a Build-to-Suit Lease: After it has actually been identified that a project site is not offered for a defined job, and that a lease structure ought to be pursued, the following actions must take place:

Statutory Authority: The department submits a Capital Outlay Budget Change Proposal asking for Trailer Bill Language to add statutory authority to pursue a capital job through the capitalized lease structure pursuant to Government Code § 14669. Also, a future appropriation will be needed to cover the expenses of state oversight of building and construction activities. For the year building and construction is anticipated to be completed, the department submits a Budget Change Proposal for one-time moving expenses and rent.

Form 9 and 10: After a project has statutory authority to enter into a capitalized lease, the customer company deals with DGS property staff to produce a Facilities Design Program that lays out job and program requirements. The final result of this activity is memorialized through a Type 9 "Space Action Request" and Form 10 "Estimate of Occupancy Costs" submittal. Both Forms 9 and 10 need to be approved by Finance.

Solicitation for private advancement entity: DGS posts a "land advertisement" on the Cal eProcure website to determine the inventory of available sites in the wanted job area owned by private developers. A "brief list" of potential sites is created, and the client company ranks them based on desirability. DGS will issue an RFP to designers on the list. Once a company is selected, DGS will negotiate a lease agreement that information the terms of the arrangement, consisting of a lease payment structure.

Legislative Notification: DGS is required to notify the legislature prior to participating in a build-to-suit lease, pursuant to GC 13332.10.

PWB approval of Lease: Although no capital expenditure is made when participating in a capitalized lease, a commitment to a capital acquisition is developed. Therefore, the last lease terms must be authorized by the PWB prior to execution. DGS should likewise present to PWB the realty due diligence. All requisite actions under CEQA need to be completed within a sensible time after PWB approval, as a "Condition Precedent" to the lease agreement. If CEQA is not attained, the state deserves to end the lease.

Design Development: Once the final lease is approved, the advancement group will design the project to the state's specifications, and will protect all needed regulative reviews and approvals, consisting of those from the Department of State Architect and the State Fire Marshal (SFM). In addition, the development group will deal with local jurisdictions (City and County) to acquire any needed .

Facility Occupancy: Once the facility is built, the SFM concerns a Certificate of Occupancy, and the customer company authorizes and "accepts" the building for its use and tenancy. The client company makes yearly payments based upon the authorized lease terms for the period of the lease. During the lease term, the designer is responsible for running and preserving the building.

Exercising a Purchase Option: For leases with a purchase option, a capital outlay appropriation adequate to fund the purchase of the capital asset and to cover any extra administrative costs will be needed. In addition, PWB's permission is essential to work out the purchase alternative. However, the existing standard is for build-to-suit leases to instantly transfer to the state at the end of the lease.