Code Section Group

Health and Safety Code - HSC

DIVISION 2. LICENSING PROVISIONS [1200 - 1797.8]

  ( Division 2 enacted by Stats. 1939, Ch. 60. )

CHAPTER 10. Continuing Care Contracts [1770 - 1793.91]

  ( Chapter 10 repealed and added by Stats. 1990, Ch. 875, Sec. 2. )

ARTICLE 2. Application [1779 - 1779.10]
  ( Article 2 added by Stats. 1990, Ch. 875, Sec. 2. )

1779.
  

(a)  An entity shall file an application for a permit to accept deposits and for a certificate of authority with the department, as set forth in this chapter, before doing any of the following:

(1)  Accepting any deposit, reservation fee, or any other payment that is related to a promise or proposal to promise to provide continuing care.

(2)  Entering into any reservation agreement, deposit agreement, or continuing care contract.

(3)  Commencing construction of a prospective continuing care retirement community. If the project is to be constructed in phases, the application shall include all planned phases.

(4)  Expanding an existing continuing care retirement community whether by converting existing buildings or by new construction.

(5)  Converting an existing structure to a continuing care retirement community.

(6)  Recommencing marketing on a planned continuing care retirement community when the applicant has previously forfeited a permit to accept deposits pursuant to Section 1703.7.

(7)  Executing new continuing care contracts after a provisional certificate of authority or certificate of authority has been inactivated, revoked, surrendered, or forfeited.

(8)  Closing the sale or transfer of a continuing care retirement community or assuming responsibility for continuing care contracts.

(b)  For purposes of paragraph (4) of subdivision (a), an expansion of a continuing care retirement community shall be deemed to occur when there is an increase in the capacity stated on the residential care facility for the elderly license issued to the continuing care retirement community, an increase in the number of units at the continuing care retirement community, an increase in the number of skilled nursing beds, or additions to or replacement of existing continuing care retirement community structures that may affect obligations to current residents.

(c)  Any provider that alters, or proposes to alter, its organization, including by means of a change in the type of entity it is, separation from another entity, merger, affiliation, spinoff, or sale, shall file a new application and obtain a new certificate of authority before the new entity may enter into any new continuing care contracts.

(d)  A new application shall not be required for an entity name change if there is no change in the entity structure or management. If the provider undergoes a name change, the provider shall notify the department in writing of the name change and shall return the previously issued certificate of authority for reissuance under the new name.

(e)  Within 10 days of submitting an application for a certificate of authority pursuant to paragraph (3), (4), (7), or (8) of subdivision (a), the provider shall notify residents of the provider’s existing community or communities of its application. The provider shall notify its resident associations of any filing with the department to obtain new financing, additional financing for a continuing care retirement community, the sale or transfer of a continuing care retirement community, any change in structure, and of any applications to the department for any expansion of a continuing care retirement community. A summary of the plans and application shall be posted in a prominent location in the continuing care retirement community so as to be accessible to all residents and the general public, indicating in the summary where the full plans and application may be inspected in the continuing care retirement community.

(f)  When the department determines that it has sufficient information on the provider or determines that the provisions do not apply and the protections provided by this article are not compromised, the department may eliminate all or portions of the application contents required under Section 1779.4 for applications filed pursuant to paragraphs (4), (5), (6), (7), and (8) of subdivision (a) or pursuant to subdivision (c).

(Amended by Stats. 2000, Ch. 820, Sec. 25. Effective January 1, 2001.)

1779.2.
  

(a)  Any entity filing an application for a permit to accept deposits and a certificate of authority shall pay an application fee.

(b)  The applicant shall pay 80 percent of the application fee for all planned phases at the time the applicant submits its application. The 80 percent payment shall be made by check payable to the Continuing Care Provider Fee Fund. The department shall not process the application until it has received this fee.

(c)  For new continuing care retirement communities or for the sale or transfer of existing continuing care retirement communities, the application fee shall be calculated as one-tenth of 1 percent of the purchase price of the continuing care retirement community, or the estimated construction cost, including the purchase price of the land or the present value of any long-term lease and all items listed in subparagraph (D) of paragraph (2) of subdivision (y) of Section 1779.4.

(d)  For existing continuing care retirement communities that are proposing new phases, remodeling or an expansion, the application fee shall be calculated as one-tenth of 1 percent of the cost of the addition, annexation, or renovation, including the value of the land and improvements and all items listed in subparagraph (D) of paragraph (2) of subdivision (y) of Section 1779.4.

(e)  For existing facilities converting to continuing care retirement communities, the application fee shall be calculated as one-tenth of 1 percent of the current appraised value of the facility, including the land, or present value of any long-term lease.

(f)  For organizational changes, the application fee shall be determined by the department based on the time and resources it considers reasonably necessary to process the application, including any consultant fees. The minimum application fee for those applications shall be two thousand dollars ($2,000).

(g)  The applicant shall pay the remainder of the application fee before the provisional certificate of authority is issued, or in the case of expansions or remodeling, before final approval of the project is granted. The applicant shall make this payment by check payable to the Continuing Care Provider Fee Fund.

(Amended by Stats. 2000, Ch. 820, Sec. 26. Effective January 1, 2001.)

1779.4.
  

An application shall contain all of the following:

(a)  A statement signed by the applicant under penalty of perjury certifying that to the best of the applicant’s knowledge and belief, the items submitted in the application are correct. If the applicant is a corporation, the chief executive officer shall sign the statement. If there are multiple applicants, these requirements shall apply to each applicant.

(b)  The name and business address of the applicant.

(c)  An itemization of the total fee calculation, including sources of figures used, and a check in the amount of 80 percent of the total application fee.

(d)  The name, address, and a description of the real property of the continuing care retirement community.

(e)  An estimate of the number of continuing care residents at the continuing care retirement community.

(f)  A description of the proposed continuing care retirement community, including the services and care to be provided to residents or available for residents.

(g)  A statement indicating whether the application is for a certificate of authority to enter into continuing care or life care contracts.

(h)  A license to operate the proposed continuing care retirement community as a residential care facility for the elderly or documentation establishing that the applicant has received a preliminary approval for licensure from the department’s Community Care Licensing Division.

(i)  A license to operate the proposed skilled nursing facility or evidence that an application has been filed with the Licensing and Certification Division of the State Department of Health Services, if applicable.

(j)  A statement disclosing any revocation or other disciplinary action taken, or in the process of being taken, against a license, permit, or certificate held or previously held by the applicant.

(k)  A description of any matter in which any interested party involved with the proposed continuing care retirement community has been convicted of a felony or pleaded nolo contendere to a felony charge, or been held liable or enjoined in a civil action by final judgment, if the felony or civil action involved fraud, embezzlement, fraudulent conversion, or the misappropriation of property. For the purpose of this subdivision, “interested party” includes any representative of the developer of the proposed continuing care retirement community or the applicant, including all general partners, executive officers, or chief operating officers and board members of corporations; and managing members and managers of limited liability companies for each entity; who has significant decisionmaking authority with respect to the proposed continuing care retirement community.

(l)  If the applicant is an entity other than an individual, the following information shall also be submitted:

(1)  A statement identifying the type of legal entity and listing the interest and extent of the interest of each principal in the legal entity. For the purposes of this paragraph, “principal” means any person or entity having a financial interest in the legal entity of 10 percent or more. When the application is submitted in the name of a corporation, the parent, sole corporate shareholder, or sole corporate member who controls the operation of the continuing care retirement community shall be listed as an applicant. When multiple corporate applicants exist, they shall be listed jointly by corporate name on the application, and the certificate of authority shall be issued in the joint names of the corporations. When the application is submitted by a partnership, all general partners shall be named as coapplicants and the department shall name them as coproviders on any certificate of authority it issues.

(2)  The names of the members of the provider’s governing body.

(3)  A statement indicating whether the applicant was or is affiliated with a religious, charitable, nonprofit or for-profit organization, and the extent of any affiliation. The statement shall also include the extent, if any, to which the affiliate organization will be responsible for the financial and contract obligations of the applicant and shall be signed by a responsible officer of the affiliate organization.

(4)  A statement identifying any parent entity or other affiliate entity, the primary activities of each entity identified, the relationship of each entity to the applicant, and the interest in the applicant held by each entity.

(5)  Copies of all contracts, management agreements, or other documents setting forth the relationships with each of the other entities.

(6)  A statement indicating whether the applicant, a principal, a parent entity, affiliate entity, subsidiary entity, any responsible employee, manager, or board member, or anyone who profits from the continuing care retirement community has had applied against it any injunctive or restrictive order of a court of record, or any suspension or revocation of any state or federal license, permit, or certificate, arising out of or relating to business activity of health or nonmedical care, including, but not limited to, actions affecting a license to operate a health care institution, nursing home, intermediate care facility, hospital, home health agency, residential care facility for the elderly, community care facility, or child day care facility.

(m)  A description of the business experience of the applicants in the operation or management of similar facilities.

(n)  A copy of any advertising material regarding the proposed continuing care retirement community prepared for distribution or publication.

(o)  Evidence of the bonds required by Section 1789.8.

(p)  A copy of any proposed reservation agreement.

(q)  A copy of the proposed deposit agreements.

(r)  The name of the proposed escrow agent and depository.

(s)  Any copies of reservation and deposit escrow account agreements.

(t)  A copy of any proposed continuing care contracts.

(u)  A statement of any monthly care fees to be paid by residents, the components and services considered in determining the fees, and the manner by which the provider may adjust these fees in the future. If the continuing care retirement community is already in operation, or if the provider operates one or more similar continuing care retirement communities within this state, the statement shall include tables showing the frequency and each percentage increase in monthly care rates at each continuing care retirement community for the previous five years, or any shorter period for which each continuing care retirement community may have been operated by the provider or his or her predecessor in interest.

(v)  A statement of the actions that have been, or will be, taken by the applicant to fund reserves as required by Section 1792 or 1792.6 and to otherwise ensure that the applicant will have adequate finances to fully perform continuing care contract obligations. The statement shall describe actions such as establishing restricted accounts, sinking funds, trust accounts, or additional reserves. If the applicant is purchasing an existing continuing care retirement community from a selling provider, the applicant shall provide an actuarial report to determine the liabilities of existing continuing care contracts and demonstrate the applicant’s ability to fund those obligations.

(w)  A copy of audited financial statements for the three most recent fiscal years of the applicant or any shorter period of time the applicant has been in existence, prepared in accordance with generally accepted accounting principles and accompanied by an independent auditor’s report from a reputable firm of certified public accountants. The audited financial statements shall be accompanied by a statement signed and dated by both the chief financial officer and chief executive officer for the applicant or, if applicable, by each general partner, or each managing member and manager, stating that the financial statements are complete, true, and correct in all material matters to the best of their knowledge.

(x)  Unaudited interim financial statements shall be included if the applicant’s fiscal year ended more than 90 days prior to the date of filing. The statements shall be either quarterly or monthly, and prepared on the same basis as the annual audited financial statements or any other basis acceptable to the department.

(y)  A financial study and a marketing study that reasonably project the feasibility of the proposed continuing care retirement community and are prepared by a firm or firms acceptable to the department. These studies shall address and evaluate, at a minimum, all of the following items:

(1)  The applicant and its prior experience, qualifications, and management, including a detailed description of the applicant’s proposed continuing care retirement community, its service package, fee structure, and anticipated opening date.

(2)  The construction plans, construction financing, and permanent financing for the proposed continuing care retirement community, including a description of the anticipated source, cost, terms, and use of all funds to be used in the land acquisition, construction, and operation of the continuing care retirement community. This proposal shall include, at a minimum, all of the following:

(A)  A description of all debt to be incurred by the applicant for the continuing care retirement community, including the anticipated terms and costs of the financing. The applicant’s outstanding indebtedness related to the continuing care retirement community may not, at any time, exceed the appraised value of the continuing care retirement community.

(B)  A description of the source and amount of the equity to be contributed by the applicant.

(C)  A description of the source and amount of all other funds, including entrance fees, that will be necessary to complete and operate the continuing care retirement community.

(D)  A statement itemizing all estimated project costs, including the real property costs and the cost of acquiring or designing and constructing the continuing care retirement community, and all other similar costs that the provider expects to incur prior to the commencement of operation. This itemization shall identify all costs related to the continuing care retirement community or project, including financing expenses, legal expenses, occupancy development costs, marketing costs, and furniture and equipment.

(E)  A description of the interest expense, insurance premiums, and property taxes that will be incurred prior to opening.

(F)  An estimate of any proposed continuing care retirement community reserves required for items such as debt service, insurance premiums, and operations.

(G)  An estimate of the amount of funds, if any, that will be necessary to fund startup losses, fund statutory and refundable contract reserves, and to otherwise provide additional financial resources in an amount sufficient to ensure full performance by the provider of its continuing care contract obligations.

(3)  An analysis of the potential market for the applicant’s continuing care retirement community, addressing such items as:

(A)  A description of the service area, including its demographic, economic, and growth characteristics.

(B)  A forecast of the market penetration the continuing care retirement community will achieve based on the proposed fee structure.

(C)  Existing and planned competition in and about the primary service area.

(4)  A detailed description of the sales and marketing plan, including all of the following:

(A)  Marketing projections, anticipated sales, and cancellation rates.

(B)  Month-by-month forecast of unit sales through sellout.

(C)  A description of the marketing methods, staffing, and advertising media to be used by the applicant.

(D)  An estimate of the total entrance fees to be received from residents prior to opening the continuing care retirement community.

(5)  Projected move-in rates, deposit collections, and resident profiles, including couple mix by unit type, age distribution, care and nursing unit utilization, and unit turnover or resale rates.

(6)  A description or analysis of development-period costs and revenues throughout the development of the proposed continuing care retirement community.

(z)  Projected annual financial statements for the period commencing on the first day of the applicant’s current fiscal year through at least the fifth year of operation.

(1)  Projected annual financial statements shall be prepared on an accrual basis using the same accounting principles and procedures as the audited financial statements furnished pursuant to subdivision (x).

(2)  Separate projected annual cash-flow statements shall be provided. These statements shall show projected annual cash-flows for the duration of any debt associated with the continuing care retirement community. If the continuing care retirement community property is leased, the cash-flow statement shall demonstrate the feasibility of closing the continuing care retirement community at the end of the lease period.

(A)  The projected annual cash-flow statements shall be submitted using prevailing rates of interest, and assume no increase of revenues and expenses due to inflation.

(B)  The projected annual cash-flow statements shall include all of the following:

(i)  A detailed description and a full explanation of all assumptions used in preparing the projections, accompanied by supporting supplementary schedules and calculations, all to be consistent with the financial study and marketing study furnished pursuant to subdivision (y). The department may require such other supplementary schedules, calculations, or projections as it determines necessary for an adequate application.

(ii)  Cash-flow from monthly operations showing projected revenues for monthly fees received from continuing care contracts, medical unit fees if applicable, other periodic fees, gifts and bequests used in operations, and any other projected source of revenue from operations less operating expenses.

(iii)  Contractual cash-flow from activities showing projected revenues from presales, deposit receipts, entrance fees, and all other projected sources of revenue from activities, less contract acquisition, marketing, and advertising expenditures.

(iv)  Cash-flows from financing activities, including, but not limited to, bond or loan proceeds less bond issue or loan costs and fees, debt service including CAL Mortgage Insurance premiums, trustee fees, principal and interest payments, leases, contracts, rental agreements, or other long-term financing.

(v)  Cash-flows from investment activities, including, but not limited to, construction progress payments, architect and engineering services, furnishings, and equipment not included in the construction contract, project development, inspection and testing, marketable securities, investment earnings, and interfund transfers.

(vi)  The increase or decrease in cash during the projection period.

(vii)  The beginning cash balance, which means cash, marketable securities, reserves, and other funds on hand, available, and committed to the proposed continuing care retirement community.

(viii)  The cash balance at the end of the period.

(ix)  Details of the components of the ending cash balance shall be provided for each period presented, including, but not limited to, the ending cash balances for bond reserves, other reserve funds, deposit funds, and construction funds balance.

(3)  If the cash-flow statements required by paragraph (2) indicate that the provider will have cash balances exceeding two months’ projected operating expenses of the continuing care retirement community, a description of the manner in which the cash balances will be invested, and the persons who will be making the investment decisions, shall accompany the application.

(4)  The department may require the applicant to furnish additional data regarding its operating budgets, projections of cash required for major repairs and improvements, or any other matter related to its projections including additional information, schedules, and calculations regarding occupancy rate projections, unit types, couple mix, sex and age estimates for resident mix, turnover rates, refund obligations, and sales.

(aa)  (1)  A declaration by the applicant acknowledging that it is required to execute and record a Notice of Statutory Limitation on Transfer relating to continuing care retirement community property.

(2)  The notice required in this subdivision shall be acknowledged and suitable for recordation, describe the property, declare the applicant’s intention to use all or part of the described property for the purposes of a continuing care retirement community pursuant to this chapter, and shall be in substantially the following form:

“NOTICE OF STATUTORY LIMITATION ON TRANSFER

Notice is hereby given that the property described below is licensed, or proposed to be licensed, for use as a continuing care retirement community and accordingly, the use and transfer of the property is subject to the conditions and limitations as to use and transfer set forth in Sections 1773 and 1789.4 of the Health and Safety Code. This notice is recorded pursuant to subdivision (aa) of Section 1779.4 of the Health and Safety Code.

The real property, which is legally owned by (insert the name of the legal owner) and is the subject of the statutory limitation to which this notice refers, is more particularly described as follows: (Insert the legal description and the assessor’s parcel number of the real property to which this notice applies.)”


(3)  The Notice of Statutory Limitation on Transfer shall remain in effect until notice of release is given by the department. The department shall execute and record a release of the notice upon proof of complete performance of all obligations to residents.

(4)  Unless a Notice of Statutory Limitation on Transfer has been recorded with respect to the land on which the applicant or provider is operating, or intends to operate a continuing care retirement community, prior to the date of execution of any trust deed, mortgage, or any other lien or encumbrance securing or evidencing the payment of money and affecting land on which the applicant or provider intends to operate a continuing care retirement community, the applicant or provider shall give the department advance written notice of the proposed encumbrance. Upon the giving of notice to the department, the applicant or provider shall execute and record the Notice of Statutory Limitation on Transfer in the office of the county recorder in each county in which any portion of the continuing care retirement community is located prior to encumbering the continuing care retirement community property with the proposed encumbrance.

(5)  In the event that the applicant or provider and the owner of record are not the same entity on the date on which execution and recordation of the notice is required, the leasehold or other interest in the continuing care retirement community property held by the applicant or provider shall survive in its entirety and without change, any transfer of the continuing care retirement community property by the owner. In addition, the applicant or provider shall record a memorandum of leasehold or other interest in the continuing care retirement community property that includes a provision stating that its interest in the property survives any transfer of the property by the owner. The applicant or provider shall provide a copy of the notice and the memorandum of interest to the owner of record by certified mail and to the department.

(6)  The notice shall, and, if applicable, the memorandum of interest shall be indexed by the recorder in the grantor-grantee index to the name of the owner of record and the name of the applicant or provider.

(ab)  A statement that the applicant will keep the department informed of any material changes to the proposed continuing care retirement community or its application.

(ac)  Any other information that may be required by the department for the proper administration and enforcement of this chapter.

(Amended by Stats. 2000, Ch. 820, Sec. 27. Effective January 1, 2001.)

1779.6.
  

(a)  Within seven calendar days of receipt of an initial application for a permit to accept deposits and a certificate of authority, the department shall acknowledge receipt of the application in writing.

(b)  Within 30 calendar days following its receipt of an application, the department shall determine if the application is complete and inform the applicant of its determination. If the department determines that the application is incomplete, its notice to the applicant shall identify the additional forms, documents, information, and other materials required to complete the application. The department shall allow the applicant adequate time to submit the requested information and materials. This review may not determine the adequacy of the materials included in the application.

(c)  Within 120 calendar days after the department determines that an application is complete, the department shall review the application for adequacy. An application shall be adequate if it complies with all the requirements imposed by this chapter, and both the financial study and marketing study reasonably project the feasibility of the proposed continuing care retirement community, as well as demonstrate the financial soundness of the applicant. The department shall either approve the application as adequate under this chapter or notify the applicant that its application is inadequate. If the application is inadequate, the department shall identify the deficiencies in the application, provide the appropriate code references, and give the applicant an opportunity to respond.

(d)  Within 60 calendar days after receiving any additional information or clarification required from the applicant, the department shall respond to the applicant’s submission in writing and state whether each specific deficiency has been addressed sufficiently to make the application adequate. If the department determines that the application is adequate and in compliance with this chapter, the department shall issue the permit to accept deposits. If the department determines that the response is inadequate, it may request additional information or clarification from the applicant pursuant to subdivision (c) or deny the application pursuant to Section 1779.10.

(e)  If the applicant does not provide the department with the additional information within 90 days after the department’s notice described in subdivision (c), the application may be denied for being inadequate. Any new application shall require an application fee.

(Amended by Stats. 2000, Ch. 820, Sec. 28. Effective January 1, 2001.)

1779.7.
  

(a)  Where any portion of the consideration transferred to an applicant as a deposit or to a provider as consideration for a continuing care contract is transferred by a person other than the prospective resident or a resident, that third-party transferor shall have the same cancellation or refund rights as the prospective resident or resident for whose benefit this consideration was transferred.

(b)  A transferor shall have the same rights to cancel and obtain a refund as the depositor under the deposit agreement or the resident under a continuing care contract.

(Added by Stats. 2000, Ch. 820, Sec. 28.5. Effective January 1, 2001.)

1779.8.
  

(a)  The applicant shall notify the department of material changes in the application information submitted to the department, including the applicant’s financial and marketing projections.

(b)  An applicant shall provide to the department at least 60 days’ advance written notice of any proposal to make any changes in the applicant’s corporate name, structure, organization, operation, or financing.

(c)  Within 30 calendar days after receiving notice of a change affecting the applicant or the application, the department shall advise the applicant:

(1)  Whether additional information is required to process the pending application.

(2)  Whether an additional application fee is required.

(3)  Whether a new application and application fee must be submitted. The new application fee shall be twice the actual cost of additional review time caused by the change. This additional fee is payable to the department on demand.

(d)  The department shall suspend the applicant’s application and, if applicable, its permit to accept deposits if the applicant fails to give written notice of changes required by this section. The suspension shall remain in effect until the department has both assessed the potential impact of the changes on the interests of depositors and taken such action as necessary under this chapter to protect these interests.

(Amended by Stats. 2000, Ch. 820, Sec. 29. Effective January 1, 2001.)

1779.10.
  

(a)  The department shall deny an application for a permit to accept deposits and a certificate of authority if the applicant fails to do any of the following:

(1)  Pay the application fee as required by Section 1779.2.

(2)  Submit all information required by this chapter.

(3)  Submit evidence to support a reasonable belief that any interested party of the proposed continuing care retirement community who has committed any offenses listed in subdivision (k) of Section 1779.4 is of such good character as to indicate rehabilitation.

(4)  Submit evidence to support a reasonable belief that the applicant is capable of administering the continuing care retirement community in compliance with applicable laws and regulations when an action specified in subdivision (j) or (k) of Section 1779.4 has been taken against the applicant.

(5)  Demonstrate the feasibility of the proposed continuing care retirement community.

(6)  Comply with residential care facility for the elderly licensing requirements.

(b)  If the application is denied, no portion of the paid application fee shall be refundable or refunded.

(c)  Immediately upon the denial of an application, the department shall notify the applicant in writing.

(d)  The Notice of Denial from the department shall contain all of the following:

(1)  A statement that the application is denied.

(2)  The grounds for the denial.

(3)  A statement informing the applicant that it has the right to appeal.

(4)  A statement that the applicant has 30 calendar days from the date that the Notice of Denial was mailed to appeal the denial, and where to send the appeal.

(e)  If the applicant appeals the denial, further proceedings shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.

(Amended by Stats. 2000, Ch. 820, Sec. 30. Effective January 1, 2001.)

HSCHealth and Safety Code - HSC2