On March 25, the State of New York Department of Law (DOL) issued a policy memorandum temporarily modifying certain submission requirements for condominium and cooperative offering plans and amendments thereto. The COVID-19 state of emergency has made these requirements increasingly difficult to enforce for the DOL and comply with for sponsors. Accordingly, the modifications seek to create a more relaxed and, with few exceptions, entirely digital process intended to facilitate the continued offering and marketing of projects without sacrificing DOL’s oversight function. The modifications detailed in the memorandum commenced on March 25 and are intended to remain in effect as long as New York State is considered a “disaster emergency” by Gov. Andrew Cuomo (Relief Period).
The primary takeaways of the policy memorandum are as follows:
- Sales and Marketing Permitted Following the Expiration of the Offering Plan in Certain Circumstances. An offering plan expires 12 months from initial acceptance or six to 12 months after the filing of an amendment that extends its term. Under normal circumstances, upon the expiration of the offering plan, all sales and marketing activities must cease until the term is extended, and failure to do so can trigger rescission for purchasers under contract as well as enforcement by DOL against sponsors and principals. During the Relief Period, however, the requirement to submit amendments to extend the term of the offering is temporarily suspended until after the Relief Period. Accordingly, as long as there are no material and adverse changes to the offering, marketing and sales activities may continue during the Relief Period despite the expiration of the offering plan.
For illustrative purposes only, the following is a nonexhaustive list of disclosures that DOL may consider material and adverse even during the Relief Period (and which sponsors would still be required to disclose in an amendment to the offering plan): (i) the building’s actual cash operating expenses (excluding depreciation and extraordinary or nonrecurring items, but including capital repairs, replacements and improvements) exceed income by more than 15% for a fiscal year; (ii) litigation which may adversely affect sponsor’s capacity to perform all of its obligations has been filed; (iii) sponsor is subject to a judgment in any civil or criminal action or proceeding which adversely affects the offering plan or sponsor’s fitness as an offeror of real estate securities; (iv) sponsor is not meeting its current obligations; (v) sponsor learns, or should know, that the condominium, cooperative, homeowner’s association, timeshare or senior residential community is not meeting its current obligations; (vi) sponsor learns, or should know, of facts or circumstances which may in reasonable likelihood result in material increases in maintenance charges or common charges because of extraordinary expenses to the subject property, including, but not limited to, assessments or liabilities, outstanding uncured violations of record, dangerous and hazardous building conditions or pending litigation; (vii) the budget (or projected budget) increased by 25% or more; (viii) the projected or assessed real estate taxes increased by 25% or more; (ix) sponsor changes the size or number of units and/or their respective percentages of common interest; (x) sponsor materially decreases the size or quality of the common elements; (xi) there is an architectural change to any common element or unit/apartment/home being offered (other than a substitution of “equal or better quality”); (xii) there is a material decrease in the square footage of any unit/apartment/home being offered; or (xiii) there is a change to the identity(ies) of sponsor or principal(s) of sponsor of the offering plan.
- Suspension of the Requirement to File Price Change Amendments. Under normal circumstances, sponsors are required to file price change amendments prior to increasing or decreasing (or advertising an increase or decrease in) offering prices for one or more lines of units or increasing the offering price of a specific unit. During the Relief Period, however, the requirement to submit such price change only amendments is temporarily suspended. Accordingly, sponsors are permitted to offer, market and sell units for any price during the Relief Period.
- Waiver of Original Signature and Certain Notary Requirements. DOL typically requires “wet ink” signatures for any signed or notarized document. During the Relief Period, DOL has suspended the “wet ink” requirement and will accept scanned or photocopied versions of original signatures as well as certain modified notarizations.
- DOL Acceptance Letters Will Be “Official” by Email. Lenders, the New York City Department of Finance (DOF) and others often require “official” acceptance letters as proof of DOL’s acceptance of submissions. During the Relief Period, rather than a formal acceptance letter issued on DOL letterhead, an email from DOL will be the evidence of the official acceptance of filings. Note, formal acceptance letters will still be issued for new offering plans and amendments declaring an offering plan effective; however, such issuance may be delayed. DOF has confirmed that such email will satisfy its requirements for filing or amending a condominium declaration.
- Digital Distributions of Offering Plans and Amendments in Certain Circumstances. Under normal circumstances, prospective and actual purchasers are furnished hard copies of the offering plan and any amendments thereto. During the Relief Period, DOL will not require hard copies to be furnished so long as an identical digital version is provided. Sponsors must provide hard copies of the offering plan and amendments to any purchaser who requests the same. Further, within 30 business days following the conclusion of the Relief Period, sponsors must furnish to purchasers hard copies of all documents sent digitally during the Relief Period.
The foregoing relief is not available to sponsors of offering plans pursuant to Part 18 (Conversion of Occupied Residential Property to Cooperative Ownership) or Part 23 (Conversion of Occupied Residential Property to Condominium Ownership) if the post-closing amendment to such offering plan has not been accepted for filing.
- A Note About New and Previous Submissions. DOL review of offering plans and amendments that were previously submitted to DOL or that must be newly submitted during this Relief Period are expected to take longer than the typical 30-day period.
- Prohibition of Application for Cooperative Policy Statement Exemptions. During the Relief Period, DOL will not accept new CPS applications. The most applicable CPS applications are CPS-1 Applications to Test the Market, which allow advertising of projects prior to the acceptance of an offering plan, and CPS-12 Applications, which allow exemptions from the regulatory requirements for the filing of an offering plan for projects located outside of New York but intended to be offered for sale in New York or to New Yorkers. Accordingly, during the Relief Period, testing the market or advertising developments that have not already been granted a CPS-1 exemption are prohibited, and in order to offer new out-of-state projects that have not already been granted a CPS-12 exemption, the offering must comply with New York statutes and regulations in their entirety.
The complete policy memorandum can be found here.