On April 26, Ventas Realty, Limited Partnership, filed a lawsuit against Assisted Living Concepts, Inc. and its assorted entities, alleging the defendants are in violation of their lease with Ventas Realty due to several ALC entities facing state regulatory actions for violations of regulatory statutes.
Ventas Realty, whose sole general partner is Ventas, Inc. (NYSE:VTR), is the landlord for eight assisted living facilities operated by ALC. The suit lists three facilities located in Georgia and Alabama that have received notices of license or permit revocation hearings as a result of deficiencies deemed detrimental to facility residents, or for not being in compliance with state regulations.
These deficiencies are “jeopardizing the health, safety, and welfare of the residents and… remain unremedied despite previous citations from state health regulators,” Ventas Realty states in the filing. “These regulatory actions threaten permanent revocation of the required operating permits, license, or other authorizations in which, pursuant to the master lease agreement, Ventas has been granted a first priority security interest by the ALC Entities.”
Based on these notices to revoke the facilities’ operating permits or licenses, Ventas Realty contends that ALC and its entities have defaulted under the master lease agreement, and thus “are in material breach thereof.”
Assisted Living Concepts, for its part, denies it is in default or in breach of the master lease agreement, prompting Ventas Realty to seek a court declaration of lease violation.
In the lawsuit, Ventas Realty lists some provisions of its master lease agreement with the senior living community operator, including: “Each ALC Entity must comply with all applicable laws and keep all authorizations in full force and effect,” and “Each ALC Entity made a continuing warranty that there would be no threatened, existing or pending revocation, suspension, or termination of any authorization… [and] that it would not commit any act which may give any government authority the right to cause such ALC Entity to lose an authorization.”
If the ALC entities are found to be in default of the master lease agreement, the terms of the agreement allow Ventas to terminate the lease or the entities’ right to possession to one or more of the leased properties, along with other provisions.
“Ventas will always be proactive to protect the value of our assets by insuring that they are being operated appropriately and in regulatory compliance. We have taken legal action in response to ALC’s regulatory issues,” said Ventas in a statement. “This action is necessary to protect our assets, our shareholders, and importantly, to protect the residents of our communities. We have been working cooperatively with the state regulators who have been extremely supportive of our actions.”
Assisted Living Concepts recently announced it would delay its first quarter earnings release and conference call discussion. On behalf of purchasers of ALC’s common stock, law firm Abraham, Fruchter & Twersky, LLP has commenced an investigation into possible violations of federal securities laws.
The lawsuit was filed in U.S. District Court for the Northern District of Illinois and can be viewed here.
Written by Alyssa Gerace