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EXHIBIT 8
[LETTERHEAD OF SHAW, PITTMAN, POTTS & TROWBRIDGE]
September 11, 1997
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
Ladies and Gentlemen:
On April 8, 1997, Commercial Net Lease Realty, Inc. ("CNL Realty")
filed a registration statement on Form S-3, file number 333-24773 (the
"Registration Statement"), with the Securities and Exchange Commission, which
was declared effective on April 22, 1997. In connection with the filing of a
prospectus supplement on September 12, 1997, you have asked us to render an
opinion with respect to the qualification of Commercial Net Lease Realty, Inc.
("CNL Realty") as a real estate investment trust ("REIT") under sections 856
through 860 of the Internal Revenue Code. (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.)(1)
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 1996 (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; the Form 10-K filed on
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(1) All section references herein are to the Code or to the regulations
issued thereunder.
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Commercial Net Lease Realty, Inc., et. al.
September 11, 1997
Page 2
March 20, 1997; 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, it satisfied 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 that CNL Realty owns have not been made
available to us, CNL Realty has represented with respect to such leases that
they do 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.
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Commercial Net Lease Realty, Inc., et. al.
September 11, 1997
Page 3
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, 1996, 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,
1997 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, 1996, and their proposed ownership, as well as
the proposed ownership of two additional wholly owned subsidiaries, Net Lease
Realty III, Inc. and Net Lease Realty IV, Inc., will enable them to meet the
requirements for treatment as qualified REIT subsidiaries for CNL Realty's
taxable year ending December 31, 1997 and for all future taxable years.
However, with respect to the 1997 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.
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.
We hereby confirm that the statements set forth in the Prospectus
Supplement under the heading "Federal Income Tax Considerations," to the extent
that they constitute matters of law or legal conclusions with respect thereto,
are correct in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Prospectus Supplement. We also consent to the reference to Shaw, Pittman,
Potts & Trowbridge under the captions "Federal Income Tax Considerations" and
"Legal Matters" in the Prospectus Supplement. In giving such consent, we do
not consider that we are "experts," within the meaning of the term used in the
Act or the rules and regulations of the Securities and Exchange
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Commercial Net Lease Realty, Inc., et. al.
September 11, 1997
Page 4
Commission promulgated thereunder, with respect to any part of the Prospectus
Supplement, including this opinion as an exhibit or otherwise.
Very truly yours,
SHAW, PITTMAN, POTTS & TROWBRIDGE
By: /s/ CHARLES B. TEMKIN, P.C.
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Charles B. Temkin, P.C.
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COMMERCIAL NET LEASE REALTY, INC.
400 E. South Street, Suite 500
Orlando, Florida 32801-2878
Certificate
September 11, 1997
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037-1128
Ladies and Gentlemen:
In connection with the opinion letter to be issued by you with respect
to the qualification of Commercial Net Lease Realty, Inc. (formerly CNL Realty
Investors, Inc.) ("CNL Realty")(1) as a real estate investment trust ("REIT")
under sections 856 through 860 of the Internal Revenue Code of 1954 and the
Internal Revenue Code of 1986, as applicable (the "Code"), and with respect to
the matters discussed under the heading "Federal Income Tax Considerations" in
the prospectus to a registration statement on Form S-3 dated April 22, 1997
(the "Prospectus") as supplemented by a prospectus supplement dated September
11, 1997 (the "Prospectus Supplement"), CNL Realty, intending that you shall
rely on the contents of this Certificate, represents to you as follows:
1. CNL Realty has been and will be operated in accordance with
the terms and provisions of the Articles of Incorporation of Commercial Net
Realty, Inc., as amended from time to time.
2. CNL Realty has been and will be operated in a manner
consistent with the statements and representations set forth in the Prospectus
and the Prospectus Supplement.
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(1) Unless otherwise noted, all references to CNL Realty herein refer to
CNL Realty and its wholly owned subsidiaries Net Lease Realty I, Inc., Net
Lease Realty II, Inc., Net Lease Realty III, Inc. and Net Lease Realty IV, Inc.
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September 11, 1997
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3. The beneficial ownership of CNL Realty has been held by 100 or
more persons for at least 335/365ths of (a) each of CNL Realty's taxable years
from 1984 through 1996 and (b) the current taxable year to date.
4. On each record date for the payment of dividends from 1984
through September 11, 1997, CNL Realty has had more than 1,000 shareholders of
record.
5. CNL Realty has adopted December 31 as its taxable year-end for
U.S. federal income tax purposes.
6. CNL Realty has maintained the records required by section
1.857-8(d) of the Treasury Regulations, and no later than January 30 of each
year from 1985 through 1997, 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, and CNL Realty intends to send
such demands by January 30 of its current taxable year.
7. To the best knowledge of CNL Realty's management (based upon
any responses to demands made pursuant to section 1.857-8(d) of the Treasury
Regulations, any filing of a Schedule 13D under the Securities Exchange Act of
1934, as amended, or any other sources of information), the actual ownership of
CNL Realty shares has satisfied the applicable requirements of section 856(h)
of the Code during the last half of each of CNL Realty's taxable years from
1984 through 1996 and throughout the current taxable year.
8. CNL Realty filed an election to be a real estate investment
trust with its tax return for its taxable year ending December 31, 1984, and
since that time, such election has not been terminated, challenged or revoked.
9. All leases, subleases and amendments thereto and other
agreements which were executed as of September 11, 1997, with respect to all of
the real property owned by CNL Realty and all of the real property which CNL
Realty intends to purchase in the near future have been provided to you for
your examination (with certain exceptions noted in paragraphs 10 and 11), and
such leases, subleases and amendments thereto and other agreements represent
all covenants, promises, agreements, warranties, representations and conditions
between CNL Realty and its tenants and subtenants.
10. The terms of the lease executed for the property in Brandon,
Florida that CNL Realty leases for operation as a Barnes and Noble store is the
same in all material respects as those included in the Lease Agreement between
Barnes and Noble Superstore, Inc. and Commercial Net Lease Realty, Inc., dated
July 28, 1994 (covering a property in Lakeland, Florida, leased for operation
as a Barnes and Noble store).
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September 11, 1997
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11. The terms of the leases executed for the twenty-four
properties that CNL Realty leases for operation as Hi-Lo Automotive stores are
the same in all material respects as those included in the Lease Agreement
between Hi-Lo Auto Supply, L.P. and Commercial Net Lease Realty, Inc., dated
September 27, 1995 (covering a property in San Antonio, Texas, leased for
operation as a Hi-Lo Automotive store).
12. The terms of the leases to be executed for any other
properties that CNL Realty purchases in the future are or will be structured so
that amounts derived from such leases are rents from real property within the
meaning of section 856(d) of the Code.
13. For each taxable year from 1984 through 1996, at least 75
percent of the gross income derived by CNL Realty consisted of (i) amounts
derived from the rental of the real property held by CNL Realty (collectively
the "Properties") which qualified as rents from real property within the
meaning of section 856(d) of the Code; (ii) interest on obligations secured by
mortgages on real property or on interests in real property; (iii) any gain
realized upon the sale or other disposition of real property which is not
described in section 1221(1) of the Code; and (iv) amounts described in
sections 856(c)(3)(D) through 856(c)(3)(I) of the Code; and CNL Realty will
conduct its business so that at least 75 percent of its gross income will be
derived from such sources in its current and future taxable years.
14. For each taxable year from 1984 through 1996, at least 95
percent of the gross income derived by CNL Realty consisted of (i) the items of
income described in paragraph 13 above; (ii) gain from the sale or other
disposition of stock or securities which are not property described in section
1221(1) of the Code; and (iii) interest and dividends; and CNL Realty will
conduct its business so that at least 95 percent of its gross income will be
derived from such sources in its current and future taxable years.
15. For each taxable year from 1984 through 1996, less than 30
percent of the gross income of CNL Realty was derived from the sale or other
disposition of (i) stock or securities held for less than one year, (ii)
property in a transaction which is a prohibited transaction, as defined in
section 857(b)(6) of the Code, and (iii) real property (including interests in
real property and interests in mortgages on real property) held for less than
four years, other than property compulsorily or involuntarily converted within
the meaning of section 1033 of the Code and property which is "foreclosure
property" within the meaning of section 856(e) of the Code; and CNL Realty will
conduct its business so that less than 30 percent of its gross income will be
derived from the sale or disposition of such assets in its current and future
taxable years.
16. For each taxable year from 1984 through 1996, neither CNL
Realty, nor any person which was not an "independent contractor" within the
meaning of section 856(d)(3) of the Code from which CNL Realty did not derive
or receive any income, furnished or rendered services other than those
customarily furnished or rendered in connection with the rental of real
property only within the meaning of section 856(d)(1)(B) of the Code; and
neither CNL Realty,
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September 11, 1997
Page 4
nor any person which is not an "independent contractor" within the meaning of
section 856(d)(3) of the Code from which CNL Realty does not derive or receive
any income, will furnish or render such services in CNL Realty's current and
future taxable years.
17. For each taxable year from 1984 through 1996, neither CNL
Realty, nor any person which was not an "independent contractor" within the
meaning of section 856(d)(3) of the Code from which CNL Realty did not derive
or receive any income, rendered any services that were primarily for the
convenience of any of the occupants of the Properties, within the meaning of
section 1.512(b)-1(c)(5) of the Treasury Regulations; and neither CNL Realty,
nor any person which is not an "independent contractor" within the meaning of
section 856(d)(3) of the Code from which CNL Realty does not derive or receive
any income, will render such services in CNL Realty's current and future
taxable years.
18. For each taxable year from 1984 through 1996, CNL Realty did
not receive or accrue rent attributable to personal property in situations
where the average adjusted bases of the personal property leased in connection
with each lease of real property by CNL Realty exceeded 15 percent of the
average adjusted bases of the real property and the personal property together,
within the meaning of section 856(d)(1) of the Code, and CNL Realty will not
receive or accrue such rent in its current and future taxable years.
19. For each taxable year from 1984 through 1996, CNL Realty did
not receive or accrue, directly or indirectly, rent or interest with respect to
real or personal property, where the determination of the amount of rent or
interest depended in whole or in part on the income or profits derived by any
person from the property; and CNL Realty will not receive or accrue such rent
in its current and future taxable years. This paragraph does not apply to (i)
interest or rents based on a fixed percentage or percentages of receipts or
sales within the meaning of sections 856(d)(2)(A) or 856(f)(1)(A) of the Code
or (ii) interest received from a debtor which derives substantially all of its
gross income, with respect to the real property securing the debt obligation
from which the interest is derived, from the leasing of substantially all of
its interests in such property to tenants, where the amounts received from the
debtor as interest are attributable to qualified rents (within the meaning of
section 856(d)(6)(B) of the Code) received by the debtor from such tenants,
within the meaning of section 856(f)(2) of the Code.
20. For each taxable year from 1984 through 1996, CNL Realty did
not receive or accrue, directly or indirectly, rents from any person in which
it owned (a) in the case of a corporation, 10 percent or more of the total
combined voting power of all classes of stock entitled to vote, or 10 percent
or more of the total number of shares of all classes of stock, or (b) in the
case of an entity other than a corporation, an interest of 10 percent or more
in the assets or net profits of such entity; and CNL Realty will not receive or
accrue rent from such persons in its current and future taxable years. For
purposes of this paragraph, ownership is determined by taking into account the
attribution rules of section 318 (as modified by section 856(d)(5)) of the
Code.
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September 11, 1997
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21. At the close of each quarter of each taxable year from
September 30, 1984, through December 31, 1996, at least 75 percent of the value
of CNL Realty's total assets were represented by real estate assets (as defined
by section 856(c)(6)(B) of the Code), cash and cash items (including
receivables) and government securities; and CNL Realty will conduct its
business so that at least 75 percent of the value of its total assets are
represented by real estate assets (as defined by section 856(c)(6)(B) of the
Code), cash and cash items (including receivables), and government securities,
in its current and all future taxable years.
22. At the close of each quarter of each taxable year from
September 30, 1984, through December 31, 1996, not more than 25 percent of the
value of CNL Realty's total assets were represented by securities (other than
government securities or securities treated as real estate assets pursuant to
section 856(c)(6)(B) of the Code), and no such securities of any one issuer
exceeded 5 percent of the value of the total assets of CNL Realty; and CNL
Realty will conduct its business so that not more than 25 percent of the value
of its total assets are represented by securities (other than government
securities or securities treated as real estate assets pursuant to section
856(c)(6)(B) of the Code), and no such securities of any one issuer will exceed
five percent of the value of the total assets of CNL Realty, in its current and
all future taxable years.
23. At the close of each quarter of each taxable year from
September 30, 1984, through December 31, 1996, CNL Realty did not hold
securities (other than government securities or securities treated as real
estate assets pursuant to section 856(c)(6)(B) of the Code) that constituted
more than 10 percent of the outstanding voting securities of any one issuer,
and CNL Realty will conduct its business so that it does not hold such
securities, in its current and all future taxable years.
24. CNL Realty has made distributions to stockholders in each
taxable year from 1984 through 1996 of at least 95 percent of its "real estate
investment trust taxable income" (determined consistent with section
857(a)(1)(A)(i) of the Code) plus at least 95 percent of the excess of any "net
income from foreclosure property" over the tax imposed by the Code on such net
income, if any, as such terms are defined in sections 857(b)(2) and
857(b)(4)(B), respectively, of the Code, during the taxable year involved or
during the period thereafter as described in section 858 of the Code; and CNL
Realty intends to make such distributions in its current and all future taxable
years.
25. CNL Realty has at all times beneficially held all of its
assets for investment purposes and not as (i) stock in trade or other property
of a kind which would properly be includible in inventory if on hand at the
close of the taxable year or (ii) property held primarily for sale to customers
in the ordinary course of the trade or business of CNL Realty; and CNL Realty
intends to continue to hold its assets in the same manner in its current and
all future taxable years.
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26. CNL Realty has not made any distributions to its shareholders
with respect to any class or series of capital stock that was not pro rata with
respect to such class or series, with no preference to any share of stock as
compared with other shares of the same class or series, and has not made any
distributions that give a preference to one class or series of stock as
compared with another class or series except to the extent that the former is
entitled (without reference to waivers of their rights by shareholders) to such
preference, and CNL Realty intends not to make any such distributions in its
current and all future taxable years.
27. Representations herein as to the Properties will also be true
with respect to the properties acquired by CNL Realty after the date hereof.
28. CNL Realty has owned 100 percent of the stock of Net Lease
Realty I, Inc., Net Lease Realty II, Inc., Net Lease Realty III, Inc. and Net
Lease Realty IV, Inc. at all times during the period such corporations have
been in existence and will continue to do so in the future.
29. CNL Realty will use its best efforts to conduct its business
so that it will continue to be organized and operated in a manner that will
allow it to qualify as a REIT pursuant to sections 856 through 860 of the Code.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ Kevin B. Habicht
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Kevin B. Habicht, Executive Vice President