# What must the lease between an EPC and OC say?

**Short answer:** It must be written, subordinate to SBA's lien and at least as long as the loan, counting options only the OC can exercise. Rent cannot exceed the loan payment plus the EPC's direct holding costs. Source: 13 CFR § 120.111(a); SOP 50 10 8.1, Sec. A, Ch. 2, Para. A.1.

Canonical page: https://www.sbaexpress.loans/answers/epc-oc-lease-rent-requirements-sba/
Last checked: 2026-11-08

In this answer, OC means Operating Company and EPC means Eligible Passive Company.

The lease must be a fully executed written document that meets several conditions. SOP 50 10 8.1, Section A, Ch. 2, Para. A.1, and 13 CFR § 120.111(a) set them.

## Required terms

- Direct lease: the Eligible Passive Company (EPC) must lease the project property directly to the Operating Company (OC).
- Subordination: the lease must be subordinate to SBA's mortgage, trust deed lien or security interest. The SOP notes this is not the same as a landlord's waiver.
- Term: the lease, including options to renew exercisable solely by the OC, must be at least as long as the loan.
- Rents: the EPC must furnish an assignment of all rents as collateral. An assignment of the lease itself is needed only to perfect the rent assignment or to let the lender exercise tenant rights.
- Whole property: the OC must lease 100% of the property. It can sublease under the normal occupancy limits.

## The rent cap

Rent cannot exceed the amount needed to make the loan payment plus the EPC's direct expenses of holding the property. The SOP names routine maintenance, utilities, insurance and property taxes. The rule leaves no room for a profit margin in the rent.

On a 504, loan payments include those to SBA, the Third Party Lender and any lender authorized to provide the borrower's contribution. Rent cannot include accelerated payments on the Third Party Loan.

## Repayment analysis

The lender must consider whether the OC's cash flow covers the loan payment and the expenses of holding the property.

## Sources

- [13 CFR § 120.111(a)](https://www.ecfr.gov/current/title-13/section-120.111)
- [SOP 50 10 8.1, Sec. A, Ch. 2, Para. A.1 (about p. 42)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)