N.Y. Comp. Codes R. & Regs. tit. 13 § 23.1

Current through Register Vol. 46, No. 43, October 23, 2024

Section 23.1 - General

(a)Applicability.

The offering statement or "offering plan" required by section 352-e of the General Business Law (G.B.L.) for a condominium that meets the requirements set forth below is subject to this Part. Except as provided in paragraphs (4)-(5) of this subdivision, offerings subject to this Part are not subject to any other Part.

(1) One or more individuals reside in the building or are entitled to residential occupancy on the date the proposed offering plan is submitted to the Department of Law.

(2) The condominium is not organized as a time-sharing arrangement.

(3) One or more of the condominium units to be offered are used for residential purposes or for combined residential/home occupation purposes. A condominium offering for commercial use only is not subject to this Part.

(4) The conversion of an occupied building to two or more condominium units along with the conversion of one or more of the condominium units to a cooperative apartment corporation (condo-coop) is also subject to Part 18 of this Title (Occupied Cooperatives).

(5) If membership in a homeowners' association or similar entity is included or is to be sold in conjunction with the offering of condominium units, the offering plan must also comply with the requirements of Part 22 of this Title (Homeowners' Associations).

(b)Standard of compliance.

An offering plan must, at a minimum:

(1) contain in detail the terms of the transaction and be complete, current and accurate;

(2) afford potential investors, purchasers and participants an adequate basis upon which to found their judgment;

(3) not omit any material fact;

(4) not contain any untrue statement of a material fact;

(5) not contain any fraud, deception, concealment, suppression, false pretense or fictitious or pretended purchase or sale;

(6) not contain any promise or representation as to the future which is beyond reasonable expectation or unwarranted by existing circumstances; and

(7) not contain any representation or statement which is false, where the sponsor or the person who made such representation or statement:

(i) knew the truth;

(ii) with reasonable effort could have known the truth;

(iii) made no reasonable effort to ascertain the truth; or

(iv) did not have knowledge concerning the representation or statement made.

(c)Definitions.

As used in this Part:

(1)Sponsor means any person, partnership, joint venture, corporation, company, trust, association or other entity who makes or takes part in a public offering or sale, in or from the State of New York, of securities consisting primarily of shares or participation interests or investments in real estate, including condominium units and other cooperative interests in realty. Sponsor shall not be deemed to include a selling agent who has complied with section 359-e of the General Business Law or an attorney or other expert retained by the sponsor solely to render professional advice or opinions in connection with the offering. Sponsor shall be deemed to include owners of at least 10 units or 20 percent of the total number of units in the condominium, whichever is less, which are not purchased for occupancy by the owner or one or more members of his or immediate family; such sponsor will be deemed, however, to be a sponsor with the obligations of a sponsor, only in relationship to the units which such sponsor owns.

(2)Principal(s) means all individual sponsors, all general partners of sponsors that are partnerships, all officers, directors and shareholders of a corporate sponsor that are actively involved in the planning or consummation of the offering, and all other individuals who both:

(i) own an interest in or control sponsor, and

(ii) actively participate in the planning or consummation of the offering, regardless of the form of organization of sponsor.

(3)Purchase agreement means any executed written agreement to purchase a condominium unit. Purchaser means any person, partnership, joint venture, corporation, company, trust, association or other entity who executes and delivers to the sponsor or selling agent such a purchase agreement. To purchase means to execute any such purchase agreement.

(4)Presentation date means the date of completion of service, as defined in subdivision (d) of this section, of a copy of the plan or amendment filed with the Department of Law.

(5)Consummation of the plan means filing the declaration of condominium and the first transfer of title to a condominium unit to at least one purchaser under the plan following a declaration of effectiveness by the sponsor and acceptance of the amendment by the Department of Law confirming or declaring the plan effective.

(6)Filing means the issuance of a letter from the Attorney General stating that an offering plan or amendment has been accepted for filing.

(7)Digital copy means a copy that is identical in content to a paper copy except that it is recorded electronically in read-only .pdf format or other electronic format that the Department of Law determines to be acceptable. Digital copies of the plan shall include all the supporting documents included in part II of the plan. Digital copies of the exhibits to the plan shall include all documents referenced in section 23.2(c)(5) of this Part, as applicable. Digital copies of the amendment shall include all exhibits, back-up documents, and other supplemental documents annexed to the amendment, as applicable. The Department of Law shall periodically issue a Guidance Document as defined by State Administrative Procedure Act section 102(14), setting forth particular guidelines and procedures for the submission of digital copies. Such Guidance Document will be available on the Department of Law's website, as required by State Administrative Procedure Act section 202(e).

(d)Service.

(1) Unless otherwise provided by statute or regulation, any document required to be served by this Part shall be served on:

(i) one residential tenant per unit;

(ii) purchasers who have executed and delivered purchase agreements to the sponsor or selling agent, and are not in default;

(iii) unit owners; and

(iv) any other person entitled to service pursuant to local law or regulation (collectively "offerees"), in the following manner:

(a) personal delivery; or

(b) mailing by regular mail or registered or certified mail, with or without return receipt requested, addressed to the offeree at the last known residence of such offeree or, if the offeree has provided written information of an alternative address for notices, addressed to the offeree at the alternative address. If sponsor has no information of the last known residence address, but has written information of the place of business or employment of such offeree, the mailing shall be addressed to such last business or employment address.

(2) Service by personal delivery shall be deemed complete upon delivery. Service by mailing shall be presumed complete on the fifth day after the date of mailing. An affidavit of service identifying the offerees served, stating the manner of service and the date of service, is a document required to be retained under section 23.3(ii) of this Part. The date of completion of service shall be the latest date on which service upon all offerees is deemed or presumed complete.

(3) Service on unit owners may be satisfied by service on the board of managers if the sponsor is no longer in control of the board of managers and the amendment is solely limited to price changes.

(e)Notice to tenants and affidavit of service.

(1) Within three business days from the date the proposed offering plan is first submitted to the Department of Law, the sponsor shall serve each offeree, as defined in subdivision (d) of this section, with a copy of the proposed offering plan, together with the following notice:

Date of Notice: __

We have submitted to the New York State Department of Law, Real Estate Finance Bureau, a proposed offering plan, commonly known as a "red herring," for the conversion of (insert address and name of building, if any) to a condominium. The final offering plan has not yet been filed with the Department of Law. The law requires us to disclose all material information concerning the building and the conversion process in this proposed offering plan. A copy of the proposed offering plan is enclosed for you to comment on and to retain. Additional copies of the proposed offering plan are available for inspection and copying at the office of sponsor (or selling agent) located at (insert address of sponsor or selling agent) and the Department of Law.

The Attorney General strongly urges you to read this proposed offering plan carefully and to consult with an attorney to advise you as to the meaning and consequences of this plan.

The law requires the Department of Law, within not less than four months nor more than six months from the date of submission of the proposed offering plan, either to file the offering plan or to indicate how the offering plan is deficient. No condominium units may be sold or offered for sale, no purchase agreements may be executed, and no downpayments may be accepted unless and until the Department of Law files the final offering plan. A copy of the filed plan will then be served on each tenant. You may send written comments on the proposed offering plan to the New York State Department of Law, Real Estate Finance Bureau, 28 Liberty Street, New York, NY 10005. You may also send your written comments to (insert name and address of sponsor or selling agent.)

(2) If G.B.L., section 352-eee is applicable, the notice shall also state that pursuant to G.B.L., section 352-eee(1)(i), a copy of the notice will be sent to the clerk of the municipality where the building or group of buildings is located.

(3) If G.B.L., section 352-eee or 352-eeee is applicable, the notice shall also state:

Tenants or their representatives may physically inspect the premises at any time subsequent to the submission of the plan to the Department of Law, during normal business hours, upon written request made by them to the sponsor or selling agent, provided tenants' representatives are registered architects or professional engineers licensed to practice in the State of New York. After a final offering plan is filed with the Department of Law, copies of all postings required by section 352-eee or 352-eeee of the New York General Business Law, which are described in the "Rights of Existing Tenants" section on page __ of the plan, will be made available for inspection and copying at the office of the Department of Law where the submission was made and at the office of the sponsor or selling agent.

(4) An affidavit of service, together with a copy of the notice, must be submitted to the Department of Law within three business days following completion of service on all offerees.

(5) If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-e(2-a) or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also state: If you are a senior citizen or disabled tenant as defined by G.B.L. section 352-e(2-a)(a)(iii) and 352-eeee(1)(f) or G.B.L. section 352-e(2-a)(a)(iv) and 352-eeee(1)(g), respectively, you have additional rights and protections, including the right to elect to become a non-purchasing tenant within 60 days from the date you receive the filed offering plan from the sponsor. Senior citizen and disabled tenants are advised to read the section of the offering plan entitled "Rights of Eligible Senior Citizens and Eligible Disabled Persons." If the offering plan is submitted to the Department of Law on or after September 1, 2016 pursuant to G.B.L. sections 352-e(2-a) or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-1 and SH-2, respectively.

(6) If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-eee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also state: If you are a senior citizen or disabled tenant as defined by G.B.L. section 352-eee(1)(f) or G.B.L. section 352-eee(1)(g), respectively, you have additional rights and protections, including the right to elect to become a non-purchasing tenant. Senior citizen and disabled tenants are advised to read the section of the offering plan entitled "Rights of Eligible Senior Citizens and Eligible Disabled Persons." If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-eee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-5 and SH-2, respectively.

(f)No excessive long-term vacancies.

If G.B.L., section 352-eee or 352-eeee is applicable to the offering, within three business days following completion of service on all offerees, as defined in subdivision (d) of this section, of a proposed offering plan, sponsor shall submit an affidavit stating:

(1) the number of dwelling units in the building;

(2) the number of dwelling units in the building occupied by building staff who occupy their apartments at little or no rent as part of their compensation;

(3) the number of dwelling units and the identification of the units that were not leased or occupied by bona fide tenants on the date that the proposed plan was first submitted to the Department of Law;

(4) the number of dwelling units and the identification of the units that were not leased or occupied by bona fide tenants for more than five months prior to the date that the proposed plan was first submitted to the Department of Law;

(5) the percentage obtained by dividing the number of units identified in paragraph (4) of this subdivision by the number of dwelling units identified in paragraph (1) of this subdivision minus the number of dwelling units identified in paragraph (2);

(6) if the percentage set forth in paragraph (5) of this subdivision exceeds 10 percent, state the normal average vacancy rate for the building for the two years prior to the January preceding the date of first submission, and state why such vacancy rate is normal and that said percentage set forth in paragraph (5) of this subdivision does not exceed twice said normal average vacancy rate;

(7) that, based on the information provided in paragraphs (1) and (3)-(5) of this subdivision, an excessive number of long-term vacancies did not exist on the date that the offering plan was first submitted to the Department of Law; and

(8) the following information with respect to any tenant who is the sponsor, the selling agent or the managing agent, or is related to the sponsor, the selling agent, the managing agent or any principal of the sponsor, the selling agent or the managing agent by blood, marriage or adoption or as a business associate, an employee, a shareholder or a limited partner:

(i) the identity of the tenant;

(ii) the number of the unit the tenant leases or occupies;

(iii) the nature of the relationship with sponsor, the selling agent or the managing agent or any principal of the sponsor, the selling agent, or the managing agent;

(iv) the date of the lease;

(v) the date the tenant took physical occupancy of the unit; and

(vi) whether or not the tenant has been counted as a bona fide tenant by the sponsor for the purposes of this affidavit.

The Department of Law, in its discretion, may require such further proof as it deems necessary to establish that there were no excessive long-term vacancies.

(g)Time of review.

After submission of the proposed offering plan for filing, the Department of Law shall issue a letter to the sponsor or sponsor's attorney stating that the plan is filed, or indicating deficiencies. The Department of Law shall issue such a letter for an offering plan subject to this Part no sooner than four months and no later than six months after the date of submission of the proposed offering plan. The Department of Law may issue a deficiency letter whenever it appears:

(1) that the department cannot make any finding mandated by law; or

(2) that the proposed offering plan is deficient in one or more respects. The Department of Law may, in its discretion, deem an offering plan as not submitted if the proposed offering plan and exhibits are incomplete and therefore do not meet the requirements of section 23.2 of this Part, Procedure for Submission.

(h)Revisions.

Following submission of a proposed offering plan, revisions must be made to reflect any material changes of facts or circumstances pertaining to the proposed offering, the offerors, the property involved, the condition of the premises, or the costs of ownership and operation of the property, so that the offering plan may continue to comply with subdivision (b) of this section. Such revisions shall be submitted to the attorney assigned by the Department of Law to review the proposed offering plan. The Department of Law, in its discretion, may require that a supplement to the proposed offering plan be served on tenants containing the revised information. The Department of Law may issue a deficiency letter and/or require resubmission of a new offering plan if the revisions reflect matters of fact or circumstances which were known or should have been known to the sponsor at the time of original submission, or substantially change the nature or terms of the offering, or if the plan as revised comes within the grounds stated in subdivision (g) of this section. After the offering plan is filed, the plan must be amended periodically as required by section 23.5 of this Part.

(i)Statutory compliance.

Unless expressly provided herein, nothing contained in this Part shall be construed as limiting the requirements set forth in article 23-A of the G.B.L. and in article 9B of the Real Property Law (the New York Condominium Act) or the laws regulating condominiums in the state where the property is located.

(j)Waiver.

In the interests of justice, the Department of Law may waive compliance with any provision of these regulations and can permit variations of regulations so long as variation is consistent with the purpose and intent of regulation and statute or unless prohibited from doing so by statute or by final court order.

(k)Exemptions.

Upon written application of the sponsor or sponsor's attorney, the Department of Law, in its discretion, may exempt a plan from the application of any provision of this Part, where it is found that enforcement of the provision is not necessary to effectuate the purposes of the G.B.L. or to protect the investing public. The application shall:

(1) be annexed to and be submitted with the attorney's transmittal letter;

(2) set forth the provisions from which the exemption is sought and the grounds for the exemption; and

(3) be signed by sponsor or the sponsor's attorney.

The transmittal letter and certifications required by section 23.4 of this Part shall be in the form required by this Part, without modification, and shall be based on the assumption that any exemption sought pursuant to this section has been granted. In the event that the Department of Law denies the application for exemption, the Department of Law may issue a deficiency letter as provided in subdivision (g) of this section. No additional fee is required for an exemption application.

(l)Out-of-state condominiums.

A sponsor of a condominium located outside of New York State, who makes or takes part in a public offering or sale in or from the State of New York of condominium units must file an offering plan with the Department of Law. To comply with this requirement, the sponsor of an out-of-state plan may file a complete offering plan drafted in accordance with New York law and this Part. In the alternative, the Department of Law may, in its discretion, allow the sponsor to file the offering plan approved by or filed with the state or jurisdiction in which the condominium is located and an addendum with such additional information as is required by the Department of Law. Sponsor must represent that the plan complies with all applicable local laws. Out-of-state conversion plans which have already become effective may be submitted in compliance with this Part but will be subject to a 30-day review. This circumstance should be noted in the attorney transmittal letter submitted in compliance with section 23.2(c)(1) of this Part.

(m)Effectiveness of regulations.

The effective date of this Part is the date of filing with the Secretary of State. As of such date:

(1) Part 23 is effective for offering plans that meet the requirements of subdivision (a) of this section and are submitted 60 days after the effective date of this Part.

(2) Section 23.5 of this Part is effective for amendments to plans submitted after the effective date of this Part that meet the requirements of subdivision (a) of this section, regardless of when such plans were filed.

(3) Section 23.6 of this Part is effective for advertisements, appearing on or after the effective date, for offering plans that meet the requirements of subdivision (a) of this section, regardless of when such plans were filed.

(4) Section 23.8 of this Part is effective on the effective date for offering plans that meet the requirements of subdivision (a) of this section, regardless of when such plans were filed, and to all sales of units occupied by eligible senior citizens or eligible disabled persons.

(n)Withdrawals, abandonments and rejections.

(1) If the offering plan is withdrawn prior to filing, written notice thereof shall be served simultaneously by the sponsor on the Department of Law and on all offerees in the manner specified by paragraph (d)(1) of this section.

(2) If the offering plan is to be abandoned after filing, the sponsor shall promptly submit an amendment to the Department of Law together with form RS-3 as promulgated by the Department of Law. If payments under purchase agreements have been received, the amount of such funds and the manner and time when these funds will be returned to purchaser must be disclosed. The funds must be returned within five days after the amendment abandoning the plan has been accepted for filing. For purposes of G.B.L., section 352-eee(2)(a) and 352-eeee(2)(a), an offering plan will be considered abandoned upon acceptance for filing by the Department of Law of the amendment abandoning the plan.

(3) If the offering plan is finally rejected by the Department of Law and there is no outstanding right-to-cure defects, the sponsor shall promptly serve notice of such rejection on all tenants in the manner specified by paragraph (d)(1) of this section.

(o)Postings of purchase percentages.

If G.B.L., section 352-eee or 352-eeee, is applicable, on the 30th, 60th, 88th and 90th day after the date of presentation of the offering plan and at least once every 30 days until the plan is declared effective or is abandoned, and on the second day before the expiration date and on the expiration date of any exclusive purchase period provided in an amendment to the plan, the sponsor shall post before noon, in a prominent place accessible to all tenants in the building, a statement under oath listing the percentage(s) of bona fide tenants in occupancy on the filing date who have signed subscription agreements as of a specified time on the date of the statement. Such statement shall remain posted until the next statement must be posted. The percentage(s) shall be computed in the same manner as the sponsor must compute the minimum percentage(s) needed to declare the plan effective. The statement shall also be filed with the Department of Law. The Department of Law has issued model forms, which must be used by sponsors, for posting statements. No postings are required after the plan is declared effective and all exclusive purchase periods have expired. If the posting notices are to be signed by the selling agent, the sponsor must provide written authorization to the Department of Law. The statement shall include the following:

(1) the date and time of the statement;

(2) the date the plan was filed with the Department of Law;

(3) the date of presentation of the plan (and the current amendment);

(4) the last day of any exclusive purchase period(s);

(5) if an eviction plan, the last day for eligible senior citizens or eligible disabled persons to elect not to purchase pursuant to G.B.L., section 352-eeee, or the last day for eligible disabled persons to elect not to purchase pursuant to G.B.L., section 352-eee;

(6) if the plan is subject to G.B.L., section 352-eeee, state the number of bona fide tenants in occupancy on the filing date who have signed purchase agreements as of a time specified in the statement. If the plan is a noneviction plan subject to G.B.L., section 352-eeee, also state the number of bona fide nontenant purchasers who have represented that they or member(s) of their immediate family intend to occupy the unit when it becomes vacant. If the plan is an eviction plan subject to G.B.L., section 352-eee, state the number of bona fide tenants in occupancy on the filing date who have signed purchase agreements. If the plan is a noneviction plan subject to G.B.L., section 352-eee, state the number of bona fide tenants in occupancy on the filing date and also state the number of bona fide tenants who became tenants in occupancy after the filing date who have signed purchase agreements. Any purchaser who is required to be listed under section 23.5(e)(6)(vii) of this Part shall not be included in the count unless the sponsor has submitted proof satisfactory to the Department of Law establishing that the purchaser is a bona fide tenant, or in a noneviction plan subject to G.B.L., section 352-eeee, unless the sponsor has submitted proof satisfactory to the Department of Law establishing that the purchaser is a bona fide purchaser who meets the requirements of section 23.5(e)(3)(iii) of this Part;

(7) the number of purchasers required to be listed under section 23.5(e)(6)(vii) of this Part who may not be included in the count at the time of the posting, but whom sponsor seeks to include in the future;

(8) the number of units or tenants counted in the base. If the plan is an eviction plan under G.B.L., section 352-eee or 352-eeee, also state the number of tenants or units subtracted from the base to date, and the basis in law for each subtraction;

(9) the percentage obtained by dividing the number of purchasers to be counted towards effectiveness given in paragraph (6) of this subdivision by the number of tenants or units counted in the base given in paragraph (8); and

(10) if the plan is an eviction plan subject to G.B.L., section 352-eee, also give the percentage obtained by dividing:

(i) the number of purchasers to be counted towards effectiveness given in paragraph (6) of this subdivision

(ii) by the number of tenants or units counted in the base given in paragraph (8) of this subdivision, plus the eligible senior citizens and eligible disabled persons who were bona fide tenants in occupancy on the filing date and had been subtracted from the base in paragraph (8).

(p)Disclaimers.

The requirements set forth in section 23.3 of this Part apply to the offering plan generally and shall not be negated or contradicted by inconsistent provisions in other portions of the offering plan, or by provisions purporting to discharge liability or to terminate the continuing effect of representations in the offering plan upon an event such as the closing or the delivery of the deed. Disclaimer provisions, either direct or indirect, through stated reliance on an expert with respect to factual matters required to be represented or set forth in the offering plan, may not be included except as and to the extent permitted in this Part.

N.Y. Comp. Codes R. & Regs. Tit. 13 § 23.1

Amended New York State Register December 30, 2015/Volume XXXVII, Issue 52, eff. 2/1/2016

Amended New York State Register August 31, 2016/Volume XXXVIII, Issue 35, eff. 8/31/2016

Amended New York State Register July 3, 2018/Volume XL, Issue 27, eff. 7/3/2018