1.  Why are we requiring a separate Operator Security Agreement and Operator Regulatory Agreement (and Operator’s Attorney’s Opinion) on an owner operated project?  (8/27/13)

 

3.  When should the Operator Security Agreement Rider be used?  (12/12/13)

 

4.  The list of defined terms in Attachment 1 may be reorganized to be in alphabetical order.  (1/14/14)

 

5.  Thank you for your 8/22/2013 discussion of the need for an Operator Regulatory and an Operator Security Agreement where a single entity acts as Borrower and Operator.  Would the Assignment of Leases and Rents attached to the Operator Security Agreement also need to be executed and recorded, or is the assignment of leases and rents contained in the Security Instrument sufficient for HUD’s purposes where a single entity acts as Borrower and Operator and no lease is required.  (5/2/14)

 

6.  Scrivener's Error in the Operator Security Agreement Corrected.  (6/19/14)

 

7.  I'm working on a 223(f) refi of a project that is owner-operated (with no Master Lease), and am looking for suggestions on how to appropriately modify the first sentence of paragraph B of the Operator Security Agreement, given that there is no Operator Lease in the present case.  (09/08/17)

Paragraph B reads: 

[IF NO MASTER LEASE, USE THE FOLLOWING:  Operator operates the Healthcare Facility, pursuant to that certain [title of Operator Lease or other agreement with Borrower], as now or hereafter amended, and/or renewed or extended (the “Borrower-Operator Agreement”)]  [IF THERE IS A MASTER LEASE, USE THE FOLLOWING:  Borrower has leased the Healthcare Facility to ____(“Master Tenant”)  pursuant to that certain [Name of Master Lease], dated as of ____, as amended from time to time (“Master Lease”).  Master Tenant has subleased the Healthcare Facility to Operator to operate the Healthcare Facility, pursuant to that certain [title of Operator’s sub-lease with Master Tenant] dated as of ____, as now or hereafter amended, and/or renewed or extended (the “Borrower-Operator Agreement”).]

Is it acceptable to delete all the bracketed language after “Operator operates the Healthcare Facility”?

 

HUD requires a Borrower and an Operator Regulatory Agreement when a borrower is also the operator of the project because each document imposes different legal obligations on the entities.  Similarly, the Borrower Security Instrument and the Operator Security Agreement contain separate requirements.  While there is a high degree of overlap between the collateral descriptions in the Security Instrument and Operator Security Agreement, those descriptions are not identical and thus both documents are required.  In situations where the owner and operator of a project are one and the same, HUD will subject that entity to the same set of requirements that would be in place if the owner and operator were different entities.  To achieve this, owner-operators must sign both Regulatory Agreements (HUD-92466-ORCF and HUD-92466A-ORCF) and both security instruments (HUD-94000-ORCF and HUD-92323-ORCF).  In the 232 document reform process, HUD sought to avoid creating new closing documents that relate only to specific types of transactions (e.g., owner-operator transactions).  The documents are intended to be applicable to all variations of deals and business models, such that the closing process is simplified and standardized to the greatest extent possible.

This standardization is also helpful if, for whatever reason, a separate operator needs to step in to operate the healthcare facility-the owner’s documents could remain intact and the new operator would sign its own regulatory agreement and security agreement.

Finally, please note that the owner-operator transactions require not only the Operator Regulatory Agreement and Security Agreement, but also the Opinion of Operator’s Counsel (HUD-92325-ORCF). 

The first set of brackets; around the words "dated as of the date of closing and provided to Lender" were included in error.  This scrivener's error has been corrected by removing the brackets.

The second sets of brackets, around the words “attached hereto as Exhibit C-1”were included in error.  This scrivener's error has been corrected by replacing the brackets with parentheses.

 

The Operator Security Agreement Rider attached to Housing Notice 2013-26 may be used upon request when the operator and borrower do not share an identity of interest and operator is therefore able to make the certification in paragraph (F) of the rider.  HUD counsel need not investigate whether any identity of interest exists.

 

 

A corrected document will be posted soon.

  

5.  Thank you for your 8/22/2013 discussion of the need for an Operator Regulatory and an Operator Security Agreement where a single entity acts as Borrower and Operator.

Would the Assignment of Leases and Rents attached to the Operator Security Agreement also need to be executed and recorded, or is the assignment of leases and rents contained in the Security Instrument sufficient for HUD’s purposes where a single entity acts as Borrower and Operator and no lease is required?

The owner, in its capacity as operator, should sign all documents required of an operator.

The Assignment of Rents that is found in the MF form of Security Instrument (Section 3) was removed from the OHP Security Instrument.  The Security Instrument still includes the words “Assignment of Rents” in its title, and Rents are Personalty and Personalty is a component within the definition of Mortgaged Property, but the Security Instrument does not give us a present assignment of rents as we get from the Assignment of Rents attached to the Operator’s Security Instrument.

This standardization is also helpful if, for whatever reason, a separate operator needs to step in to operate the healthcare facility – the owner’s documents could remain intact and the new operator would sign its own regulatory agreement and security agreement. 

 

In Section 24(a) of the operator’s security agreement, may “and secured party” be added after “additional lender” at the end of the first line.  HUD obviously wants to be an additional secured party on the financing statements.

 

 

A:  For owner-operator transactions, all language in paragraph B of the Operator Security Agreement after “Operator operates the Healthcare Facility” should be deleted. 

Thank you for bringing this matter to our attention.  OGC will work with ORCF to modify the next version of this document to clarify that this deletion is acceptable.