(i) The prohibition against the misuse of a Government vehicle (31 U.S.C. 638a(c)).

(j) The prohibition against the misuse of the franking privilege (18 U.S.C. 1719).

(k) The prohibition against the use of deceit in an examination or personnel action in connection with Government employment (18 U.S.C. 1917).

(1) The prohibition against fraud or false statements in a Government matter (18 U.S.C. 1001).

(m) The prohibition against mutilating or destroying a public record (18 U.S.C. 2071).

(n) The prohibition against counterfeiting and foregoing transportation requests (18 U.S.C. 508).

(0) The prohibitions against: (1) Embezzlement of Government money or property (18 U.S.C. 641); (2) failing to account for public money (18 U.S.C. 643); and (3) embezzlement of the money or property of another person in the possession of an employee by reason of his employment (18 U.S.C. 654).

(p) The prohibitions against political activities in Subchapter III of Chapter 73 of Title 5, United States Code and 18 U.S.C. 602, 607, and 608.

(q) The prohibitions against: (1) Embezzling or misapplying funds and securities, (2) making false reports with intent to defraud, (3) receiving money or profit fraudulently through act of SBA and (4) making profit out of information about value of securities of companies receiving assistance (15 U.S.C. 645).

(r) The provisions relating to post Government employment restrictions (18 U.S.C. 207).

(s) The prohibition against official acts affecting employees' personal financial interest (18 U.S.C. 208).

(t) The prohibition against the payment of Government employees' salary by other than the United States (18 U.S.C. 209).

(u) The prohibition against Government employees receiving basic pay from more than one Federal Government job for more than 40 hours per week (5 U.S.C. 5533).

(v) The prohibitions against accepting honorariums beyond designated amounts (2 U.S.C. 441(i)).

§ 106.1 Statutory provisions.

The statutory provisions will be found at 15 U.S.C. 692 to 694. It should be noted, however, that beginning with Fiscal Year 1977, no appropriation for the program has been made, Pub. L. 94-362, approved July 14, 1976, 90 Stat. 937. Accordingly, no applications under this program will be accepted until further notice.

[Rev. 1, Amdt. 3, 41 FR 37762, Sept. 8, 1976] § 106.2 Policy.

It is the intent of the Congress to strengthen the competitive free enterprise system by assisting certain qualified small business concerns to obtain leases of commercial and industrial property, where stringent credit re

For the purposes of this part:

(a) "Administrator" means the Administrator of the Small Business Administration.

(b) "SBA" means the Small Business Administration.

(c) "Small Business Concern" means a concern which would qualify as a small business under § 121.3-14 of this chapter.

(d) "Lease Guarantee" is an obligation evidenced by an insurance policy having a face value of the amount of rent assured to the lessor in the event of any default by the lessee in the covenants of the insured lease which results in vacant possession.

(e) A "qualified surety company or other qualified company” means a corporation which is authorized under applicable law to insure the rent provided for in leases of commercial or industrial property to small business

concerns.

(f) "Commercial or industrial property" means any property, personal or real, to be leased and used, occupied or possessed by a small business concern in the conduct of its business.

(g) "Lessor" means a legal entity which is the owner of the right to occupancy or possession of the property to be leased. A lessor cannot be wholly owned or controlled by the lessee, a proprietary lessee's blood relatives, or a corporate lessee's officers, directors, or stockholders.

(h) "Lessee" means a small business concern which by the terms of the lease or proposed lease will acquire the right to use, occupy or possess the leased premises. A lessee cannot be wholly owned or controlled by the lessor or an individual lessor's blood relatives or a corporate lessor's officers, directors, or stockholders.

(i) "Lease" means the proposed or executed agreement between the lessor and the small business concern conveying the right to use and occupy

or possess the leased premises for a term of years.

(j) "Rent" is the amount agreed upon by the lessor and the lessee for the right to use and occupy the leased premises and payable in fixed installments during the term of the lease.

(k) "Vacant Possession" means that the premises identified in the insured lease have been vacated by the lessee and restored to a condition which will permit immediate releasing by SBA or a participant for the purpose of mitigating loss.

(1) "Participation" means sharing the responsibility for the payment of the insured rent between SBA and a qualified surety company or other qualified company through a participation agreement.

(m) "Default" means any violation of the covenants and conditions of the lease by the lessee which results in a written demand for possession by the lessor.

(n) "Insurer" means SBA as a direct insurer or a qualified participating insurance company.

§ 106.4 Eligibility.

In order to be eligible for a lease guarantee, the lessee must:

(a) Qualify as a small business under § 121.3-14 of this chapter.

(b) Operate or propose operation of a business in conformity with Part 120-Loan Policy, of this chapter.

(c) Not be in unqualified possession of the premises under the lease prior to the issuance of a lease guarantee.

(d) Represent that without a lease guarantee on terms stipulated in the application, he is unable to obtain possession of the premises under the lease.

(e) Certify to SBA that a lease guarantee meeting the requirements of the lessee is not otherwise available on reasonable terms from private commercial sources.

§ 106.5 Procedure for lease guarantee applications.

Beginning with Fiscal Year 1977, no appropriation for the program has been made, Pub. L. 94-362, approved July 14, 1976, 90 Stat. 937. According

ly, no applications under this program will be accepted until further notice.

[Rev. 1, Amdt. 3, 41 FR 37762, Sept. 8, 1976]

§ 106.6 Reinsurance agreement.

Any agreement by SBA to reinsure a qualified company shall provide that:

(a) The premiums charged by the company shall not be in excess of those charged by SBA for its policies of rental insurance.

(b) All other charges, such as processing fees, made by the company shall be reasonable.

(c) The distribution of the responsibility for payment of claims shall be as negotiated with the participating company. An example of distribution is as follows:

The company shall be responsible for paying all claims arising out of the insurance policy up to an amount equal to 12 times the average monthly rent insured and not less than 20 percent of any claim in excess of this amount.

(d) Policies of insurance issued by the participant shall be serviced by the participating company.

(e) A portion of the total premium shall be paid to SBA for its reinsurance; the premium payable to SBA will be determined by negotiation and shall depend upon the degree and extent of the participation, but shall not exceed 21⁄21⁄2 percent of the minimum guaranteed or insured rent payable under the lease.

§ 106.7 Insurance premium and amount of insurance.

(a) The premium for this insurance shall be due not later than the effective date of the rental insurance policy, shall be a single, nonrefundable premium and shall be paid in advance of issuance of the policy.

(b) The minimum term of a lease which SBA will guarantee directly is 10 years; the maximum term for such insurance is 20 years. The minimum term of a lease which SBA will guarantee in participation with a qualified company is 5 years; the maximum term for such insurance is 20 years.

(c)(1) The maximum amount of contract rent (exclusive of contingent overages) under leases to any small business concern or its affiliates for

which a direct guarantee is issued by SBA shall not exceed the lesser of $15,000 in any month or $2,500,000 in the aggregate over the term guaranteed.

(2) The maximum amount of contract rent (exclusive of contingent overages) under two or more leases in any single property or group of contiguous properties for which direct guarantees are issued by SBA shall not exceed the lesser of $30,000 in any month or $5 million in the aggregate over the term guaranteed.

(3) SBA's share of the obligation to pay rental in participation with a qualified participating insurance company under leases to any small business concern or its affiliates shall not exceed the lesser of $15,000 in any month or $2,500,000 in the aggregate over the term guaranteed.

(4) The limitations of this subsection shall apply to all cases in which SBA has not, prior to April 1, 1971, issued a conditional commitment on an application for such a guarantee.

(d) SBA or a participant may insure all or a portion of the rent payable under a lease in installments. The outstanding amount of the policy may be increased by payment of additional premiums if the lease provides for an increase in the rent proportionate to increases in the costs of possession of the premises.

(e) The Administrator has determined on the basis of actuarial studies that the following schedule of premiums (which exclude processing fees) for rental insurance of leases of real property constitutes the maximum reasonable premiums for direct policies and policies reinsured by SBA.

§ 106.8 Approval or decline of application. (a) Applications shall be accompanied by legible leases or proposed leases in print or type having a size of not less than 8 point.

(b) No insurance or reinsurance shall be approved or issued unless the analysis of location, management and finance made by the use of a system of risk analysis, approved by SBA, indicates that there exists a reasonable expectation that the small business applicant will perform the covenants and conditions of the lease or proposed lease.

(c) The terms, conditions, and covenants in a lease or proposed lease submitted to the insurer with an application shall be subject to recipient's approval. Insurer may require modifications to be made in the lease before issuance of the policy.

(d) If the insurer so determines because of the magnitude or complexity of a single application or if there are applications filed for three or more guarantees of leases in a single development or project, an independently prepared feasibility study provided by the applicant or applicants must be submitted.

§ 106.9 Required lease agreements.

Agreements shall be reached between the lessor and lessee and stated in the lease concerning:

(a) The division, if any, of any award in condemnation proceedings representing the value of the real estate, including fixtures and the value of the leasehold interest. The lessee must retain the rights, on the presumption that such rights exist under condem

nation laws, to awards from or claims against the condemnor for any taking of the lessee's property (including any ownership in the leasehold improvements) for moving expenses and for damages for interruption of the lessee's business.

(b) The party or parties responsible for maintenance of hazard insurance and the payment of premiums therefor to insure real and personal property and whether such premiums on real property insurance are included in the minimum rent or are to be paid as additional minimum rent.

(c) The disposition of any hazard insurance proceeds and the party or parties responsible for reconstruction or repair of the premises and refurnishing or reequipping the building.

(d) The party or parties responsible for the payment of local taxes on the premises and whether such taxes are included in the minimum rent or are to be paid as additional minimum rent.

(e) That the lessee may not without the prior written consent of the lessor assign the lessee's interest in the lease or sublet the whole or any part of the premises.

(f) An equitable abatement of rent in the event all or any part of the premises are lost by casualty or condemnation proceedings. In lieu of such abatements, covenants by the tenant to obtain rent insurance or business interruption insurance will be considered.

(a) Upon the effective date of the policy of rental insurance:

(1) The lessee shall pay an amount not to exceed one-quarter of the average guaranteed annual rental into an escrow account with the insurer for the purpose of paying rental charges not in excess of the guaranteed minimum monthly rental accruing in any month in which the lessee is in default or,

(2) The lessor shall accept an insurance policy providing for a deduction of from three (3) to six (6), months rent due after the date of default as the amount of loss to be borne by the lessor, as determined by the insurer.

(b) If an escrow account is established, it shall be accompanied by a written escrow agreement containing the following provisions:

(1) Simple interest at the rate of 4 percent per annum shall accrue to the escrowed fund from the date of deposit until the date of default.

(2) A default by the lessee in the covenants and conditions of the insured lease which is asserted by the lessor in a written demand for possession of the leased premises, shall forfeit all right and title of the lessee to the escrowed fund and interest accrued thereon.

(3) Upon such default and either before or after the lessee's actual possession is terminated, the insurer shall disburse to the lessor so much of the escrow as is necessary to pay claims for the guaranteed rent of rental charges accruing in any month in which the lessee is in default.

(4) If such default is cured by written agreement between the lessor and the lessee after the insurer has disbursed funds from the escrow to pay the lessor the guaranteed rent, the lessee shall, upon placing in this escrow an amount equivalent to the disbursed funds, be restored to all right, title, and interest in the escrowed fund as if such default had not occurred.

(5) If such default is not so cured and the lessee vacates because of eviction proceedings or the lessor's written demand, any portion of the escrowed funds remaining unused after the property is rerented shall be retained by the insurer.

(6) If no such default occurs during the term of the insurance policy, the insurer, upon written request of the lessee, shall disburse the funds to the lessor for application toward the payment of the final rental charges under said lease.

(7) If, prior to the expiration of the insurance policy, the lease is terminated by mutual consent of lessee and lessor, the total funds held in escrow shall be disbursed to the lessee upon receipt by the insurer of a request for such disbursement signed by the lessor and the lessee and advising the insurer of the termination date of the lease and that all rents due and payable to

the date of termination were paid by the lessee.

(8) That the interests of the lessor and lessee in the escrowed funds shall not be subject to the claims of creditors of either the lessee or lessor or others nor to legal process and may not be voluntarily or involuntarily alienated or encumbered by lessor or lessee.

[Rev. 1, 34 FR 14881, Sept. 27, 1969, as amended by Amdt. 2, 39 FR 11417, Mar. 28, 1974]

§ 106.11 Lessors duties to lessee and in

surer.

(a) The lessor shall perform the duties to the lessee required to be rendered by the terms of the insured lease.

(b) Upon the occurrence of a default by the lessee under the insured lease, the lessor shall give written notice simultaneously to the lessee and to the insurer of the specific default.

(c) Unless such default is corrected by amicable agreement of the lessee and lessor on or before 30 days from date of notice, the lessor will take prompt action to terminate the occupancy of the lessee, to make such repairs to the property as are necessary to restore it to its original condition, ordinary wear and tear excepted, and to deliver vacant possession to the insurer unless the requirement for vacant possession is postponed pursuant to § 106.12(c): Provided, however, This shall not be construed to prohibit improvements in the premises permitted by the lease.

(d) If such default is not corrected by the lessee, the lessor shall utilize the entire period for which there are funds available in escrow for the payment of rental claims (or the deductible period) in reasonably diligent efforts to eliminate or minimize losses by rerenting the property covered by the lease to another lessee subject to the approval of the insurer for the purpose of retaining the insurance coverage unless vacant possession has been postponed pursuant to § 106.12(c).

(e) At any time after an uncorrected default and before the escrowed funds are exhausted, or the deductible