THIRD AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT

This THIRD AMENDMENT TO MASTER LEASE AND SECURITY AGREEMENT (“Amendment”) is dated as of December 1, 2008 by and between HCP AUR1 CALIFORNIA A PACK, LLC, a Delaware limited liability company (“HCP California A Pack”), HCP AUR1 CALIFORNIA B PACK, LLC, a Delaware limited liability company (“HCP California B Pack”), HCP AUR1 CONNECTICUT, LLC, a Delaware limited liability company (“HCP Connecticut”), HCP AUR1 MARYLAND, LLC, a Delaware limited liability company (“HCP Maryland”), HCP AUR1 MASSACHUSETTS, LLC, a Delaware limited liability company (“HCP Massachusetts”), HCP AUR1 NEW JERSEY, LLC, a Delaware limited liability company (“HCP New Jersey”), HCP AUR1 VIRGINIA, LLC, a Delaware limited liability company (“HCP Virginia,” and together with HCP California A Pack, HCP California B Pack, HCP Connecticut, HCP Maryland, HCP Massachusetts and HCP New Jersey, as their interests may appear, “Lessor”), and EMERITUS CORPORATION, a Washington corporation (“Lessee”).

A.           Lessor and Lessee entered into that certain Master Lease and Security Agreement dated as of August 22, 2008 (the “Original Lease”), as amended by that certain First Amendment to Master Lease and Security Agreement dated as of October 20, 2008 (the “First Amendment”) and that certain Second Amendment to Master Lease and Security Agreement dated as of November 14, 2008 (the “Second Amendment,” and together with the Original Lease and the First Amendment, collectively, the “Lease”) for the lease of eleven (11) separate assisted-living, Alzheimer’s care and/or nursing care facilities located in the States of California, Connecticut, Maryland, Massachusetts, New Jersey and Virginia, as more particularly described in the Lease.  Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Lease.  The First Amendment and the Second Amendment may also sometimes be referred to herein collectively as the “Amendments.”

B.           Lessor and Lessee desire to amend the Lease, but only upon the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the mutual covenants contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows:

1.            Confirmatory Matters .

(a)            Commencement Date . Lessor and Lessee hereby acknowledge and agree that (i) the Commencement Date for all purposes of the Lease is December 1, 2008, (ii) the provisions of Article XLVII of the Original Lease shall have no further force or effect, (iii) all of the conditions to the continued effectiveness of the Lease provided for in Article XLVIII of the Original Lease (as amended by the Amendments) have been satisfied or waived and the provisions of Article XLVIII of the Original Lease (as amended by the Amendments), including, without limitation, any termination rights contained therein, shall have no further force or effect, and (iv) this Amendment is hereby executed by Lessor and Lessee in lieu of the amendment provided for in Section 48.3 of the Original Lease.

(b)            Expiration Date .  The Expiration Date of the Lease is November 30, 2018.

(c)            First Lease Year .  The first Lease Year for the Lease commences on December 1, 2008 and ends on November 30, 2009.

2.            Dedham, Massachusetts Facility Roof Repair .

(a)           Promptly following the Commencement Date, Lessor, at its sole cost and expense, shall engage a roof consultant selected by Lessor and reasonably approved by Lessee, (i) to perform a detailed evaluation of the low-slope roof as recommended in the “Draft” Property Condition Report for the Dedham, Massachusetts Facility prepared by Terracon for Lessee dated November 3, 2008, and (ii) to prepare a detailed report and recommendation regarding such evaluation (the “Roof Inspection Report”).  Upon receipt of such Roof Inspection Report, Lessor shall deliver a copy of the same to Lessee.

(b)           Any repairs to or replacement of the roof of such Facility as reasonably recommended in the Roof Inspection Report (the “Roof Work”) shall be deemed for all purposes under the Lease, as hereby amended, as part of the Planned Capital Refurbishment Project for such Facility; provided, however, that Lessor hereby agrees as follows in connection therewith:

                       (i)   The Aggregate Costs of the Planned Capital Refurbishment Project relating to such Roof Work shall not be counted towards the Allocated Minimum Aggregate Cost of the Planned Capital Refurbishment for such Facility;

                       (ii)   The Allocated Planned Capital Refurbishment Project Allowance with respect to such Facility shall be increased by the lesser of (A) the Aggregate Costs of the Planned Capital Refurbishment Project relating to such Roof Work and (B) $250,000 (the “Roof Work  Allowance”).  Such increase in the Allocated Planned Capital Refurbishment Project Allowance with respect to such Facility for the Roof Work Allowance shall also cause a corresponding increase in the total Planned Capital Refurbishment Project Allowance for all Facilities; and

                       (iii)   Lessor shall disburse the Roof Work Allowance in accordance with and subject to the provisions of Section 9.5.5 of the Original Lease, except that Lessor’s obligation to fund the same shall not be limited to Fifty Percent (50%) of the Aggregate Costs of the Planned Capital Refurbishment Project relating to such Roof

Work, but shall instead be limited to the lesser of (i) One Hundred Percent (100%) of the Aggregate Costs of the Planned Capital Refurbishment Project for the Roof Work expended by Lessee and (ii) the Roof Work Allowance.

3.            San Diego, California Facility Conditional Use Permit .  Lessor and Lessee acknowledge that the San Diego, California Facility is subject to the terms of that certain Conditional Use Permit/Carmel Valley Planned District Permit No. 96-7232, granted by the Planning Commission of the City of San Diego, as adopted on September 11, 1997 (the “San Diego CUP”).  The San Diego CUP purports to expire by its own terms September 11, 2017, but pursuant to the terms thereof, prior to the expiration date, the “Permittee” thereunder may submit a new conditional use permit application to the City Manager for consideration with review and a decision by the appropriate decision maker at the time for a renewal or extension of the San Diego CUP or for the issuance of a new conditional use permit for such Facility.  So long as no Event of Default has occurred and is continuing under the Lease, as hereby amended, and the Lease is in full force and effect with respect to such Facility, Lessee may within a reasonable period of time prior to the expiration date of the San Diego CUP submit a new conditional use permit application to the City Manager for a renewal or extension of the San Diego CUP or for the issuance of a new conditional use permit for such Facility, in either case upon substantially the same terms and conditions as the existing San Diego CUP other than the expiration date which shall be extended or removed, as applicable (herein, an “Extended San Diego CUP”).  Lessor agrees to cooperate with Lessee, at no cost or expense to Lessor, in connection with Lessee’s efforts to obtain such Extended San Diego CUP, including by executing such reasonable documents as may be necessary and/or requested by Lessee in connection therewith.  Similarly, if Lessor elects on its own to seek any such Extended San Diego CUP, which Lessor shall have the right to do, Lessee agrees to cooperate with Lessor in connection therewith, including by executing such reasonable documents as may be necessary and/or requested by Lessor in connection therewith.

4.            Carlsbad, California Facility Slope Remedial Work and CUP .

(a)            Slope Remedial Work .

                      (i)           Lessor agrees to perform, or cause to be performed, at Lessor’s, sole cost and expense, the planned remedial work to correct the slope stability issues adjacent to the northeast portion of the Leased Property of the Carlsbad, California Facility as identified in the “Draft” Property Condition Report for such Facility, prepared by Terracon for Lessee and dated November 3, 2008 (the “Slope Work”) and in accordance with the design and construction drawings prepared by Applied Consultants (the “Slope Plans”).

                  (ii)           Lessor shall be responsible to arrange, supervise, coordinate and carry out all work necessary for the construction/performance and completion of the Slope Work in accordance with the Slope Plans and to obtain all building permits and other authorizations from any applicable governmental authorities with jurisdiction required in connection therewith (the “Slope Work Permits”).   To the extent the Slope Work Permits have not been obtained as of the Commencement Date, Lessor shall promptly apply for and thereafter use commercially reasonable efforts to obtain all Slope

Work Permits as soon as practicable.   In the event that any applicable governmental authorities with jurisdiction require any changes to the Slope Plans as a condition to the issuance of the Slope Work Permits, Lessor shall be solely responsible for the cost of any modifications or changes thereto, and Lessee hereby consents to any such required modifications or changes to the Slope Plans in connection therewith.

                 (iii)           Lessor shall cause the Slope Work to be commenced promptly following the later of the Commencement Date and the issuance of the Slope Work Permits, and from and after commencement of thereof the Slope Work, Lessor shall cause the Slope Work to be diligently prosecuted to completion.

                 (iv)           There shall be no adjustment to the Allocated Minimum Rent for such Facility on account of the Slope Work (it being understood and agreed that the Slope Work described in this Section 4(a) shall not be deemed to be a Capital Addition to such Facility paid for by Lessor).

               (b)            Conditional Use Permit .

                 (i)           Lessor and Lessee acknowledge that the Carlsbad, California Facility is subject to the terms of that certain Conditional Use Permit No. CUP 96-19 issued by the City of Carlsbad on February 5, 1997 (the “Carlsbad CUP”).  The Carlsbad CUP purports to have been granted for an initial term of 10 years (i.e., it purports to have expired on February 4, 2007).  The Carlsbad CUP further provides that it may be extended for a reasonable period of time not to exceed 10 years upon written application of the “permitee” made no less than ninety (90) days prior to the expiration date.   Lessor is currently investigating whether the Carlsbad CUP was in fact extended, and Lessor has been informed by the Planning Commission of the City that the City’s current policy is that any new conditional use permit or any renewal or extension of an existing conditional use permit will be issued in perpetuity and without an expiration date, subject, however, to the terms and conditions of such conditional use permit and the right of revocation if, after a public hearing, it is found that the permitted use thereunder has a substantial detrimental effect on surrounding land uses and the public’s health and welfare, or the conditions imposed thereby have not been met.  In the event that Lessor determines that the Carlsbad CUP was not extended in perpetuity in accordance with the City’s current policy, then, promptly following the Commencement Date and notwithstanding Lessor’s belief, based on a review of California law that supports the proposition that the Carlsbad CUP vested to the Leased Property of such Facility the right to use and occupy such Facility for the uses permitted by the Carlsbad CUP and that such right cannot be revoked or non-renewed without a showing of cause, Lessor hereby agrees, at its sole cost and expense, to apply for and thereafter use commercially reasonable efforts to obtain an extension of the existing Carlsbad CUP or a new conditional use permit for such Facility, in either case upon substantially the same terms and conditions as the existing Carlsbad CUP, other than the expiration date which shall be extended or removed, as applicable (herein, an “Extended Carlsbad CUP”).  Lessor agrees to keep Lessee reasonably informed regarding the status of such application and shall promptly deliver to Lessee a copy of any such Extended Carlsbad CUP if and when obtained.  Lessee agrees to cooperate with Lessor in connection with Lessor’s efforts to

obtain an Extended Carlsbad CUP, including by executing such reasonable documents as may be necessary and/or requested by Lessor in connection therewith.

                 (ii)            If and only if (A) Lessor is unable to obtain the Extended Carlsbad CUP, and (B) the City requires that such Facility cease operations for its Primary Intended Use based on either (x) a formal revocation, following a public hearing, of the Carlsbad CUP or (y) the failure or refusal to issue the Extended Carlsbad CUP, and not as a result of any Lessee CUP Violation (as defined below), then Lessee may cease operations of the Facility and vacate possession thereof and the provisions of subclauses (1) and (2) below shall apply; provided, however, that Lessor shall have the right (but not the obligation), at its sole cost and expense (except as provided below), to contest timely by appropriate legal proceedings any such cessation requirement, and if Lessor so elects,