OAR 441-065-0050: Condominium Securities

(1) Definitions: (a) “Condominium Security” shall be defined to include the sale of a condominium in fee, leasehold, undivided interest or a license or right to use a facility with any of the following arrangements: Units offered in conjunction with: (A) The offer of a rental arrangement or similar service with emphasis on the economic benefits derived by the purchaser from the managerial efforts of the promoter in connection with the rental of the units; (B) The offering of participation in a rental pool arrangement; (C) The offering of a rental or similar arrangement which requires the purchaser to hold a unit available for rental or to use an exclusive rental agent or otherwise materially restricts the purchaser’s occupancy of his units. (b) “Net Fee Contract” means a contract under which a management company, for a percentage of the gross rental income, provides overall management of the rental operation of the condominium project but the operating costs are borne by unit owners; (c) “Gross Fee Contract” means a contract under which a management company, for a percentage of the gross rental income, provides management services. The cost of operation of the rental aspects of the project are borne by the management company but the cost of maintenance of the project is borne by the unit owners; (d) “Unit” shall mean either a condominium unit, a leasehold interest in a condominium unit, or condominium project, a partial or limited partnership interest, or undivided interest in a condominium unit; (e) “Operator” means the individual or company which does or will operate the project for the condominium unit owners; (f) “Developer” means the individual or company which constructs, acquires or converts a property in which condominium unit securities, as herein defined, are to be sold. (2) Project Financing: (a) The financing arrangements for completion of the project shall be fully disclosed in the prospectus; (b) If the project is to be phased or staged, the prospectus should clearly disclose what the effect of failure to complete the phases would be on the recreational amenities, public facilities and future use of the units; (c) No encumbrances or liens of any kind shall be permitted on any portion of the project, except an individual investor-purchaser may arrange for financing the purchase of his unit and encumber the unit for the purchase price, including a mortgage or other arrangement to purchase the furniture package; (d)(A) The developer or operator shall undertake to commit the restaurant, bar, hotel, and convention facilities to their specific uses through dedication in the Declaration of Unit Ownership; and any other use of those facilities shall only be permitted by a majority of unit owners; (B) If, for any reason, the developer or operator shall be unable or unwilling to continue the operation of those facilities, the unit owners shall have the right to acquire title to the facilities, with the purchase price to be determined by arbitration; (C) There shall be no separate ownership of service areas and other maintenance facilities necessary for the operation of the restaurant, bar, hotel, and convention facilities, and the unit owners shall own pro rata shares in all such service areas and maintenance facilities. (e) The amount of any profits to the developer, whether by way of construction fee, finder’s fee, acquisition fee, conversion costs, developer’s fee, or otherwise should be disclosed in the prospectus; (f) The proceeds of the offering shall be escrowed until the following conditions have been met: (A) That the other condominium units can be delivered free and clear of any encumbrance (other than the major lease or long-term ownership, if such is the case). This shall not prevent a unit purchaser from encumbering a unit by purchase money lien or mortgage. In lieu of the escrow requirement, a satisfactory completion bond or guaranty by a financial institution may be substituted; (B) A number of units have been sold which, in the opinion of the Director and as represented in the prospectus, will make the project feasible in light of the objectives promised to the investor-purchaser; (C) The submission to the Director of an architect’s certification that the units have been constructed according to specifications and in accordance with industry standards. In the case of a conversion of an existing structure into units, the architect’s certificate should include a statement that the conversion has taken place according to specifications and in accordance with industry standards. As an alternative to the architect’s certificate, an Engineer’s Certification may be submitted which includes a structural or condition report on the units. (3) Management Contracts: (a) The management fee shall be reasonable in light of the number of units proposed to be managed and the duties imposed thereby and shall be disclosed in the prospectus. The fees, rights, and duties of the operator and unit owners may be negotiated at the end of not more than the three-year period from the date of the first notice and at any time after the first three years, and may be canceled upon a majority vote of the unit owners. The operator shall provide for full-time management of the units and hotel facilities. In lieu of the above, a management contract with a major hotel operator with demonstrated management capabilities and expertise will be permitted for a term of up to ten years. Any such contract can be terminated by a vote of the holders of at least two-thirds (2/3) of the units; (b) A minimum number of rooms committed to a rental program shall be required and withdrawal from such a rental program shall not be permitted except upon approval of the manager and all other unit owners participating in the rental program; (c) The management contract shall provide that the operator shall submit to the unit owners, at least once annually, a written report summarizing the receipts and disbursements affecting the operation of the hotel facilities; (d) In addition, the management contract shall provide for the disbursement to the unit owners, at least quarterly, their pro rata share of receipts from the operations of the hotel facilities. (4) Financial Statements: (a) If the operator is a subsidiary of another company, the financial statements of both the parent and subsidiary will be required to be furnished in the prospectus. Such statements shall be audited in accordance with the standards prescribed by Securities and Exchange Commission Release S-X; (b) In an interstate offering of units, the use of projections will be encouraged unless prohibited by the Securities and Exchange Commission. In all intrastate offerings of units, the operator/developer shall provide the Director with a projected cash flow for the first three years of operation, the projection shall be realistic in its predictions and shall clearly identify the assumptions made with respect to all material features of the presentation. (5) Commissions and Fees: The combined real estate brokerage selling commission and securities underwriting commissions and fees in total shall not exceed 15 percent of the aggregate purchase price of the units being offered. All such commissions and fees shall be disclosed in the prospectus. Additional costs for accountants’ fees, attorneys’ fees, printing costs, and any additional costs required by any state or federal regulatory agency may be allowed in addition to the 15 percent limitation. (6) Prospectus: (a) The prospectus or other document used in connection with the solicitation or sale must be filed with the Director; (b) The prospectus shall be in a form required by the Director and may also include such information as would make it acceptable under the real estate laws or regulations of any state in which the offering is to be made; (c) The prospectus shall contain a facsimile of an engineer’s survey and report of architect’s certificate concerning the condition of the project in a form prescribed by the Director. (7) Authority of Director: The Director may amend these rules if, in his discretion, it is determined to be in the public interest and appropriate for protection of investors.