Plans submitted pursuant to this Part must comply with the format and minimal disclosure requirements set forth in subdivisions (a) through (bb) of this section in addition to the requirements of article 23-A of the General Business Law.
The outside front cover of the offering plan shall contain the following information:
THIS OFFERING PLAN IS THE SPONSOR'S ENTIRE OFFER TO SELL THESE COOPERATIVE UNITS. NEW YORK LAW REQUIRES THE SPONSOR TO DISCLOSE ALL MATERIAL INFORMATION IN THIS PLAN AND TO FILE THIS PLAN WITH THE NEW YORK STATE DEPARTMENT OF LAW PRIOR TO SELLING OR OFFERING TO SELL ANY UNIT. FILING WITH THE DEPARTMENT OF LAW DOES NOT MEAN THAT THE DEPARTMENT OR ANY OTHER GOVERNMENT AGENCY HAS APPROVED THIS OFFERING;
THIS PLAN CONTAINS SPECIAL RISKS TO PURCHASERS SEE PAGE __.
The format and order set forth in this subdivision must be followed in the table of contents. Include headings for the subjects not marked with an asterisk except that:
Omissions and additions should be expressly noted and explained in the transmittal letter. Alternative wording for headings to meet particular facts are set forth in parentheses.
TABLE OF CONTENTS
PART I PAGE ____________________________________
*SPECIAL RISKS
_______________________________________________
_______________________________________________
DEFINITIONS
_______________________________________________
_______________________________________________
INTRODUCTION
_______________________________________________
_______________________________________________
PURCHASE PRICE OF SHARES, SCHEDULE A
_______________________________________________
_______________________________________________
PROJECTED BUDGET FOR FIRST YEAR OF OPERATION SCHEDULE B
_______________________________________________
_______________________________________________
CHANGES IN PRICES AND UNITS
_______________________________________________
_______________________________________________
OPINION OF REASONABLE RELATIONSHIP
_______________________________________________
_______________________________________________
ATTORNEY'S INCOME TAX OPINION
_______________________________________________
_______________________________________________
*REAL ESTATE TAX BENEFITS OPINION
_______________________________________________
_______________________________________________
PROCEDURE TO PURCHASE
_______________________________________________
_______________________________________________
*FINANCING THAT MAY BE AVAILABLE TO PURCHASERS
_______________________________________________
_______________________________________________
EFFECTIVE DATE
_______________________________________________
_______________________________________________
UNSOLD SHARES
_______________________________________________
_______________________________________________
FINANCIAL FEATURES
_______________________________________________
_______________________________________________
*TERMS OF MORTGAGES
_______________________________________________
_______________________________________________
SUMMARY OF PROPRIETARY LEASE
_______________________________________________
_______________________________________________
APARTMENT CORPORATION
_______________________________________________
_______________________________________________
*RESERVE FUND AND WORKING CAPITAL FUND
_______________________________________________
_______________________________________________
CONTRACT OF SALE (OR EXCHANGE)
_______________________________________________
_______________________________________________
*MANAGEMENT AGREEMENT AND OTHER CONTRACTUAL
_______________________________________________
_______________________________________________
ARRANGEMENTS
_______________________________________________
_______________________________________________
IDENTITY OF PARTIES
_______________________________________________
_______________________________________________
OBLIGATIONS OF SPONSOR
_______________________________________________
_______________________________________________
REPORTS TO SHAREHOLDERS
_______________________________________________
_______________________________________________
DOCUMENTS ON FILE
_______________________________________________
_______________________________________________
GENERAL
_______________________________________________
_______________________________________________
*SPONSOR'S STATEMENT OF BUILDING CONDITION
_______________________________________________
_______________________________________________
PART II
SUBSCRIPTION AGREEMENT
_______________________________________________
_______________________________________________
DESCRIPTION OF PROPERTY (AND SPECIFICATIONS) (AND BUILDING CONDITION)
_______________________________________________
_______________________________________________
FLOOR PLANS
_______________________________________________
_______________________________________________
PROPRIETARY LEASE
_______________________________________________
_______________________________________________
*HOUSE RULES
_______________________________________________
_______________________________________________
BYLAWS
CERTIFICATIONS
_______________________________________________
_______________________________________________
SPONSOR AND PRINCIPALS
_______________________________________________
_______________________________________________
SPONSOR'S ENGINEER (OR ARCHITECT)
_______________________________________________
_______________________________________________
SPONSOR'S EXPERT CONCERNING ADEQUACY OF BUDGET
_______________________________________________
_______________________________________________
This section, if applicable, must be on a separate page, immediately following the table of contents. All features of a plan which involve significant risk or will disproportionately or unusually affect maintenance charges or obligations of shareholders in future years of cooperative operation must be conspicuously disclosed and highlighted. A brief description of the risk should be given in this section and a more thorough description should be given in a referenced later section. Questions as to whether a risk should be highlighted in this section should be resolved in favor of inclusion.
BECAUSE SPONSOR IS RETAINING THE RIGHT TO RENT MORE THAN 49 PERCENT OF THE UNITS IN THE BUILDING OR BUILDINGS BEING CONSTRUCTED FOR COOPERATIVE OWNERSHIP, FUTURE MARKETABILITY OF THE UNITS MAY BE ADVERSELY AFFECTED AND PURCHASERS MAY NEVER GAIN EFFECTIVE CONTROL OF THE COOP BOARD. (SEE SPECIAL RISKS SECTION.)
Disclose that as a result of sponsor retaining more than 49 percent of the units, marketability of the units may be adversely affected. Explain that certain institutional lenders may be unwilling to make loans for the purchase of units in a cooperative in which the sponsor and/or holders of unsold shares retain more than 49 percent of the units and that purchasers may therefore for unable to obtain institutional financing for their own purchase. Disclose that if they do close title and subsequently seek to sell their apartments, prospective purchasers may be unable to obtain institutional financing solely on the basis of sponsor's holding more than 49 percent of the units in the cooperative corporation, regardless of the credit worthiness of the prospective purchaser. If the sponsor is able to demonstrate that an institutional lender has approved the project for coop loans to qualified purchasers, a disclosure identifying the lender, the terms of the loans to be offered, eligibility criteria and other material aspects of the lender's commitment to the project should be included.
If sponsor makes a bulk sale of all or some of its unsold shares, the transferee is bound by sponsor's representations regarding its commitment to sell units.
THIS PLAN DOES NOT GUARANTEE THAT OWNER-OCCUPANTS WILL EVER CONSTITUTE A MAJORITY OF THE COOP BOARD OF DIRECTORS. (SEE SPECIAL RISKS SECTION OF PLAN.)
Disclose that unless and until a majority of the Board are residents of the building unrelated to the sponsor, owner-occupants will not gain effective control and management of the cooperative. Disclose that owner-occupants and non-resident shareholders, including sponsor, may have inherent conflicts on how the cooperative should be managed because of their different reasons for purchasing, i.e. purchase as a home as opposed to as an investment.
Important terms, terms that are not likely to be understood by the general public, and terms that have special meaning or are used as proper nouns should be defined and explained. Such terms include but are not limited to: closing; closing date; tenant-shareholder; sponsor; selling agent; cooperative apartment or unit; maintenance charges; filing; proprietary lease; effective date; assessments; and holder of unsold shares. Terms must be used consistently throughout the offering plan.
The introduction should:
THE PURCHASE OF A COOPERATIVE HAS MANY SIGNIFICANT LEGAL AND FINANCIAL CONSEQUENCES AND MAY BE ONE OF THE MOST IMPORTANT FINANCIAL TRANSACTIONS OF YOUR LIFE. THE ATTORNEY GENERAL STRONGLY URGES YOU TO READ THIS OFFERING PLAN CAREFULLY AND TO CONSULT WITH AN ATTORNEY BEFORE SIGNING A SUBSCRIPTION AGREEMENT.
The plan must describe all projected income and expenses for the first year of cooperative operation in schedule B. The budget must be based upon a specified 12-month period which should be a realistic projection of when cooperative operations will begin. If the projected commencement of the budget year in the offering plan differs by six months or more from the anticipated date of closing, the plan must be amended to include a revised budget disclosing current projections. If such amended projections exceed the original projections by 25 percent or more, the sponsor must offer all purchasers the right, for a specified reasonable period of time, to rescind their offer to purchase and have their deposits refunded. Sponsor's guaranty of the budget will not avoid an offer of rescission. The budget for the cooperative must be in the following format. Headings marked with an asterisk may be omitted if not applicable to the offering. Additional income, expense or cost items unique to a building should be added whenever appropriate to reflect additional sources of income, expense, cost or unique circumstances.
SCHEDULE B
Projected Budget for First Year of Operation
Beginning __1, 20
Income
Maintenance Charges
* Commercial_ $ __ ______________________________________________________
* Laundry_ $ __ ______________________________________________________
* Other (explain)_ $ __ ______________________________________________________
TOTAL_ $ __ ______________________________________________________
Expenses
* Salaries and wages_ $ __ ______________________________________________________
Heating_ $ __ ______________________________________________________
Electricity and gas_ $ __ ______________________________________________________
Water charge and sewer rent_ $ __ ______________________________________________________
* Telephone_ $ __ ______________________________________________________
Repairs and maintenance_ $ __ ______________________________________________________
Services and supplies_ $ __ ______________________________________________________
Insurance_ $ __ ______________________________________________________
* Management fees_ $ __ ______________________________________________________
Legal fees and audit fees_ $ __ ______________________________________________________
Franchise and corporate taxes_ $ __ ______________________________________________________
* Contingency_ $ __ ______________________________________________________
* Other (explain)_ $ __ ______________________________________________________
Real estate taxes_ $ __ ______________________________________________________
* Mortgage interest and amortization_ $ __ ______________________________________________________
TOTAL_ $ __ ______________________________________________________
Include an opinion from a licensed real estate broker or appraiser stating whether the cash purchase price to be paid for each unit is not less than an amount which bears a reasonable relationship to the portion of the value of the apartment corporation's equity in the property which is attributable to each such unit.
Discuss in easily understandable language the specific requirements of Internal Revenue Code section 216 for the apartment corporation to qualify as a cooperative housing corporation and for tenant-shareholders to deduct real estate taxes and interest.
If the plan represents that the apartment corporation may or will receive tax benefits, state that the sponsor will use best efforts to obtain the benefits and project the amount, commencement and duration of the benefits and describe the benefits. Highlight as a special risk if the plan states that the apartment corporation may or will receive tax benefits and the sponsor does not anticipate obtaining the tax benefits before the closing. Describe the efforts the sponsor will make to obtain the tax benefits after closing and the approximate timetable for obtaining the benefits. Highlight as a special risk if any construction or rehabilitation to the interior of units is the responsibility of shareholders and failure to complete such work may have an adverse impact on the availability of tax benefits.
Describe the essential terms of the subscription agreement which must comply with this Part and contain the following provisions.
The sponsor shall comply with the escrow and trust fund requirements of GBL sections 352-e(2-b) and 352-h and these regulations, and all funds paid by subscribers or purchasers shall be handled in accordance with these statutes and regulations.
The following requirements shall apply to all offerings and shall be fully disclosed in all offering plans subject to this Part:
A sponsor may apply to the Attorney General to use security in the form of surety bonds or a letter of credit in lieu of escrow of such funds for use in newly constructed or gut rehabilitated developments upon showing of adequate insurance of such funds to the satisfaction of the Attorney General.
A sponsor whose application to use alternate security is approved by the Attorney General, may meet its obligation to insure the availability of such funds to subscribers or purchasers by effectuating the issuance of surety bonds to such subscribers or purchasers by a licensed insurance company which agrees to act as surety for the amount of such down payments or deposits.
A sponsor whose application to use alternate security is approved by the Attorney General, may meet its obligation to insure the availability of such funds to subscribers or purchasers by effectuating the issuance of a letter of credit for the benefit of the subscribers or purchasers by an issuer qualifying hereunder.
Where alternate security as provided under a filed offering plan is no longer needed by the sponsor, or new or additional alternate security cannot be obtained by a sponsor or its successor, sponsor shall submit an amendment for filing which provides that any future subscription or purchase deposits or down payments shall be held in any escrow account in accordance with paragraph (3) of this subdivision. Such amendment shall not affect the sponsor's obligation to account for funds previously released to the sponsor unless the funds representing all such deposits or down payments are restored to the escrow account.
Fully disclose the terms of any commitment by sponsor or a lender procured by sponsor to finance the purchase of shares allocated to units. If any of the terms of the financing are not known at the time the offering plan is submitted to the Department of Law, sponsor must agree to amend the plan promptly when the terms are firm. The terms shall include but are not limited to:
State the maximum amount (which may be expressed as a percentage of the cash purchase price) available for shares allocated to a unit and the minimum term of the loan. If the financing offered is not self-liquidating over the term, project the amount of the balance or "balloon" due on maturity, and set forth and explain the risk that refinancing may not be available on the same or better terms. State the maximum amount of financing available to purchasers generally through a bulk commitment. If sponsor is not making financing available to all purchasers who qualify, the limitations and the method of allocation must be fully explained. If sponsor procures financing with an institutional lender, it is sufficient to refer to the institution's credit standards.
State the annual interest rate over the term of the loan. If the loan has a variable or adjustable rate, indicate the initial interest rate or (if not a fixed rate) explain how it will be established, the method of calculating adjustments, any limits on increases or decreases, when adjustments may be made, and the impact adjustments will have on debt service payments and the principal balance. If sponsor structures the financial terms of the transaction in such a manner as to result in taxable income to a purchaser, the financial and legal implications of such structuring must be disclosed and explained. If the sponsor procures cooperative financing at an interest rate that is below the prevailing rate offered by the lender, disclose the interest rate to the sponsor and the interest rate offered to purchasers and disclose any income tax consequences and any limitation on the ability of the purchasers to refinance on the same or better terms.
State the amount of each payment, when payments are due, and how payments are applied to interest and principal. For variable rate or adustable rate loans, disclose how initial payments are allocated to interest and principal, disclose and explain the affect of interest rate changes on the allocation of payments to interest and principal and affect on itemized deductions available to shareholders.
State whether the unpaid principal balance may be prepaid in whole or in part, the number of days of prior notice that must be given, and any charges for prepayment. Disclose any restrictions on the ability of a purchaser to prepay the entire unpaid principal at any time.
State when the financing commitment expires.
Describe the amount of late charges and how they are assessed.
Disclose the amount of additional costs or charges to purchasers in connection with such financing including, for example, points, origination fees, lender's legal fees, processing fees, application fees, insurance and appraisal fees.
Describe all restrictions on a shareholder's right to alter, improve, sell, sublease, purchase, own, occupy, finance or otherwise acquire, use or dispose of a unit.
Describe the events of default entitling the lender to accelerate the principal indebtedness and describe grace periods granted to purchasers. Sponsor must either state affirmatively that there is not a due-on-sale clause or disclose the existence of a due-on-sale clause and explain the consequences to a purchaser.
The plan must explain that the offer to sell is contingent upon the plan being declared effective and compliance with the relevant conditions and time periods. Sponsor must conform with the following provisions in determining whether, when and how the plan will be declared effective:
Unsold shares (including those subscribed but not fully paid at closing) must be purchased or acquired by sponsor or financially responsible individuals produced by sponsor at the closing.
Set forth the basic outline of the major financial features of the plan.
Fully disclose the terms of all mortgages that will encumber the property on the closing date including:
State the date of the mortgage, original principal amount, estimated balance at date of closing, maturity date, total scheduled unpaid balance at maturity and amount per share. If any mortgage has been extended, consolidated or otherwise modified or changed, explain the present terms of the mortgage as modified. If the mortgage is not self-liquidating over the term, project the amount of the balance or "balloon" due on maturity, and set forth and explain the risk that refinancing may not be available on the same or better terms. Highlight as a special risk if the term is for less than five years.
State the annual interest rate over the term of the loan. If the loan has a variable or adjustable rate, indicate the initial interest rate or (if not a fixed rate) explain how it will be established, the method of calculating adjustments, any limits on increases or decreases, when adjustments may be made, and the impact adjustments will have on payments and the principal balance. If the sponsor procures financing at an interest rate that is below the prevailing rate offered by the lender, disclose the interest rate to the sponsor and the interest on the loan to the apartment corporation and disclose the limitations on the ability of the apartment corporation to refinance on the same or better terms.
State the amount of each payment, when payments are due, and how payments are applied to interest and principal. For variable rate or adjustable rate mortgages, disclose how initial payments are allocated to interest and principal, disclose and explain the affect of interest rate changes on the allocation of payments to interest and principal and affect on itemized deductions available to shareholders. Highlight as a special risk if payments will increase in future years due to a fixed amount increase.
State whether the unpaid principal balance may be prepaid in whole or in part, the number of days of prior notice that must be given, and any charges for prepayment. Disclose any restrictions on the ability of the apartment corporation to prepay the entire unpaid principal at any time.
State the amount and type of any insurance required to be carried for the benefit of the mortgagee. The insurance coverage reflected in schedule B must be sufficient to satisfy the requirements of the mortgagee.
Describe all requirements for escrow and reserve deposits including any for taxes, water and sewer charges, insurance, capital reserves or otherwise and whether and how such requirements may be increased or modified.
Describe the amount of late charges and how they are assessed.
Disclose the amount of additional costs or charges to the apartment corporation including, for example, points, origination fees, lender's legal fees and insurance fees.
Discuss whether junior mortgages are subordinate to refinancing if prior mortgages come due first in time and fully disclose any limitations on refinancing.
State whether subordinate mortgages are permitted. Describe and explain the lien priority of all subordinate mortgages. If any mortgage is a "wraparound" mortgage, explain fully the meaning of a "wraparound" mortgage and all additional risks and costs as a result of such wraparound mortgage. Any wraparound mortgage must be specifically noted in the transmittal letter from the attorney who prepared the offering plan to the Department of Law.
Describe the important events of default entitling the lender to accelerate the mortgage indebtedness and describe grace periods granted to the apartment corporation. Sponsor must either state affirmatively that there is not a due on sale clause in the mortgage and that it is not a default under the mortgage to alter the building or disclose the existence of such clauses, and explain the consequences to the apartment corporation and state that the sponsor has obtained the necessary consents or that sponsor will satisfy the mortgage at closing if the consents are not obtained.
Describe all restrictions on the apartment corporation's right to alter, improve, sell, occupy or mortgage the property.
Summarize the important provisions of the proprietary lease including:
Describe the manner in which the apartment corporation will be organized and how its affairs will be governed. Summarize the important sections of the bylaws and other relevant documents.
The offering plan must state whether there is a working capital fund and whether there is a reserve fund to be used by the apartment corporation. If funds are provided, state the amount of the funds; whether the sponsor and purchasers contribute to the funds; what restrictions are on the use of each fund; and when the funds will be available to the apartment corporation. Discuss whether the reserve fund (if any) will be sufficient to pay for major capital repairs or replacement items likely to be needed within the first five years of operation.
Describe the rights and obligations of sponsor under the plan and applicable law with respect to the offering including the following elements:
State that it is the obligation of the apartment corporation to give all shareholders annually:
Sponsor must keep copies of the plan, parts A, B and C of the exhibits and documents referred to in the plan on file and available for inspection and copying at a specified location for six years from the date the plan was filed.
Describe any other material facts concerning the sponsor and its principals, the property, the offering and a prospective purchaser's right and obligations including:
Include the following provisions for existing buildings:
N.Y. Comp. Codes R. & Regs. Tit. 13 § 21.3