N.Y. General Business Law § 352-e: Real estate syndication offerings

§ 352-e. Real estate syndication offerings. 1. (a) It shall be illegal

and prohibited for any person, partnership, corporation, company, trust

or association, or any agent or employee thereof, to make or take part

in a public offering or sale in or from the state of New York of

securities constituted of participation interests or investments in real

estate, mortgages or leases, including stocks, bonds, debentures,

evidences of interest or indebtedness, limited partnership interests or

other security or securities as defined in section three hundred

fifty-two of this article, when such securities consist primarily of

participation interests or investments in one or more real estate

ventures, including cooperative interests in realty, unless and until

there shall have been filed with the department of law, prior to such

offering, a written statement or statements, to be known as an "offering

statement" or "prospectus" concerning the contemplated offering which

shall contain the information and representations required by paragraph

(b) of this subdivision unless the security offering is exempted

hereunder or under section three hundred fifty-nine-f, subdivision two,

of this article by rule or action of the attorney general. The term

"real estate" as used in the paragraph shall not include mineral, oil or

timber leases or properties, or buildings, structures, land or other

realty housing or containing business offices or industry, owned or

leased by the issuer, where the issuer is not primarily engaged in the

business of buying and selling such building or other realty or leases

or interests therein. The circulation or dissemination of a non-firm

offer (including circulation or dissemination of a preliminary

prospectus pursuant to section ten (b) of the securities act of nineteen

hundred thirty-three, and the rules thereto appertaining) shall not

constitute making or taking part in a public offering within the meaning

of this section.

(b) The detailed terms of the transaction; a description of the

property, the nature of the interest, and how title thereto is to be

held; the gross and net income for a reasonable period preceding the

offering where applicable and available; the current gross and net

income where applicable and available; the basis, rate and method of

computing depreciation; a description of major current leases; the

essential terms of all mortgages; the names, addresses and business

background of the principals involved, the nature of their fiduciary

relationship and their financial relationship, past, present and future,

to the property offered to the syndicate and to those who are to

participate in its management; the interests and profits of the

promoters, offerors, syndicate organizers, officers, directors, trustees

or general partners, direct and indirect, in the promotion and

management of the venture; all restrictions, if any, on transfer of

participants' interests; a statement as to what stock or other security

involved in the transaction, if any, is non-voting; a statement as to

what disposition will be made of the funds received and of the

transaction if not consummated, which statement shall represent that all

moneys received from the sale of such securities until actually employed

in connection with the consummation of the transaction as therein

described, shall be kept in trust and that in the event insufficient

funds are raised through the offering or otherwise to effectuate the

purchase or purchases or other consummation of the contemplated

transaction, or that the intended acquisition shall not be completed for

any other reason or reasons, then such moneys, less such amounts

actually employed in connection with the consummation of the

transaction, shall be fully returned to the investor; which of the

securities offered are unsecured; clearly distinguish between leasehold

and fee ownership, between fact and opinion; a commitment to submit

annual reports to all participants, including an annual balance sheet

and profit and loss statement certified by an independent certified

public accountant; clearly distinguish between those portions of

promised distributions which are income and those which are a return of

principal or capital; in the case of qualified leasehold condominiums,

as defined in section three hundred thirty-nine-e of the real property

law, a disclosure of the unique requirements imposed on the unit owners

of such condominiums by the provisions of sections three hundred

thirty-nine-bb and three hundred thirty-nine-cc of such law; and such

additional information as the attorney general may prescribe in rules

and regulations promulgated under subdivision six hereof as will afford

potential investors, purchasers and participants an adequate basis upon

which to found their judgment and shall not omit any material fact or

contain any untrue statement of a material fact.

(c) All advertising in connection with an offering of securities

described in this subdivision shall be consistent with the

representations and information required to be set forth as hereinbefore

in this subdivision provided.

2. Unless otherwise provided by regulation issued by the attorney

general, the offering statement or statements or prospectus required in

subdivision one of this section shall be filed with the department of

law at its office in the city of New York, prior to the public offering

of the security involved. No offer, advertisement or sale of such

securities shall be made in or from the state of New York until the

attorney general has issued to the issuer or other offeror a letter

stating that the offering has been filed. The attorney general, not

later than thirty days after the submission of such filing, shall issue

such a letter or, in the alternative, a notification in writing

indicating deficiencies in the offering statement, statements or

prospectus; provided, however, that in the case of a building or group

of buildings to be converted to cooperative or condominium ownership

which is occupied in whole or in part for residential purposes and which

is not the subject of a preservation plan submitted pursuant to section

three hundred fifty-two-eeeee of this article, such letter or

notification shall be issued in not sooner than four months and not

later than six months from the date of submission of such filing. The

attorney general may also refuse to issue a letter stating that the

offering statement or statements or prospectus has been filed whenever

it appears that the offering statement or statements or prospectus does

not clearly set forth the specific property or properties to be

purchased, leased, mortgaged, or otherwise to be acquired, financed or

the subject of specific investment with a substantial portion of the

offering proceeds.

2-a. (a) For the purposes of this subdivision the following words

shall have the following meanings:

(i) "Plan". Every offering statement or prospectus submitted to the

department of law for the conversion of a building or group of buildings

or development from residential rental status to cooperative or

condominium ownership, other than a plan governed by the provisions of

either section three hundred fifty-two-eee, three hundred fifty-two-eeee

or section three hundred fifty-two-eeeee of this article, or a plan for

such conversion pursuant to article two, eight or eleven of the private

housing finance law.

(ii) "Non-purchasing tenant". A person who has not purchased under the

plan and who is a tenant entitled to possession at the time the plan is

declared effective or a person to whom a dwelling unit is rented

subsequent to the effective date. A person who sublets a dwelling unit

from a purchaser under the plan shall not be deemed a non-purchasing

tenant.

(iii) "Eligible senior citizens". Non-purchasing tenants who are

sixty-two years of age or older on the date the attorney general has

accepted the plan for filing, and the spouses of any such tenants on

such date, and who have elected, within sixty days of the date the

attorney general has accepted the plan for filing, on forms promulgated

by the attorney general and presented to such tenants by the offeror, to

become non-purchasing tenants under the provisions of this subdivision;

provided that such election shall not preclude any such tenant from

subsequently purchasing the dwelling unit on the terms then offered to

tenants in occupancy.

(iv) "Eligible disabled persons". Non-purchasing tenants who have an

impairment which results from anatomical, physiological or psychological

conditions, other than addiction to alcohol, gambling, or any controlled

substance, which are demonstrable by medically acceptable clinical and

laboratory diagnostic techniques, and which are expected to be permanent

and which prevent the tenant from engaging in any substantial gainful

employment on the date the attorney general has accepted the plan for

filing, and the spouses of any such tenants on such date, and who have

elected, within sixty days of the date the attorney general has accepted

the plan for filing, on forms promulgated by the attorney general and

presented to such tenants by the offeror, to become non-purchasing

tenants under the provisions of this subdivision; provided, however,

that if the disability first occurs after acceptance of the plan for

filing, then such election may be made within sixty days following the

onset of such disability unless during the period subsequent to sixty

days following the acceptance of the plan for filing but prior to such

election, the offeror accepts a written agreement to purchase the

apartment from a bona fide purchaser; and provided further that such

election shall not preclude any such tenant from subsequently purchasing

the dwelling unit or the shares allocated thereto on the terms then

offered to tenants in occupancy.

(b) The attorney general shall refuse to issue a letter stating that

the offering statement or prospectus required in subdivision one of this

section has been filed whenever it appears that the offering statement

or prospectus offers for sale residential cooperative apartments or

condominium units pursuant to a plan unless the plan provides that:

(i) No eviction proceedings will be commenced, except as hereinafter

provided, at any time against either eligible senior citizens or

eligible disabled persons. The rentals of eligible senior citizens and

eligible disabled persons who reside in dwelling units not subject to

government regulation as to rentals and continued occupancy and eligible

senior citizens and eligible disabled persons who reside in dwelling

units with respect to which government regulation as to rentals and

continued occupancy is eliminated or becomes inapplicable after the plan

has been accepted for filing shall not be subject to unconscionable

increases beyond ordinary rentals for comparable apartments during the

period of their occupancy considering, in determining comparability,

such factors as building services, level of maintainance and operating

expenses; provided that such proceedings may be commenced against such

tenants for non-payment of rent, illegal use or occupancy of the

premises, refusal of reasonable access to the owner or a similar breach

by the tenant of his obligations to the owner of the dwelling unit or

the shares allocated thereto and provided further that an owner of a

unit or of the shares allocated thereto may not commence an action to

recover possession of a dwelling unit from a non-purchasing tenant on

the grounds that he seeks the dwelling unit for the use and occupancy of

himself or his family.

(ii) Eligible senior citizens and eligible disabled persons who reside

in dwelling units subject to government regulation as to rentals and

continued occupancy shall continue to be subject thereto.

(iii) The rights granted under the plan to eligible senior citizens

and eligible disabled persons may not be abrogated or reduced

notwithstanding any expiration of, or amendment to, this section.

(iv) Any offeror who disputes the election by a person to be an

eligible senior citizen or an eligible disabled person must apply to the

attorney general within thirty days of the receipt of the election forms

for a determination by the attorney general of such person's

eligibility. The attorney general shall, within thirty days thereafter,

issue his determination of eligibility. The foregoing shall, in the

absence of fraud, be the sole method for determining a dispute as to

whether a person is an eligible senior citizen or an eligible disabled

person. The determination of the attorney general shall be reviewable

only through a proceeding under article seventy-eight of the civil

practice law and rules, which proceeding must be commenced within thirty

days after such determination by the attorney general becomes final.

(c) The provisions of this subdivision shall be applicable in any

city, town or village not covered by the provisions of section three

hundred fifty-two-eeee of this chapter, or which has not elected to be

covered by section three hundred fifty-two-eee of this chapter, provided

the local legislative body elects, by majority vote to adopt by

resolution, coverage provided by this section. A certified copy of such

resolution shall be filed in the office of the attorney general at

Albany and shall become effective on the date of such filing.

2-b. In the case of offerings of cooperatives, condominiums, interest

in homeowners association and other cooperative interests in realty,

including homes subject to deed or covenant or agreements requiring

investment therein, the attorney general may refuse to issue a letter of

acceptance unless the offering statement, prospectus or plan shall

provide that all deposits, down-payments or advances made by purchasers

of residential units shall be held in a special escrow account pending

delivery of the completed apartment or unit and a deed or lease

whichever is applicable, unless insurance of such funds in a form

satisfactory to the attorney general has been obtained prior thereto. In

addition to the general regulatory authority provided in this section,

the attorney general is hereby authorized to adopt, promulgate, amend

and rescind suitable rules and regulations to carry out the provisions

of this subdivision, including, but not limited to, determining when

escrow funds may be released, the nature of escrowees, and other terms

and conditions relating thereto deemed necessary in the public interest.

2-c. Payment of legal fees for representation of a tenant or tenant's

association in a residential building undergoing conversion to

cooperative or condominium ownership shall not be made from any reserve

fund, working capital fund, or other fund established to cover expenses,

repairs and capital improvements of buildings converted to cooperative

or condominium ownership, unless made pursuant to a retainer agreement

entered into before this subdivision shall have become a law. Payment of

legal fees may be made, however, from another fund specifically

designated for such purpose.

2-d. (a) For the purposes of this subdivision the term "self-dealing

contract" shall be defined as any contract or portion thereof which is

entered into after October eighth, nineteen hundred eighty, and which:

(i) provides for operation, maintenance, or management of a

condominium or cooperative association in a conversion project, or of

property serving the condominium or cooperative unit owners in such

projects;

(ii) is between such unit owners or such association and the developer

or an affiliate of the developer;

(iii) was entered into while such association was controlled by the

developer through special developer control or because the developer

held a majority of the votes in such association;

(iv) is for a period of more than three years, including any automatic

renewal provisions which are exercisable at the sole option of the

developer or an affiliate of the developer; and

(v) may not be terminated without penalty by such unit owners or such

association.

(b) In the case of offerings of cooperatives, condominiums or other

interests in realty covered by the provisions of section six hundred

eight of the Condominium and Cooperative Abuse Relief Act of 1980, 15

U.S.C. 3607, the attorney general shall refuse to issue a letter of

acceptance unless the offering statement, prospectus or plan provides

that the tenant shareholders or owners entitled to vote to terminate a

self-dealing contract pursuant to such section twice be notified of such

right in writing (i) once within thirty days of the date that the right

to terminate pursuant to subsection (b) of such section commences and

(ii) secondly at least six months prior to the date that such right to

terminate will expire.

3. No offering literature shall be employed in the offering of

securities as defined in subdivision one of this section except by the

offering statement or statements filed in the department of law pursuant

to the provisions of this section. All advertising in whatever form,

including periodicals or on radio or television shall contain a

statement that no offer of such securities is made except by such

offering statement or statements.

4. In all literature employed in the offer and sale of securities

defined in subdivision one of this section and in all advertising in

connection therewith there shall be contained, in easily readable print

on the face thereof, a statement that the filing of an offering

statement or statements or prospectus as required by subdivision one of

this section with the department of law does not constitute approval of

the issue or the sale thereof by the department of law or the attorney

general of this state.

5. No offering or sale whatever of securities described in subdivision

one of this section shall be made except on the basis of information,

statements, literature, or representations constituting the offering

statement or statements or prospectus described in such subdivision, and

no information, statements, literature, or representations shall be used

in the offering or sale of securities described in such subdivision

unless it is first so filed and the prospective purchaser furnished with

true copies thereof.

6. (a) The attorney general is hereby authorized and empowered to

adopt, promulgate, amend and rescind suitable rules and regulations to

carry out the provisions of this section, including regulations for the

method, contents and filing procedures with respect to the statements

required by subdivision one and the making of amendments thereto.

(b) The attorney general is hereby authorized and empowered to adopt,

promulgate, amend and rescind suitable rules and regulations relating to

the information furnished to investors of the sources of any

distribution or distributions made by any issuer in connection with the

sale of realty securities since January first, nineteen hundred

sixty-one within the provisions of section three hundred fifty-two-e and

section three hundred fifty-two-g of this article.

7. (a) The department of law shall collect the following fees for the

filing of each offering statement or prospectus as described in

subdivision one of this section: seven hundred fifty dollars for every

offering not in excess of two hundred fifty thousand dollars; for every

offering in excess of two hundred fifty thousand dollars, four-tenths of

one percent of the total amount of the offering but not in excess of

sixty thousand dollars of which one-half of said amount shall be a

nonrefundable deposit paid at the time of submitting the offering

statement to the department of law for review and the balance payable

upon the issuance of a letter of acceptance for filing said offering

statement. The department of law shall, in addition, collect a fee of

seven hundred fifty dollars for each other amendment to an offering

statement. For each application granted by the department of law, which

permits the applicant to solicit public interest or public funds

preliminary to the filing of an offering statement or for the issuance

of a "no-filing required" letter and any amendment thereto, the

department of law shall collect a fee of seven hundred fifty dollars.

For each application granted pursuant to section three hundred

fifty-two-g of this article, the department of law shall collect a fee

of two-tenths of one percent of the amount of the offering of

securities; however, the minimum fee shall be seven hundred fifty

dollars, and the maximum fee shall be sixty thousand dollars. All

revenue from that portion of any fee imposed pursuant to this paragraph,

which exceeds twenty thousand dollars for offering statements, and five

hundred twenty-five dollars for all other filings, shall be paid by the

department of law to the state comptroller to be deposited in and

credited to the real estate finance bureau fund, established pursuant to

section eighty of the state finance law.

(b) The attorney general may, in his discretion, require an inspection

to be made by the department of law in connection with a real estate

syndication, cooperative, or condominium offering, of lands and property

thereon, situated outside of the state of New York, involved in such

offering. In such case, prior to the acceptance of such filing, there

shall be remitted to the department of law an amount equivalent to the

cost of travel from New York to the location of the property involved in

the offering and return, as estimated by the department of law, and a

further reasonable amount estimated to be necessary to cover the

additional expenses of such inspection. The department of law shall

return to the person making the remittance any amount advanced in excess

of the actual expenses incurred, and where there is a deficiency, the

department of law shall be empowered to collect the difference between

the actual expenses and the amount advanced.

(c) Notwithstanding the provisions of paragraph (a) of this

subdivision, the department of law shall not collect any fees for the

filing of an offering statement or prospectus or any amended filings

thereto as described in subdivision one of this section whenever: (i) a

conversion of a mobile home park, building or group of buildings or

development from residential rental status to cooperative or condominium

ownership is being made pursuant to article eleven, eighteen, nineteen

or twenty of the private housing finance law; or (ii) the offering

statement or prospectus or amendment thereto is submitted to the

department of law pursuant to section three hundred fifty-two-eeeee of

this article. For submissions made pursuant to section three hundred

fifty-two-eeeee of this article, the department of law shall instead

collect the fees set forth in subdivision thirty-one of such section.

All revenue from that portion of any fee imposed pursuant to subdivision

thirty-one of section three hundred fifty-two-eeeee of this article

shall be paid by the department of law to the state comptroller to be

deposited in and credited to the real estate finance bureau fund,

established pursuant to section eighty of the state finance law.

8. Within four months after the end of its fiscal year, every

syndicate which shall have been required to file an offering statement

or statements or prospectus under subdivision one of this section shall

file with the department of law at its office in the city of New York an

annual report of the syndicate operation, including an annual balance

sheet and profit and loss statement certified by an independent

certified public accountant. The department of law shall collect a fee

of five dollars for the filing of each such annual report.

9. Each offering statement or prospectus as described in subdivision

one of this section, and all exhibits or documents referred to therein

shall be available for inspection by any person who shall have purchased

a security described in this section or shall have participated in the

offering of such security.