Ask the legal expert ... about preserving census
Attorney John Durso, Ungaretti & Harris LLP
Our senior resident community is under financial distress. What major things should we do to preserve census?
Loan documents frequently include an occupancy covenant, which requires that a minimum number of units be occupied as of recurring testing dates. The definition of “occupied” usually requires both physical possession of the unit by a resident, as well as the payment of all applicable fees required under the residency agreement, including any entrance fee and monthly service fees and charges. Start-up projects may also have a marketing covenant, which measures the number of units for which a deposit has been received in addition to the number of occupied units.
Failure to meet an occupancy or marketing target may not be an immediate event of default under the community's loan documents, but it could trigger a requirement that the community retain a consultant to make recommendations to improve census. The specific requirements contained in the community's loan documents should be reviewed to determine whether the lender or a trustee has an approval right related to the community's retention of a consultant. The scope of work by the consultant should also be clearly identified. Will the focus of the review be on marketing or a more comprehensive operations review?
Generally, if the loan documents require a consultant report, there might be a covenant for the community to follow the recommendations of the consultant to the extent feasible (as determined by the governing body of the community) and permitted by law.
Financial discounts or incentives to prospective residents also might be an option, but the financial ramifications to the community of any financial incentive program must be carefully considered.