Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 9 — COMMITMENTS AND CONTINGENCIES

On May 3, 2011, an automobile accident and ensuing fire resulted in a total casualty loss of the Plaza at Puente Hills restaurant in Industry, California (Unit 218). The restaurant has not conducted any operations since that date. Unit 218 is operated by Del Taco on real property and improvements owned by the Partnership and leased to Del Taco under a standard lease dated February 24, 1988 between Del Taco and the Partnership, as amended (the Lease). The Lease provides for rental payments equal to 12% of the gross sales (as defined in the Lease) at Unit 218. During fiscal 2010, 2009 and 2008 the annual 12% rental paid to the Partnership was $74,052, $78,647, $81,273 or $1.551, $1.647, $1.702 per Partnership unit (unaudited), respectively. The Lease does not provide for any minimum rent, except for rental value insurance of $3,500 per month for six months in the event of casualty loss and loss of rental income. The Lease expires on February 28, 2023 and has a remaining term of approximately 138 months.

As required by the Lease, Del Taco maintained fire and casualty insurance covering Unit 218 with Commonwealth Insurance. The carrier has confirmed coverage. In the case of total destruction of the improvements from any cause covered by the insurance (as occurred here), the Lease provides that Del Taco is obligated to repair the improvements upon receipt of the net insurance proceeds. Del Taco’s obligation to repair is not limited to the net insurance proceeds.

Del Taco, as the General Partner, with certain exceptions, has the sole and exclusive right to manage the business of the Partnership. This right includes, specifically, the right to operate, construct or sell any personal and real property owned by the Partnership. Due to Unit 218’s historical financial underperformance relative to an average Del Taco unit and Del Taco’s obligation to repair the improvements above and beyond the net insurance proceeds, Del Taco, as the lessee under the Lease and as the operator of Unit 218, has a material financial interest in the disposition of that restaurant. Due to the presence of such material financial interest, it appears that Del Taco has a conflict of interest in the determination of the ultimate course of action.

Section 5.8.3 of the Partnership Agreement provides that, if the General Partner believes it is unable to resolve a conflict of interest, it is authorized to describe the relevant facts and submit alternatives to the Limited Partners for their vote, who may then vote on the alternatives or choose another alternative.

As such, the General Partner has requested a vote on a proposal to sell the land, collect the net insurance proceeds and distribute all such net proceeds in a special one-time lump sum distribution to the limited partners. If the proposal is not adopted, the General Partner would be required to rebuild and continue operating the unit. Based on an analysis performed by management, the General Partner recommends that the financial interests of the Partnership and the Limited Partners would be best served to sell the land, retain the net insurance proceeds and distribute all such proceeds in a special one-time lump sum distribution to the limited partners.

As such, Del Taco filed a preliminary proxy statement with the Securities and Exchange Commission (the SEC) on August 12, 2011 and expects to file a definitive proxy statement with the SEC on or about August 23, 2011 subject to resolution of SEC comments on the preliminary proxy statement, if any. Del Taco expects to be able to determine the result of such vote during the third fiscal quarter of 2011 and commence appropriate actions based on such result.

For the three month period ended June 30, 2011, the Partnership has impaired the property and equipment associated with Unit 218, which resulted in a $140,683 impairment loss in the financial statements. This loss was entirely offset by expected insurance proceeds for a net impairment loss of zero. Any additional net insurance proceeds represent a potential gain contingency and will be recorded as those contingencies are resolved.