California Legislature—2015–16 Regular Session

Assembly Bill No. 2661

Introduced by Assembly Member Burke

February 19, 2016

An act to amend Section 1771 of the Health and Safety Code, relating to continuing care retirement communities.

LEGISLATIVE COUNSEL’S DIGEST

AB 2661, as introduced, Burke. Continuing care retirement communities: refundable contracts.

Existing law generally provides for the regulation of continuing care retirement communities and continuing care contracts by the State Department of Social Services. Existing law requires any provider offering a refundable contract, defined as a continuing care contract that includes a promise by the provider to pay an entrance fee refund or to repurchase the transferor’s interest in the continuing care retirement community when the promise to refund some or all of the initial entrance fee extends beyond the resident’s 6th year of residency, to maintain a refund reserve in trust for residents of the continuing care community. That refund reserve requirement does not apply to a continuing care contract that includes a promise to repay all or a portion of an entrance fee that is conditioned upon reoccupancy or resale of the unit previously occupied by the resident, if the conditional promise of repayment is not referred to by the applicant or provider as a “refund.”

This bill would instead make the refund reserve requirement inapplicable to a continuing care contract that includes a promise to repay all or a portion of an entrance fee that is conditioned upon reoccupancy or resale of any unit previously occupied by the resident.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 1771 of the Health and Safety Code is
amended to read:

1771.  

Unless the context otherwise requires, the definitions in
this section govern the interpretation of this chapter.

(a) (1) “Affiliate” means any person, corporation, limited
liability company, business trust, trust, partnership, unincorporated
association, or other legal entity that directly or indirectly controls,
is controlled by, or is under common control with, a provider or
applicant.

(2) “Affinity group” means a grouping of entities sharing a
common interest, philosophy, or connection (e.g., military officers,
religion).

(3) “Annual report” means the report each provider is required
to file annually with the department, as described in Section 1790.

(4) “Applicant” means any entity, or combination of entities,
that submits and has pending an application to the department for
a permit to accept deposits and a certificate of authority.

(5) “Assisted living services” includes, but is not limited to,
assistance with personal activities of daily living, including
dressing, feeding, toileting, bathing, grooming, mobility, and
associated tasks, to help provide for and maintain physical and
psychosocial comfort.

(6) “Assisted living unit” means the living area or unit within
a continuing care retirement community that is specifically
designed to provide ongoing assisted living services.

(7) “Audited financial statement” means financial statements
prepared in accordance with generally accepted accounting
begin delete principles end delete begin insert principles, end insert including the opinion of an independent
certified public accountant, and notes to the financial statements
considered customary or necessary to provide full disclosure and
complete information regarding the provider’s financial statements,
financial condition, and operation.

(b) (reserved)

(c) (1) “Cancel” means to destroy the force and effect of an
agreement or continuing care contract.

(2) “Cancellation period” means the 90-day period, beginning
when the resident physically moves into the continuing care
retirement community, during which the resident may cancel the
continuing care contract, as provided in Section 1788.2.

(3) “Care” means nursing, medical, or other health-related
services, protection or supervision, assistance with the personal
activities of daily living, or any combination of those services.

(4) “Cash equivalent” means certificates of deposit and United
States treasury securities with a maturity of five years or less.

(5) “Certificate” or “certificate of authority” means the
certificate issued by the department, properly executed and bearing
the State Seal, authorizing a specified provider to enter into one
or more continuing care contracts at a single specified continuing
care retirement community.

(6) “Condition” means a restriction, specific action, or other
requirement imposed by the department for the initial or continuing
validity of a permit to accept deposits, a provisional certificate of
authority, or a certificate of authority. A condition may limit the
circumstances under which the provider may enter into any new
deposit agreement or contract, or may be imposed as a condition
precedent to the issuance of a permit to accept deposits, a
provisional certificate of authority, or a certificate of authority.

(7) “Consideration” means some right, interest, profit, or benefit
paid, transferred, promised, or provided by one party to another
as an inducement to contract. Consideration includes some
forbearance, detriment, loss, or responsibility, that is given,
suffered, or undertaken by a party as an inducement to another
party to contract.

(8) “Continuing care contract” means a contract that includes
a continuing care promise made, in exchange for an entrance fee,
the payment of periodic charges, or both types of payments. A
continuing care contract may consist of one agreement or a series
of agreements and other writings incorporated by reference.

(9) “Continuing care promise” means a promise, expressed or
implied, by a provider to provide one or more elements of care to
an elderly resident for the duration of his or her life or for a term
in excess of one year. Any such promise or representation, whether
part of a continuing care contract, other agreement, or series of
agreements, or contained in any advertisement, brochure, or other
material, either written or oral, is a continuing care promise.

(10) “Continuing care retirement community” means a facility
located within the State of California where services promised in
a continuing care contract are provided. A distinct phase of
development approved by the department may be considered to
be the continuing care retirement community when a project is
being developed in successive distinct phases over a period of
time. When the services are provided in residents’ own homes, the
homes into which the provider takes those services are considered
part of the continuing care retirement community.

(11) “Control” means directing or causing the direction of the
financial management or the policies of another entity, including
an operator of a continuing care retirement community, whether
by means of the controlling entity’s ownership interest, contract,
or any other involvement. A parent entity or sole member of an
entity controls a subsidiary entity provider for a continuing care
retirement community if its officers, directors, or agents directly
participate in the management of the subsidiary entity or in the
initiation or approval of policies that affect the continuing care
retirement community’s operations, including, but not limited to,
approving budgets or the administrator for a continuing care
retirement community.

(d) (1) “Department” means the State Department of Social
Services.

(2) “Deposit” means any transfer of consideration, including a
promise to transfer money or property, made by a depositor to any
entity that promises or proposes to promise to provide continuing
care, but is not authorized to enter into a continuing care contract
with the potential depositor.

(3) “Deposit agreement” means any agreement made between
any entity accepting a deposit and a depositor. Deposit agreements
for deposits received by an applicant prior to the department’s
release of funds from the deposit escrow account shall be subject
to the requirements described in Section 1780.4.

(4) “Depository” means a bank or institution that is a member
of the Federal Deposit Insurance Corporation or a comparable
deposit insurance program.

(5) “Depositor” means any prospective resident who pays a
deposit. 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 the consideration was
transferred.

(6) “Director” means the Director of Social Services.

(e) (1) “Elderly” means an individual who is 60 years of age
or older.

(2) “Entity” means an individual, partnership, corporation,
limited liability company, and any other form for doing business.
Entity includes a person, sole proprietorship, estate, trust,
association, and joint venture.

(3) “Entrance fee” means the sum of any initial, amortized, or
deferred transfer of consideration made or promised to be made
by, or on behalf of, a person entering into a continuing care contract
for the purpose of ensuring care or related services pursuant to that
continuing care contract or as full or partial payment for the
promise to provide care for the term of the continuing care contract.
Entrance fee includes the purchase price of a condominium,
cooperative, or other interest sold in connection with a promise of
continuing care. An initial, amortized, or deferred transfer of
consideration that is greater in value than 12 times the monthly
care fee shall be presumed to be an entrance fee.

(4) “Equity” means the value of real property in excess of the
aggregate amount of all liabilities secured by the property.

(5) “Equity interest” means an interest held by a resident in a
continuing care retirement community that consists of either an
ownership interest in any part of the continuing care retirement
community property or a transferable membership that entitles the
holder to reside at the continuing care retirement community.

(6) “Equity project” means a continuing care retirement
community where residents receive an equity interest in the
continuing care retirement community property.

(7) “Equity securities” shall refer generally to large and
midcapitalization corporate stocks that are publicly traded and
readily liquidated for cash, and shall include shares in mutual funds
that hold portfolios consisting predominantly of these stocks and
other qualifying assets, as defined by Section 1792.2. Equity
securities shall also include other similar securities that are
specifically approved by the department.

(8) “Escrow agent” means a bank or institution, including, but
not limited to, a title insurance company, approved by the
department to hold and render accountings for deposits of cash or
cash equivalents.

(f) “Facility” means any place or accommodation where a
provider provides or will provide a resident with care or related
services, whether or not the place or accommodation is constructed,
owned, leased, rented, or otherwise contracted for by the provider.

(g) (reserved)

(h) (reserved)

(i) (1) “Inactive certificate of authority” means a certificate that
has been terminated under Section 1793.8.

(2) “Investment securities” means any of the following:

(A) Direct obligations of the United States, including obligations
issued or held in book-entry form on the books of the United States
Department of the Treasury or obligations the timely payment of
the principal of, and the interest on, which are fully guaranteed by
the United States.

(B) Obligations, debentures, notes, or other evidences of
indebtedness issued or guaranteed by any of the following:

(i) The Federal Home Loan Bank System.

(ii) The Export-Import Bank of the United States.

(iii) The Federal Financing Bank.

(iv) The Government National Mortgage Association.

(v) The begin delete Farmer’s end delete begin insert Farmers end insert Home Administration.

(vi) The Federal Home Loan Mortgage Corporation of the
Federal Housing Administration.

(vii) Any agency, department, or other instrumentality of the
United States if the obligations are rated in one of the two highest
rating categories of each rating agency rating those obligations.

(C) Bonds of the State of California or of any county, city and
county, or city in this state, if rated in one of the two highest rating
categories of each rating agency rating those bonds.

(D) Commercial paper of finance companies and banking
institutions rated in one of the two highest categories of each rating
agency rating those instruments.

(E) Repurchase agreements fully secured by collateral security
described in subparagraph (A) or (B), as evidenced by an opinion
of counsel, if the collateral is held by the provider or a third party
during the term of the repurchase agreement, pursuant to the terms
of the agreement, subject to liens or claims of third parties, and
has a market value, which is determined at least every 14 days, at
least equal to the amount so invested.

(F) Long-term investment agreements, which have maturity
dates in excess of one year, with financial institutions, including,
but not limited to, banks and insurance companies or their affiliates,
if the financial institution’s paying ability for debt obligations or
long-term claims or the paying ability of a related guarantor of the
financial institution for these obligations or claims, is rated in one
of the two highest rating categories of each rating agency rating
those instruments, or if the short-term investment agreements are
with the financial institution or the related guarantor of the financial
institution, the long-term or short-term debt obligations, whichever
is applicable, of which are rated in one of the two highest long-term
or short-term rating categories, of each rating agency rating the
bonds of the financial institution or the related guarantor, provided
that if the rating falls below the two highest rating categories, the
investment agreement shall allow the provider the option to replace
the financial institution or the related guarantor of the financial
institution or shall provide for the investment securities to be fully
collateralized by investments described in subparagraph (A), and,
provided further, if so collateralized, that the provider has a
perfected first security lien on the collateral, as evidenced by an
opinion of counsel and the collateral is held by the provider.

(G) Banker’s acceptances or certificates of deposit of, or time
deposits in, any savings and loan association that meets any of the
following criteria:

(i) The debt obligations of the savings and loan association, or
in the case of a principal bank, of the bank holding company, are
rated in one of the two highest rating categories of each rating
agency rating those instruments.

(ii) The certificates of deposit or time deposits are fully insured
by the Federal Deposit Insurance Corporation.

(iii) The certificates of deposit or time deposits are secured at
all times, in the manner and to the extent provided by law, by
collateral security described in subparagraph (A) or (B) with a
market value, valued at least quarterly, of no less than the original
amount of moneys so invested.

(H) Taxable money market government portfolios restricted to
obligations issued or guaranteed as to payment of principal and
interest by the full faith and credit of the United States.

(I) Obligations the interest on which is excluded from gross
income for federal income tax purposes and money market mutual
funds whose portfolios are restricted to these obligations, if the
obligations or mutual funds are rated in one of the two highest
rating categories by each rating agency rating those obligations.

(J) Bonds that are not issued by the United States or any federal
agency, but that are listed on a national exchange and that are rated
at least “A” by Moody’s Investors Service, or the equivalent rating
by Standard and Poor’s Corporation or Fitch Investors Service.

(K) Bonds not listed on a national exchange that are traded on
an over-the-counter basis, and that are rated at least “Aa” by
Moody’s Investors Service or “AA” by Standard and Poor’s
Corporation or Fitch Investors Service.

(j) (reserved)

(k) (reserved)

(l) “Life care contract” means a continuing care contract that
includes a promise, expressed or implied, by a provider to provide
or pay for routine services at all levels of care, including acute
care and the services of physicians and surgeons, to the extent not
covered by other public or private insurance benefits, to a resident
for the duration of his or her life. Care shall be provided under a
life care contract in a continuing care retirement community having
a comprehensive continuum of care, including a skilled nursing
facility, under the ownership and supervision of the provider on
or adjacent to the premises. begin delete No end delete begin insert A end insert change begin delete may end delete begin insert shall not end insert be made
in the monthly fee based on level of care. A life care contract shall
also include provisions to subsidize residents who become
financially unable to pay their monthly care fees.

(m) (1) “Monthly care fee” means the fee charged to a resident
in a continuing care contract on a monthly or other periodic basis
for current accommodations and begin delete services end delete begin insert services, end insert including care,
board, or lodging. Periodic entrance fee payments or other
prepayments shall not be monthly care fees.

(2) “Monthly fee contract” means a continuing care contract
that requires residents to pay monthly care fees.

(n) “Nonambulatory person” means a person who is unable to
leave a building unassisted under emergency conditions in the
manner described by Section 13131.

(o) (reserved)

(p) (1) “Per capita cost” means a continuing care retirement
community’s operating expenses, excluding depreciation, divided
by the average number of residents.

(2) “Periodic charges” means fees paid by a resident on a
periodic basis.

(3) “Permanent closure” means the voluntary or involuntary
termination or forfeiture, as specified in subdivisions (a), (b), (g),
(h), and (i) of Section 1793.7, of a provider’s certificate of authority
or license, or another action that results in the permanent relocation
of residents. Permanent closure does not apply in the case of a
natural disaster or other event out of the provider’s control.

(4) “Permit to accept deposits” means a written authorization
by the department permitting an applicant to enter into deposit
agreements regarding a single specified continuing care retirement
community.

(5) “Prepaid contract” means a continuing care contract in which
the monthly care fee, if any, may not be adjusted to cover the actual
cost of care and services.

(6) “Preferred access” means that residents who have previously
occupied a residential living unit have a right over other persons
to any assisted living or skilled nursing beds that are available at
the community.

(7) “Processing fee” means a payment to cover administrative
costs of processing the application of a depositor or prospective
resident.

(8) “Promise to provide one or more elements of care” means
any expressed or implied representation that one or more elements
of care will be provided or will be available, such as by preferred
access.

(9) “Proposes” means a representation that an applicant or
provider will or intends to make a future promise to provide care,
including a promise that is subject to a condition, such as the
construction of a continuing care retirement community or the
acquisition of a certificate of authority.

(10) “Provider” means an entity that provides continuing care,
makes a continuing care promise, or proposes to promise to provide
continuing care. “Provider” also includes any entity that controls
an entity that provides continuing care, makes a continuing care
promise, or proposes to promise to provide continuing care. The
department shall determine whether an entity controls another
entity for purposes of this article. No homeowner’s association,
cooperative, or condominium association may be a provider.

(11) “Provisional certificate of authority” means the certificate
issued by the department, properly executed and bearing the State
Seal, under Section 1786. A provisional certificate of authority
shall be limited to the specific continuing care retirement
community and number of units identified in the applicant’s
application.

(q) (reserved)

(r) (1) “Refund reserve” means the reserve a provider is required
to maintain, as provided in Section 1792.6.

(2) “Refundable contract” means a continuing care contract that
includes a promise, expressed or implied, by the provider to pay
an entrance fee refund or to repurchase the transferor’s unit,
membership, stock, or other interest in the continuing care
retirement community when the promise to refund some or all of
the initial entrance fee extends beyond the resident’s sixth year of
residency. Providers that enter into refundable contracts shall be
subject to the refund reserve requirements of Section 1792.6. A
continuing care contract that includes a promise to repay all or a
portion of an entrance fee that is conditioned upon reoccupancy
or resale of begin delete the end delete begin insert any end insert unit previously occupied by the resident shall
not be considered a refundable contract for purposes of the refund
reserve requirements of Section 1792.6, provided that this
conditional promise of repayment is not referred to by the applicant
or provider as a “refund.”

(3) “Resale fee” means a levy by the provider against the
proceeds from the sale of a transferor’s equity interest.

(4) “Reservation fee” refers to consideration collected by an
entity that has made a continuing care promise or is proposing to
make this promise and has complied with Section 1771.4.

(5) “Resident” means a person who enters into a continuing
care contract with a provider, or who is designated in a continuing
care contract to be a person being provided or to be provided
services, including care, board, or lodging.

(6) “Residential care facility for the elderly” means a housing
arrangement as defined by Section 1569.2.

(7) “Residential living unit” means a living unit in a continuing
care retirement community that is not used exclusively for assisted
living services or nursing services.

(8) “Residential temporary relocation” means the relocation of
one or more residents, except in the case of a natural disaster that
is out of the provider’s control, from one or more residential living
units, assisted living units, skilled nursing units, or a wing, floor,
or entire continuing care retirement community building, due to a
change of use or major repairs or renovations. A residential
temporary relocation shall mean a relocation pursuant to this
subdivision that lasts for a period of at least nine months but that
does not exceed 18 months without the written agreement of the
resident.

(s) (reserved)

(t) (1) “Termination” means the ending of a continuing care
contract as provided for in the terms of the continuing care contract.

(2) “Transfer trauma” means death, depression, or regressive
behavior, that is caused by the abrupt and involuntary transfer of
an elderly resident from one home to another and results from a
loss of familiar physical environment, loss of well-known
neighbors, attendants, nurses and medical personnel, the stress of
an abrupt break in the small routines of daily life, or the loss of
visits from friends and relatives who may be unable to reach the
new facility.

(3) “Transferor” means a person who transfers, or promises to
transfer, consideration in exchange for care and related services
under a continuing care contract or proposed continuing care
contract, for the benefit of another. 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.