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State Codes and Statutes

Statutes > New-york > Gbs > Article-23-a > 352-e

§ 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  submitannual  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 offerer 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,  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   or   three  hundred  fifty-two-eeee of this chapter, 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  hasaccepted  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  everyoffering 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  thirty 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  two  hundred  twenty-five  dollars  for  each  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, the department of law shall collect a  fee of two  hundred  twenty-five  dollars.  In  the  event  the  sponsor  thereafter files an offering statement, the fee paid for the preliminary  application  shall  be  credited  against the balance of the fee due and  payable on filing. 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  thirty thousand dollars. All  revenue from that portion of any fee imposed pursuant to this paragraph,  which exceeds twenty thousand dollars 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 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 eighteen, nineteen or twenty  of the private housing 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 purchaseda  security  described in this section or shall have participated in the  offering of such security.