There are numerous project shipment techniques that can be utilized by the state to build capital assets: Design-Bid-Build (Section 6828), Design-Build (Section 6829), and Lease-Based Development Agreements. This section describes the procedure for pursuing a Lease-Based Development structure.

In basic, 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 phase is moneyed through the annual spending plan procedure, and the appropriate department will engage with the Department of General Services (DGS) to search for ideal sites. Once a residential or commercial property is acquired, future phases for the task will be funded through the spending plan procedure, and the job will be developed and constructed with DGS as the task manager, (or by the suitable company for non-DGS handled projects), with oversight by the PWB. Government Code § 14669 licenses the DGS to hire, lease, lease-purchase, or lease with the option to acquire any real or personal residential or commercial property for using any state company, based on defined restrictions.

However, in instances where the state is unable to identify and acquire an appropriate site that supports a particular capital job, a lease-based advancement choice might be considered. This kind of lease structure is typically described as a Build-to-Suit Lease. Under this lease structure, the state is not needed to make any payments, including interim funding, until tenancy.

Generally, there are two kinds of Build-to-Suit lease choices the state might pursue:

Capitalized Lease Resulting in Ownership: Sometimes referred to as an "in-substance purchase" or "Lease-Purchase", a capitalized lease is one where the economic sector is accountable for getting, establishing, and constructing a center that is constructed to state-issued requirements. The lease defines that ownership of the facility 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 gives the lessee the option to purchase the rented property at a specified worth at some time throughout 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 cooperation with the developer, completes CEQA.
The state is accountable for completing realty due diligence activities.
A lease-based project is subject to the common state style and building and construction oversight (e.g. Construction Inspections Management Branch of DGS, State Fire Marshal, and so on).
The state's sovereign status applies, and a lease-based project ought to not undergo regional zoning, allowing or evaluation.
Developer costs, and revenues are folded into the lease payments.
Repair, maintenance and total operating expense are generally folded into the lease till the lease expires.
The regards to a capitalized lease need to ensure the facility is in good repair at the end of the lease term, through the lease requirement for a Computerized Maintenance Management System.

Requirements for a Funding Lease: Just like lease-revenue bonds, the state's financial obligation responsibilities under the lease can not be structured in such a way which would classify them as constitutional financial obligation. The terms and conditions in the lease should be similar to the lease terms discovered in an industrial context for comparable types of facilities. Features of a funding lease include:

Rental payments are paid just for those periods in which beneficial use and tenancy of the leased residential or commercial property is readily available to the lessee.
If there is no yearly appropriation for rent when the leased residential or commercial property is readily available for usage and occupancy, the state will remain in default under the lease, and solutions may be readily available versus the state. These remedies might consist of the supplier's or lessor's right to continue the lease in presence and take legal action against the state for each installment of rent as it becomes due.
Acceleration of rental payments is not permitted.
The obligation to pay rental payments may be from any legally available funds of the department.
The lease term ought to not extend beyond the expected useful life of the leased residential or commercial property, and fair market rental worth ought to be paid.

Steps in a Build-to-Suit Lease: After it has been figured out that a job website is not offered for a specified project, which a lease structure ought to be pursued, the following steps should happen:

Statutory Authority: The department sends a Capital Outlay Budget Change Proposal asking for Trailer Bill Language to include 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 activities. For the year construction is expected to be finished, the department sends a Budget plan Change Proposal for one-time moving expenses and rent.

Form 9 and 10: After a job has statutory authority to get in into a capitalized lease, the client firm deals with DGS realty personnel to create a Facilities Design Program that lays out job and program specifications. The final result of this activity is memorialized through a Type 9 "Space Action Request" and Form 10 "Estimate of Occupancy Costs" submittal. Both Forms 9 and 10 need to be authorized by Finance.

Solicitation for private development entity: DGS posts a "land ad" on the Cal eProcure website to identify the stock of available sites in the preferred task area owned by personal developers. A "short list" of prospective sites is developed, and the client firm ranks them based on desirability. DGS will provide an RFP to designers on the list. Once a firm is chosen, DGS will negotiate a lease agreement that information the terms of the agreement, consisting of a lease payment structure.

Legislative Notification: DGS is required to notify 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 entering into a capitalized lease, a dedication to a capital acquisition is developed. Therefore, the last lease terms need to be approved by the PWB prior to execution. DGS needs to also present to PWB the realty due diligence. All requisite actions under CEQA should be finished within a reasonable time after PWB approval, as a "Condition Precedent" to the lease arrangement. If CEQA is not achieved, the state can end the lease.

Design Development: Once the final lease is authorized, the development team will develop the task to the state's specifications, and will secure all required regulative reviews and approvals, consisting of those from the Department of State Architect and the State Fire Marshal (SFM). In addition, the development group will work with regional jurisdictions (City and County) to get any needed approvals.

Facility Occupancy: Once the center is constructed, the SFM concerns a Certificate of Occupancy, and the client company approves and "accepts" the building for its use and occupancy. The client firm makes annual payments based on the approved lease terms for the duration of the lease. During the lease term, the designer is accountable for operating and keeping the building.

Exercising a Purchase Option: For leases with a purchase option, a capital outlay appropriation sufficient to money the purchase of the capital possession and to cover any extra administrative costs will be needed. In addition, PWB's authorization is necessary to work out the purchase alternative. However, the current requirement is for build-to-suit leases to automatically move to the state at the end of the lease.