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There are a number of job shipment techniques that can be used by the state to construct capital properties: Design-Bid-Build (Section 6828), Design-Build (Section 6829), and Lease-Based Development Agreements. This section describes the process for pursuing a Lease-Based Development structure.

In general, when a brand-new state-owned capital center is proposed, the state's favored approach is to get residential or commercial property for the subject job. For this method, an acquisition stage is funded through the annual budget plan procedure, and the suitable department will engage with the Department of General Services (DGS) to browse for appropriate websites. Once a residential or commercial property is acquired, future phases for the project will be funded through the spending plan procedure, and the job will be designed and constructed with DGS as the job manager, (or by the suitable company for non-DGS handled tasks), with oversight by the PWB. Government Code § 14669 licenses the DGS to hire, lease, lease-purchase, or lease with the choice to acquire any real or individual residential or commercial property for the use of any state firm, based on defined restrictions.
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However, in instances where the state is unable to determine and get an appropriate site that supports a particular capital task, a lease-based advancement 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 funding, until tenancy.

Generally, there are 2 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 economic sector is responsible for getting, developing, and building a facility that is constructed to state-issued specifications. The lease specifies 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 defined above, but the lease offers the lessee the alternative to purchase the rented asset at a specified worth at some point during or at the end of the lease duration, in some cases described as a "Lease with Option to Purchase".

Features of a Build-to-Suit Lease:

The state, in collaboration with the developer, completes CEQA. The state is accountable for finishing realty due diligence activities. A lease-based task is subject to the common state style and building and construction oversight (e.g. Construction Inspections Management Branch of DGS, State Fire Marshal, etc). The state's sovereign status uses, and a lease-based project needs to not be subject to regional zoning, permitting or assessment. Developer expenses, and earnings are folded into the lease payments. Repair, upkeep and general operating expenses are typically folded into the lease till the lease ends. The regards to a capitalized lease ought to make sure the facility remains in great repair at the end of the lease term, through the lease requirement for a Computerized Maintenance Management System.

Requirements for a Financing Lease: Just like lease-revenue bonds, the state's debt responsibilities under the lease can not be structured in a manner which would classify them as constitutional debt. The conditions in the lease should resemble the lease terms discovered in an industrial context for comparable kinds of facilities. Features of a funding lease include:

Rental payments are paid only for those periods in which helpful usage and tenancy of the leased residential or commercial property is readily available to the lessee. If there is no yearly appropriation for lease when the rented residential or commercial property is readily available for use and tenancy, the state will remain in default under the lease, and remedies may be readily available versus the state. These solutions might consist of the vendor's or lessor's right to continue the lease around and take legal action against the state for each installation of rent as it ends up being due. Acceleration of rental payments is not allowed. The responsibility to pay rental payments might be from any lawfully available funds of the department. The lease term must not extend beyond the expected useful life of the rented residential or commercial property, and fair market rental value should be paid.

Steps in a Build-to-Suit Lease: After it has actually been figured out that a job site is not readily available for a specified job, which a lease structure should be pursued, the following steps need to occur:

Statutory Authority: The department sends 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 necessary to cover the costs of state oversight of building and construction activities. For the year building is expected to be finished, the department sends a Budget Change Proposal for one-time moving expenses and lease.

Form 9 and 10: After a project has statutory authority to enter into a capitalized lease, the customer agency deals with DGS genuine estate staff to create a Facilities Design Program that lays out job and program specs. The last result of this activity is memorialized through a Kind 9 "Space Action Request" and Form 10 "Estimate of Occupancy Costs" submittal. Both Forms 9 and 10 must be authorized by Finance.

Solicitation for private advancement entity: DGS posts a "land ad" on the Cal eProcure site to determine the stock of readily available websites in the desired job area owned by private designers. A "short list" of potential sites is developed, and the customer agency ranks them based on desirability. DGS will provide an RFP to designers on the list. Once a company is selected, DGS will work out a lease agreement that details the terms of the agreement, consisting of a lease payment structure.

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

PWB approval of Lease: Although no capital investment is made when participating in a capitalized lease, a commitment to a capital acquisition is created. Therefore, the terms need to be approved by the PWB prior to execution. DGS needs to likewise present to PWB the real estate due diligence. All requisite actions under CEQA need to be completed within a reasonable time after PWB approval, as a "Condition Precedent" to the lease arrangement. If CEQA is not achieved, the state deserves to terminate the lease.

Design Development: Once the last lease is approved, the advancement group will design the project to the state's specifications, and will protect all required regulatory 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 regional jurisdictions (City and County) to acquire any required approvals.

Facility Occupancy: Once the facility is built, the SFM issues a Certificate of Occupancy, and the client firm approves and "accepts" the structure for its use and occupancy. The client company makes yearly payments based on the approved lease terms throughout of the lease. During the lease term, the developer is accountable for running and keeping the structure.

Exercising a Purchase Option: For leases with a purchase choice, a capital outlay appropriation adequate to money the purchase of the capital possession and to cover any extra administrative expenses will be needed. In addition, PWB's permission is needed to exercise the purchase alternative. However, the present requirement is for build-to-suit leases to automatically move to the state at the end of the lease.