[LETTERHEAD OF SHAW, PITTMAN, POTTS & TROWBRIDGE]
January 19, 1996
Commercial Net Lease Realty, Inc.
400 E. South Street
Suite 500
Orlando, Florida 32801
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Gentlemen:
On July 20, 1995, Commercial Net Realty, Inc. ("CNL Realty") filed a
registration statement on Form S-3, file number 33-61165 (the "Registration
Statement"), with the Securities and Exchange Commission, which was declared
effective on October 18, 1995. In connection with the filing of a prospectus
supplement on January 5, 1996 (the "Prospectus Supplement") to the prospectus
contained in the Registration Statement (the "Prospectus"), you have asked us to
render an opinion with respect to the qualification of CNL Realty* as a real
estate investment trust ("REIT") under sections 856 through 860 of the Internal
Revenue Code and with respect to the matters discussed under the heading
"Federal Income Tax Considerations" in the Prospectus. (Our references herein
to "the Code" are to the Internal Revenue Code of 1986, as amended, with respect
to taxable years ending on or after January 1, 1987, and to the Internal Revenue
Code of 1954, as amended, with respect to taxable years ending on or before
December 31, 1986.)
We have served as special counsel for CNL Realty in connection with the
filing of the Prospectus and the Prospectus Supplement and from time to time in
the past have represented CNL Realty on specific matters as requested by CNL
Realty. Specifically for the purpose of this opinion, we have examined and
relied upon the following: copies of CNL Realty's Articles of Incorporation and
any amendments thereto; its Federal Forms 1120 for its taxable years 1984
through 1994 (in which tax returns we observe that CNL Realty has elected to be
treated as a real estate investment trust); the Registration Statement; the
Prospectus; the Prospectus Supplement; copies of executed leases covering real
property owned by CNL Realty; and its Form S-11 Registration Statement as filed
with the Securities and Exchange Commission on August 15, 1984.
We have not served as general counsel to CNL Realty and have not been
involved in decisions regarding the day-to-day operation of CNL Realty and its
properties. We have, however, discussed the mode of operation of CNL Realty
with its officers with a view to learning information relevant to the opinions
expressed herein and have received and relied upon a certificate from CNL Realty
with respect to certain matters. A copy of the certificate is attached.
We have discussed with management of CNL Realty arrangements relating to
the management of its properties, the relationships of CNL Realty with tenants
of such properties, and certain terms of leases of such properties to tenants,
with a view to assuring that at the close of each quarter of the taxable years
covered by this opinion it met the asset composition requirements set forth in
section 856(c)(5), and with a view to assuring that, with respect to years
covered by this opinion (and as projected by CNL Realty management for all of
1996), it satisfied (or will satisfy for 1996) the 95%, 75%, and 30% gross
income tests set forth in sections 856(c)(2), (3), and (4), respectively. We
have further reviewed with management of CNL Realty the requirements that the
beneficial ownership of a REIT be held by 100 or more persons for at least
335/365ths of each taxable year and that a REIT must satisfy the diversity of
ownership requirements of section 856(h) as such requirements existed in the
years covered by this opinion, and we have been advised by management that at
all times during the years covered by this opinion (and specifically on each
record date for the payment of dividends during 1984 through the date hereof)
CNL Realty has had more than 1,000 shareholders of record, that CNL Realty
maintains the records required by section 1.857-8 of the Treasury Regulations,
that no later than January 30 of each year it sent the demand required by
section 1.857-8(d) of the Treasury Regulations to each shareholder of record
owning one percent or more of the outstanding shares of CNL Realty on the
appropriate date required by said regulation, and that the actual ownership of
CNL Realty shares was such that, to the best knowledge of its management (based
upon responses to the aforesaid demands, any filing of a Schedule 13D under the
Securities Exchange Act of 1934, as amended, or any other sources of
information), CNL Realty satisfied the applicable requirements of section
856(h). Further, we have examined various property leases and lease supplements
relating to the properties that CNL Realty owns, and although leases relating to
certain properties which CNL Realty owns have not been made available to us, CNL
Realty has represented with respect to such leases that they will conform in all
material respects to a form of lease agreement provided to us. On the basis of
discussions with management of CNL Realty, we are not aware that CNL Realty's
election to be a REIT has been terminated or challenged by the Internal Revenue
Service or any other party or that CNL Realty has revoked its election to be a
REIT for any such prior year so as to make CNL Realty ineligible to qualify as a
REIT for the years covered by this opinion.
In rendering the opinions set forth herein, we are assuming that copies of
documents examined by us are true copies of originals thereof and that the
information concerning CNL Realty set forth in CNL Realty's Federal income tax
returns, and in the Prospectus Supplement, as well as the information provided
us by CNL Realty's management are true and correct. We have no reason to
believe that such assumptions are not warranted.
Based upon the foregoing, we are of the opinion that: (a) CNL Realty was a
"real estate investment trust" as defined by section 856(a) for its taxable
years ended December 31, 1984 through December 31, 1995, and its proposed method
of operation will enable it to meet the requirements for qualification and
taxation as a REIT for its taxable year ending December 31, 1996 and for all
future taxable years, and (b) CNL Realty's wholly owned subsidiaries, Net Lease
Realty I, Inc. and Net Lease Realty II, Inc., were each "qualified REIT
subsidiaries" as defined by section 856(i) for CNL Realty's taxable year ending
December 31, 1995, and their proposed ownership will enable them to meet the
requirements for treatment as qualified REIT subsidiaries for CNL Realty's
taxable year ending December 31, 1996 and for all future taxable years.
However, with respect to the 1996 year and all future years, we note that CNL
Realty's status as a real estate investment trust at any time is dependent among
other things upon its meeting the requirements of section 856 throughout the
year and for the year as a whole.
In addition, we have participated in the preparation of the material under
the heading "Federal Income Tax Considerations" in the Prospectus, and we are of
the opinion that the matters described therein are accurate and we consent to
your filing of this opinion as an exhibit to the Prospectus Supplement and the
Registration Statement.
This opinion is based upon the existing provisions of the Code (or
predecessor provisions, as applicable), rules and regulations (including
proposed regulations) promulgated thereunder, and reported administrative and
judicial interpretations thereof, all of which are subject to change, possibly
with retroactive effect. This opinion is limited to the specific matters
covered hereby and should not be interpreted to imply that the undersigned has
offered its opinion on any other matter.
Very truly yours,
SHAW, PITTMAN, POTTS & TROWBRIDGE
By:
---------------------------
Charles B. Temkin, P.C.
* Unless otherwise noted, all references to CNL Realty herein refer to CNL
Realty and its wholly owned subsidiaries, Net Lease Realty I, Inc. and Net Lease
Realty II, Inc.
** All section references herein are to the Code or to the regulations issued
thereunder.