§ 352-E — Real estate syndication offerings

New York § 352-E

• Jurisdiction: New York
• Law GBS: General Business
• Art. 23-A: Fraudulent Practices In Respect to Stocks, Bonds and Other Securities

Text

§ 352-e. Real estate syndication offerings. 1. (a) It shall be illegal\nand prohibited for any person, partnership, corporation, company, trust\nor association, or any agent or employee thereof, to make or take part\nin a public offering or sale in or from the state of New York of\nsecurities constituted of participation interests or investments in real\nestate, mortgages or leases, including stocks, bonds, debentures,\nevidences of interest or indebtedness, limited partnership interests or\nother security or securities as defined in section three hundred\nfifty-two of this article, when such securities consist primarily of\nparticipation interests or investments in one or more real estate\nventures, including cooperative interests in realty, unless and until\nthere shall have been filed with the department of law, prior to such\noffering, a written statement or statements, to be known as an "offering\nstatement" or "prospectus" concerning the contemplated offering which\nshall contain the information and representations required by paragraph\n(b) of this subdivision unless the security offering is exempted\nhereunder or under section three hundred fifty-nine-f, subdivision two,\nof this article by rule or action of the attorney general. The term\n"real estate" as used in the paragraph shall not include mineral, oil or\ntimber leases or properties, or buildings, structures, land or other\nrealty housing or containing business offices or industry, owned or\nleased by the issuer, where the issuer is not primarily engaged in the\nbusiness of buying and selling such building or other realty or leases\nor interests therein. The circulation or dissemination of a non-firm\noffer (including circulation or dissemination of a preliminary\nprospectus pursuant to section ten (b) of the securities act of nineteen\nhundred thirty-three, and the rules thereto appertaining) shall not\nconstitute making or taking part in a public offering within the meaning\nof this section.\n (b) The detailed terms of the transaction; a description of the\nproperty, the nature of the interest, and how title thereto is to be\nheld; the gross and net income for a reasonable period preceding the\noffering where applicable and available; the current gross and net\nincome where applicable and available; the basis, rate and method of\ncomputing depreciation; a description of major current leases; the\nessential terms of all mortgages; the names, addresses and business\nbackground of the principals involved, the nature of their fiduciary\nrelationship and their financial relationship, past, present and future,\nto the property offered to the syndicate and to those who are to\nparticipate in its management; the interests and profits of the\npromoters, offerors, syndicate organizers, officers, directors, trustees\nor general partners, direct and indirect, in the promotion and\nmanagement of the venture; all restrictions, if any, on transfer of\nparticipants' interests; a statement as to what stock or other security\ninvolved in the transaction, if any, is non-voting; a statement as to\nwhat disposition will be made of the funds received and of the\ntransaction if not consummated, which statement shall represent that all\nmoneys received from the sale of such securities until actually employed\nin connection with the consummation of the transaction as therein\ndescribed, shall be kept in trust and that in the event insufficient\nfunds are raised through the offering or otherwise to effectuate the\npurchase or purchases or other consummation of the contemplated\ntransaction, or that the intended acquisition shall not be completed for\nany other reason or reasons, then such moneys, less such amounts\nactually employed in connection with the consummation of the\ntransaction, shall be fully returned to the investor; which of the\nsecurities offered are unsecured; clearly distinguish between leasehold\nand fee ownership, between fact and opinion; a commitment to submit\nannual reports to all participants, including an annual balance sheet\nand profit and loss statement certified by an independent certified\npublic accountant; clearly distinguish between those portions of\npromised distributions which are income and those which are a return of\nprincipal or capital; in the case of qualified leasehold condominiums,\nas defined in section three hundred thirty-nine-e of the real property\nlaw, a disclosure of the unique requirements imposed on the unit owners\nof such condominiums by the provisions of sections three hundred\nthirty-nine-bb and three hundred thirty-nine-cc of such law; and such\nadditional information as the attorney general may prescribe in rules\nand regulations promulgated under subdivision six hereof as will afford\npotential investors, purchasers and participants an adequate basis upon\nwhich to found their judgment and shall not omit any material fact or\ncontain any untrue statement of a material fact.\n (c) All advertising in connection with an offering of securities\ndescribed in this subdivision shall be consistent with the\nrepresentations and information required to be set forth as hereinbefore\nin this subdivision provided.\n 2. Unless otherwise provided by regulation issued by the attorney\ngeneral, the offering statement or statements or prospectus required in\nsubdivision one of this section shall be filed with the department of\nlaw at its office in the city of New York, prior to the public offering\nof the security involved. No offer, advertisement or sale of such\nsecurities shall be made in or from the state of New York until the\nattorney general has issued to the issuer or other offeror a letter\nstating that the offering has been filed. The attorney general, not\nlater than thirty days after the submission of such filing, shall issue\nsuch a letter or, in the alternative, a notification in writing\nindicating deficiencies in the offering statement, statements or\nprospectus; provided, however, that in the case of a building or group\nof buildings to be converted to cooperative or condominium ownership\nwhich is occupied in whole or in part for residential purposes and which\nis not the subject of a preservation plan submitted pursuant to section\nthree hundred fifty-two-eeeee of this article, such letter or\nnotification shall be issued in not sooner than four months and not\nlater than six months from the date of submission of such filing. The\nattorney general may also refuse to issue a letter stating that the\noffering statement or statements or prospectus has been filed whenever\nit appears that the offering statement or statements or prospectus does\nnot clearly set forth the specific property or properties to be\npurchased, leased, mortgaged, or otherwise to be acquired, financed or\nthe subject of specific investment with a substantial portion of the\noffering proceeds.\n 2-a. (a) For the purposes of this subdivision the following words\nshall have the following meanings:\n (i) "Plan". Every offering statement or prospectus submitted to the\ndepartment of law for the conversion of a building or group of buildings\nor development from residential rental status to cooperative or\ncondominium ownership, other than a plan governed by the provisions of\neither section three hundred fifty-two-eee, three hundred fifty-two-eeee\nor section three hundred fifty-two-eeeee of this article, or a plan for\nsuch conversion pursuant to article two, eight or eleven of the private\nhousing finance law.\n (ii) "Non-purchasing tenant". A person who has not purchased under the\nplan and who is a tenant entitled to possession at the time the plan is\ndeclared effective or a person to whom a dwelling unit is rented\nsubsequent to the effective date. A person who sublets a dwelling unit\nfrom a purchaser under the plan shall not be deemed a non-purchasing\ntenant.\n (iii) "Eligible senior citizens". Non-purchasing tenants who are\nsixty-two years of age or older on the date the attorney general has\naccepted the plan for filing, and the spouses of any such tenants on\nsuch date, and who have elected, within sixty days of the date the\nattorney general has accepted the plan for filing, on forms promulgated\nby the attorney general and presented to such tenants by the offeror, to\nbecome non-purchasing tenants under the provisions of this subdivision;\nprovided that such election shall not preclude any such tenant from\nsubsequently purchasing the dwelling unit on the terms then offered to\ntenants in occupancy.\n (iv) "Eligible disabled persons". Non-purchasing tenants who have an\nimpairment which results from anatomical, physiological or psychological\nconditions, other than addiction to alcohol, gambling, or any controlled\nsubstance, which are demonstrable by medically acceptable clinical and\nlaboratory diagnostic techniques, and which are expected to be permanent\nand which prevent the tenant from engaging in any substantial gainful\nemployment on the date the attorney general has accepted the plan for\nfiling, and the spouses of any such tenants on such date, and who have\nelected, within sixty days of the date the attorney general has accepted\nthe plan for filing, on forms promulgated by the attorney general and\npresented to such tenants by the offeror, to become non-purchasing\ntenants under the provisions of this subdivision; provided, however,\nthat if the disability first occurs after acceptance of the plan for\nfiling, then such election may be made within sixty days following the\nonset of such disability unless during the period subsequent to sixty\ndays following the acceptance of the plan for filing but prior to such\nelection, the offeror accepts a written agreement to purchase the\napartment from a bona fide purchaser; and provided further that such\nelection shall not preclude any such tenant from subsequently purchasing\nthe dwelling unit or the shares allocated thereto on the terms then\noffered to tenants in occupancy.\n (b) The attorney general shall refuse to issue a letter stating that\nthe offering statement or prospectus required in subdivision one of this\nsection has been filed whenever it appears that the offering statement\nor prospectus offers for sale residential cooperative apartments or\ncondominium units pursuant to a plan unless the plan provides that:\n (i) No eviction proceedings will be commenced, except as hereinafter\nprovided, at any time against either eligible senior citizens or\neligible disabled persons. The rentals of eligible senior citizens and\neligible disabled persons who reside in dwelling units not subject to\ngovernment regulation as to rentals and continued occupancy and eligible\nsenior citizens and eligible disabled persons who reside in dwelling\nunits with respect to which government regulation as to rentals and\ncontinued occupancy is eliminated or becomes inapplicable after the plan\nhas been accepted for filing shall not be subject to unconscionable\nincreases beyond ordinary rentals for comparable apartments during the\nperiod of their occupancy considering, in determining comparability,\nsuch factors as building services, level of maintainance and operating\nexpenses; provided that such proceedings may be commenced against such\ntenants for non-payment of rent, illegal use or occupancy of the\npremises, refusal of reasonable access to the owner or a similar breach\nby the tenant of his obligations to the owner of the dwelling unit or\nthe shares allocated thereto and provided further that an owner of a\nunit or of the shares allocated thereto may not commence an action to\nrecover possession of a dwelling unit from a non-purchasing tenant on\nthe grounds that he seeks the dwelling unit for the use and occupancy of\nhimself or his family.\n (ii) Eligible senior citizens and eligible disabled persons who reside\nin dwelling units subject to government regulation as to rentals and\ncontinued occupancy shall continue to be subject thereto.\n (iii) The rights granted under the plan to eligible senior citizens\nand eligible disabled persons may not be abrogated or reduced\nnotwithstanding any expiration of, or amendment to, this section.\n (iv) Any offeror who disputes the election by a person to be an\neligible senior citizen or an eligible disabled person must apply to the\nattorney general within thirty days of the receipt of the election forms\nfor a determination by the attorney general of such person's\neligibility. The attorney general shall, within thirty days thereafter,\nissue his determination of eligibility. The foregoing shall, in the\nabsence of fraud, be the sole method for determining a dispute as to\nwhether a person is an eligible senior citizen or an eligible disabled\nperson. The determination of the attorney general shall be reviewable\nonly through a proceeding under article seventy-eight of the civil\npractice law and rules, which proceeding must be commenced within thirty\ndays after such determination by the attorney general becomes final.\n (c) The provisions of this subdivision shall be applicable in any\ncity, town or village not covered by the provisions of section three\nhundred fifty-two-eeee of this chapter, or which has not elected to be\ncovered by section three hundred fifty-two-eee of this chapter, provided\nthe local legislative body elects, by majority vote to adopt by\nresolution, coverage provided by this section. A certified copy of such\nresolution shall be filed in the office of the attorney general at\nAlbany and shall become effective on the date of such filing.\n 2-b. In the case of offerings of cooperatives, condominiums, interest\nin homeowners association and other cooperative interests in realty,\nincluding homes subject to deed or covenant or agreements requiring\ninvestment therein, the attorney general may refuse to issue a letter of\nacceptance unless the offering statement, prospectus or plan shall\nprovide that all deposits, down-payments or advances made by purchasers\nof residential units shall be held in a special escrow account pending\ndelivery of the completed apartment or unit and a deed or lease\nwhichever is applicable, unless insurance of such funds in a form\nsatisfactory to the attorney general has been obtained prior thereto. In\naddition to the general regulatory authority provided in this section,\nthe attorney general is hereby authorized to adopt, promulgate, amend\nand rescind suitable rules and regulations to carry out the provisions\nof this subdivision, including, but not limited to, determining when\nescrow funds may be released, the nature of escrowees, and other terms\nand conditions relating thereto deemed necessary in the public interest.\n 2-c. Payment of legal fees for representation of a tenant or tenant's\nassociation in a residential building undergoing conversion to\ncooperative or condominium ownership shall not be made from any reserve\nfund, working capital fund, or other fund established to cover expenses,\nrepairs and capital improvements of buildings converted to cooperative\nor condominium ownership, unless made pursuant to a retainer agreement\nentered into before this subdivision shall have become a law. Payment of\nlegal fees may be made, however, from another fund specifically\ndesignated for such purpose.\n 2-d. (a) For the purposes of this subdivision the term "self-dealing\ncontract" shall be defined as any contract or portion thereof which is\nentered into after October eighth, nineteen hundred eighty, and which:\n (i) provides for operation, maintenance, or management of a\ncondominium or cooperative association in a conversion project, or of\nproperty serving the condominium or cooperative unit owners in such\nprojects;\n (ii) is between such unit owners or such association and the developer\nor an affiliate of the developer;\n (iii) was entered into while such association was controlled by the\ndeveloper through special developer control or because the developer\nheld a majority of the votes in such association;\n (iv) is for a period of more than three years, including any automatic\nrenewal provisions which are exercisable at the sole option of the\ndeveloper or an affiliate of the developer; and\n (v) may not be terminated without penalty by such unit owners or such\nassociation.\n (b) In the case of offerings of cooperatives, condominiums or other\ninterests in realty covered by the provisions of section six hundred\neight of the Condominium and Cooperative Abuse Relief Act of 1980, 15\nU.S.C. 3607, the attorney general shall refuse to issue a letter of\nacceptance unless the offering statement, prospectus or plan provides\nthat the tenant shareholders or owners entitled to vote to terminate a\nself-dealing contract pursuant to such section twice be notified of such\nright in writing (i) once within thirty days of the date that the right\nto terminate pursuant to subsection (b) of such section commences and\n(ii) secondly at least six months prior to the date that such right to\nterminate will expire.\n 3. No offering literature shall be employed in the offering of\nsecurities as defined in subdivision one of this section except by the\noffering statement or statements filed in the department of law pursuant\nto the provisions of this section. All advertising in whatever form,\nincluding periodicals or on radio or television shall contain a\nstatement that no offer of such securities is made except by such\noffering statement or statements.\n 4. In all literature employed in the offer and sale of securities\ndefined in subdivision one of this section and in all advertising in\nconnection therewith there shall be contained, in easily readable print\non the face thereof, a statement that the filing of an offering\nstatement or statements or prospectus as required by subdivision one of\nthis section with the department of law does not constitute approval of\nthe issue or the sale thereof by the department of law or the attorney\ngeneral of this state.\n 5. No offering or sale whatever of securities described in subdivision\none of this section shall be made except on the basis of information,\nstatements, literature, or representations constituting the offering\nstatement or statements or prospectus described in such subdivision, and\nno information, statements, literature, or representations shall be used\nin the offering or sale of securities described in such subdivision\nunless it is first so filed and the prospective purchaser furnished with\ntrue copies thereof.\n 6. (a) The attorney general is hereby authorized and empowered to\nadopt, promulgate, amend and rescind suitable rules and regulations to\ncarry out the provisions of this section, including regulations for the\nmethod, contents and filing procedures with respect to the statements\nrequired by subdivision one and the making of amendments thereto.\n (b) The attorney general is hereby authorized and empowered to adopt,\npromulgate, amend and rescind suitable rules and regulations relating to\nthe information furnished to investors of the sources of any\ndistribution or distributions made by any issuer in connection with the\nsale of realty securities since January first, nineteen hundred\nsixty-one within the provisions of section three hundred fifty-two-e and\nsection three hundred fifty-two-g of this article.\n 7. (a) The department of law shall collect the following fees for the\nfiling of each offering statement or prospectus as described in\nsubdivision one of this section: seven hundred fifty dollars for every\noffering not in excess of two hundred fifty thousand dollars; for every\noffering in excess of two hundred fifty thousand dollars, four-tenths of\none percent of the total amount of the offering but not in excess of\nsixty thousand dollars of which one-half of said amount shall be a\nnonrefundable deposit paid at the time of submitting the offering\nstatement to the department of law for review and the balance payable\nupon the issuance of a letter of acceptance for filing said offering\nstatement. The department of law shall, in addition, collect a fee of\nseven hundred fifty dollars for each other amendment to an offering\nstatement. For each application granted by the department of law, which\npermits the applicant to solicit public interest or public funds\npreliminary to the filing of an offering statement or for the issuance\nof a "no-filing required" letter and any amendment thereto, the\ndepartment of law shall collect a fee of seven hundred fifty dollars.\nFor each application granted pursuant to section three hundred\nfifty-two-g of this article, the department of law shall collect a fee\nof two-tenths of one percent of the amount of the offering of\nsecurities; however, the minimum fee shall be seven hundred fifty\ndollars, and the maximum fee shall be sixty thousand dollars. All\nrevenue from that portion of any fee imposed pursuant to this paragraph,\nwhich exceeds twenty thousand dollars for offering statements, and five\nhundred twenty-five dollars for all other filings, shall be paid by the\ndepartment of law to the state comptroller to be deposited in and\ncredited to the real estate finance bureau fund, established pursuant to\nsection eighty of the state finance law.\n (b) The attorney general may, in his discretion, require an inspection\nto be made by the department of law in connection with a real estate\nsyndication, cooperative, or condominium offering, of lands and property\nthereon, situated outside of the state of New York, involved in such\noffering. In such case, prior to the acceptance of such filing, there\nshall be remitted to the department of law an amount equivalent to the\ncost of travel from New York to the location of the property involved in\nthe offering and return, as estimated by the department of law, and a\nfurther reasonable amount estimated to be necessary to cover the\nadditional expenses of such inspection. The department of law shall\nreturn to the person making the remittance any amount advanced in excess\nof the actual expenses incurred, and where there is a deficiency, the\ndepartment of law shall be empowered to collect the difference between\nthe actual expenses and the amount advanced.\n (c) Notwithstanding the provisions of paragraph (a) of this\nsubdivision, the department of law shall not collect any fees for the\nfiling of an offering statement or prospectus or any amended filings\nthereto as described in subdivision one of this section whenever: (i) a\nconversion of a mobile home park, building or group of buildings or\ndevelopment from residential rental status to cooperative or condominium\nownership is being made pursuant to article eleven, eighteen, nineteen\nor twenty of the private housing finance law; or (ii) the offering\nstatement or prospectus or amendment thereto is submitted to the\ndepartment of law pursuant to section three hundred fifty-two-eeeee of\nthis article. For submissions made pursuant to section three hundred\nfifty-two-eeeee of this article, the department of law shall instead\ncollect the fees set forth in subdivision thirty-one of such section.\nAll revenue from that portion of any fee imposed pursuant to subdivision\nthirty-one of section three hundred fifty-two-eeeee of this article\nshall be paid by the department of law to the state comptroller to be\ndeposited in and credited to the real estate finance bureau fund,\nestablished pursuant to section eighty of the state finance law.\n 8. Within four months after the end of its fiscal year, every\nsyndicate which shall have been required to file an offering statement\nor statements or prospectus under subdivision one of this section shall\nfile with the department of law at its office in the city of New York an\nannual report of the syndicate operation, including an annual balance\nsheet and profit and loss statement certified by an independent\ncertified public accountant. The department of law shall collect a fee\nof five dollars for the filing of each such annual report.\n 9. Each offering statement or prospectus as described in subdivision\none of this section, and all exhibits or documents referred to therein\nshall be available for inspection by any person who shall have purchased\na security described in this section or shall have participated in the\noffering of such security.\n