N.Y. General Business Law § 622: Escrow required

§ 622. Escrow required. All moneys received by a seller pursuant to a

contract for services for use by a buyer of a health club prior to the

full operation of such health club shall be placed in escrow.

1. Such funds shall be kept and maintained in an account separate and

apart from any account maintained by or for the seller's personal use or

for use in the construction or operation of the health club or for the

payment or benefit of employees of the seller.

2. The escrow account shall be established in a bank or trust company

doing business in this state.

3. The escrow account shall provide that the purpose of the account is

to protect the consumer in the event that the seller fails to complete

substantially and to open the facility within one year following

establishment of the account. Any buyer who has advanced moneys on

deposit in the escrow account may maintain a representative action

pursuant to the provisions of the civil practice law and rules to close

the account and to release such moneys pro-rata to all buyers similarly

situated if such health club facility has not been substantially

completed and opened within one year of establishment of the account or

if the buyer has not had the full use of another similar facility during

this period.

4. Within three business days of a request therefor, a monthly

statement of the escrow account is to be furnished to consumers who have

advanced funds or obligation until such account is no longer required by

this article.

5. The escrow account shall provide that funds deposited therein may

be withdrawn by the seller upon the completion of the proposed

construction in the following manner: (i) one-third of the funds may be

distributed to the seller upon completion of one-half of the proposed

construction; (ii) not more than two-thirds of the funds which have been

deposited in escrow may be released upon the completion of three-fourths

of the proposed construction; (iii) the escrow agent may accept as

evidence of partial completion certification of any architect or

engineer licensed pursuant to the provisions of the education law that

the proposed construction has been completed in accordance with the

plans and specifications.

6. The escrow account shall be released by the escrow agent to the

seller not more than thirty days following full operation of the

facility and certification of completion from any architect or engineer

licensed pursuant to the provisions of the education law.

7. In lieu of the escrow provisions required by this section, the

health club may furnish information as required by the secretary,

executed under penalty of perjury by an officer or owner of the health

club which reasonably demonstrates financial responsibility that will

enable the health club to satisfy the possible claims against the escrow

required by this section. In the event the health club is controlled by,

under common control, or controls another corporation and the other

corporation agrees in writing to satisfy the claims against the escrow

required by this section, then the financial responsibility of the other

corporation shall be considered in determining the applicability of this

section. In determining whether the health club has the requisite

financial responsibility the secretary may consider the operating and

business history and reputation of the health club and its management

within and without the state as well as the operating and business

history and reputation of any business controlled by, under common

control with, or controlling the health club.