Current through Register Vol. 46, No. 39, September 25, 2024
(a)
Applicability.
The offering statement or "offering plan" required by
section
352-e of
the General Business Law (GBL) for membership in a homeowners association or
other property owners association (HOA) that meets the requirements set forth
below is subject to this Part, Newly Constructed, Vacant or Non-Residential
Homeowners Associations. Residentially occupied HOAs are subject to the
disclosure requirements concerning tenants' rights of Part 18 of this Title and
the substantive disclosure requirements of this Part. Those offerings of
memberships in an HOA which do not meet the requirements set forth below are
subject to Part 17 of this Title if they are not subject to Part 20 or 21 of
this Title. Offerings previously filed with the Department of State pursuant to
article 9-A of the Real Property Law (RPL) are hereby exempted from the filing
required by this Part.
(1) All homes
or lots to be sold in conjunction with membership interests in the HOA are
completely vacant of individuals residing in the homes or entitled to
residential occupancy on the date of submission of the proposed offering plan
to the Department of Law or the homes are to be newly constructed. In the case
of a newly constructed out-of-state project, the homes may be partially
occupied by out-of-state purchasers.
(2) The HOA and the homes or lots to be sold
in conjunction with membership interests in the HOA are not organized as a
timesharing arrangement.
(3)
Members of the HOA will take title in fee simple to a home or lot sold in
conjunction with membership interests in the HOA.
(4) The units to be sold in conjunction with
membership interests in the HOA are not part of a newly constructed, vacant or
non-residential condominium (subject to Part 20 of this Title) or a newly
constructed, vacant or non-residential cooperative (subject to Part 21 of this
Title).
(5) In the event that any
major system, i.e., heating or electric, is so structured that
one unit cannot function independently of any other unit, the provisions of the
following sections of Part 20 of this Title shall apply in addition to the
disclosure requirements contained in this Part unless an exemption pursuant to
section 22.1(i) has been
requested and granted: section
20.2(c)(5)
(exhibits required); section
20.3(a)(2) (cover
to include total amount of offering based on aggregate price at which homes or
lots are initially offered); section
20.3(d)(4)
(pricing of homes); section
20.3(e)
(description of property including description of individual homes); section
20.3(g) (Schedule
A requirements concerning price and description of individual homes); section
20.3(h) (Schedule
B requirements concerning budget); section
20.3(k) (changes
in prices and homes); section
20.3(o)
(procedure to purchase); section
20.3(q)
(effectiveness provision); section
20.3(r) (terms of
sale); section
20.3(s) (closing
costs and adjustments); section
20.3(t)
(sponsor's obligations with respect to individual homes); section
20.3(w)(6)
(insurance coverage on individual homes); section
20.7 (description of the property,
including description of individual homes). In making the disclosure required
by these provisions of Part 20 of this Title, ignore any references to
"condominium" or to article 9-B of the Real Property Law. Also include a
representation that the offering prices set forth in Schedule A may be changed
only by a duly filed amendment to the plan when the change in price is an
across-the-board increase or decrease affecting one or more lines of homes or
home models, or is to be advertised, or is a price increase for an individual
purchaser. Individually negotiated price decreases may be made without
amendment to the plan. The transmittal letter and certifications required by
section 22.4 of this Part must include a
representation of compliance with the above sections.
(6) Conversions of residential rental
developments to ownership of a home and membership in an HOA are subject to the
substantive requirements of Part 18 of this Title as modified to be consistent
with the disclosures required by this Part.
(b)
Standard of compliance.
An offering plan for an HOA 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;
(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; or
(ii) with reasonable effort could have known
the truth; or
(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 which 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 interests in an
HOA 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 also be deemed to include offerors of at least three
homes or lots which are not purchased for occupancy by the offeror or one or
more members of his or her immediate family; such sponsor will be deemed,
however, to be a sponsor only in relationship to the homes or lots which such
offeror owns and offers for sale.
(2)
Principal means each
individual sponsor, each general partner of sponsor that is a partnership, each
officer, director and shareholder of a corporate sponsor that is actively
involved in the planning and consummation of the offering, and every other
individual who both (i) owns an interest in or controls sponsor and (ii)
actively participates in the planning and consummation of the offering,
regardless of the form of organization of sponsor.
(3)
Purchase agreement means
any written agreement executed by both parties for the purchase of a home or
lot associated with membership in an HOA or other cooperative interest in
realty. Purchaser means any person, partnership, joint
venture, corporation, company, trust, association or other entity which
executes and delivers to the sponsor or selling agent a 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)
Filing means the issuance of a letter from the Attorney
General stating that an offering plan or amendment has been accepted for
filing.
(6)
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
22.2(c)(6) 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 or by exemption granted pursuant to
subdivision (i) of this section, any document required to be served by this
Part shall be served on:
(i) commercial or
professional tenants;
(ii)
purchasers who have executed and delivered purchase agreements to the sponsor
or selling agent and whose purchase agreements are in effect;
(iii) members of the HOA;
(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, at the
alternative address. If sponsor has no information of the last 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 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 by section
22.3(w) of this
Part. The completion of service shall be the latest date on which service upon
all offerees is deemed or presumed complete.
(e)
Notice to commercial or
professional tenants and affidavit of service.
Within three business days from the date the proposed
offering plan is first submitted to the Department of Law, sponsor shall serve
each commercial or professional tenant with a copy of 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 for the conversion of
(insert address and name of development, if any) to a commercial or
professional homeowners or property owners association. 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
available for inspection and copying at a reasonable charge at the office of
sponsor (or selling agent) located at (insert address of sponsor or selling
agent) and the Department of Law. The law requires the Department of Law,
within 30 days 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 units may be sold or offered for sale and no purchase agreements
may be executed unless and until the Department of Law files the final offering
plan. A copy of the filed plan will then be served on each commercial or
professional 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)."
An affidavit of service of the notice must be submitted to
the Department of Law within three business days following completion of
service on all commercial or professional tenants.
(f)
Time of review.
After submission of the proposed offering plan, 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 a letter for an offering plan no later than 30 days after its
submission. The Department of Law may issue a deficiency letter whenever it
appears that the proposed offering plan is deficient in one or more respects.
The Department of Law may, in its discretion, deem an offering plan not
submitted if the proposed offering plan and exhibits are incomplete and
therefore do not meet the requirements of section
22.2 of this Part, procedure for
submission.
(g)
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 General Business Law.
(h)
Waiver.
In the interests of justice, the Department of Law may
waive compliance with any provision of these regulations and can permit
variation of regulations so long as the variation is consistent with the
purpose and intent of the regulation and statute or unless prohibited from
doing so by final court order.
(i)
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 General
Business Law 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 for 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 22.4 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
(f) of this section. No additional fee is required for an exemption
application.
(j)
Out-of-state homeowners associations.
A sponsor of an HOA located outside of New York State which
makes or takes part in a public offering or sale in or from the State of New
York of membership interests in an HOA must file an offering plan with the
Department of Law. To comply with this requirement, the sponsor 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 HOA is located or a property report filed by the
Department of Housing and Urban Development under the Interstate Land Sales
Full Disclosure Act (15 USC section 1702)
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.
(k)
Exemption from General Business Law section 359-e.
An HOA whose membership interests or other securities are
to be sold pursuant to an offering plan filed with the Department of Law is
deemed exempted from the registration requirements of General Business Law
section 359-e, provided that all offering activities are engaged in exclusively
by persons duly registered under the filing requirements of General Business
Law section 359-e.
(l)
Effectiveness of regulations.
The effective date of these regulations is the date of
filing with the Secretary of State. As of such date:
(1) This Part is effective immediately for
offering plans that meet the requirements of subdivision (a) of this
Part.
(2) Section
22.5 of this Part is effective for
amendments to plans submitted after the effective date of these regulations
that meet the requirements of subdivision (a) of this section, regardless of
when such plans were filed.
(3)
Section 22.6 of this Part is effective for
advertisements appearing on or after the effective date of these regulations,
for offering plans that meet the requirements of subdivision (a) of this
section, regardless of when such plans were filed.
(m)
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 commercial or
professional tenants, if any, in the manner specified by paragraph (d)(1) of
this section.
(2) The offering plan
may be abandoned after filing if there are no outstanding purchase agreements.
The sponsor need not submit an amendment but shall submit a form RS-3 to the
Department of Law and serve it simultaneously on any commercial or professional
tenants, in the manner specified by paragraph (d)(1) of this section. The plan
may not be abandoned if sponsor has entered into purchase agreements, unless
the plan provides for an escape clause or an effectiveness contingency which is
highlighted as a special risk. In such case, the provisions of section
20.1(l)(2) of
this Title apply, if the plan has not become effective.
(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 any commercial or
professional tenants in the manner specified by paragraph (d)(1) of this
section.
(n)
Disclaimers.
The requirements set forth in section
22.3 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 these
regulations.
