New York Guidelines For Advertising Out-Of-State Properties

On August 5, 2015 the Real Estate Finance Bureau of the New York Department of Law (the “Department”) presented a Memorandum pursuant to the State Administrative Procedure Act providing Guidelines for Advertising Out-of-State Real Estate Offerings.  While purportedly applying primarily to Internet Web Sites and Apps, the Guidelines provide important information to Developers who are selling regulated properties to New York residents.  Moreover, the impetus for the production of such Guidelines appears to be due to an increased awareness on the part of the Department of the extent of out-of-state properties being marketed in New York and likely signals the increased enforcement of New York law as it applies to out-of-state properties being offered to its residents.  Furthermore, the Guidelines impose immediate responsibilities on developers that engage in any advertising that may reach New York residents.

Regulated properties include condominiums, properties subject to a homeowners’ association, timeshare and fractional properties and any other form of sale of real estate coupled with an obligation on the part of the buyer to share in the maintenance or costs of administering the property with others.  These are considered “cooperative interests in real estate” and are regulated under the Martin Act, New York General Business Law, Article 23-A.  Prior to having any offering or sale of such properties in the State of New York, the developer, or Sponsor, must comply with arduous registration and filing requirements regardless of where the property is located. 

While the Guidelines recognize the difficulty in administering Web based advertising and Social Media Programs to limit the ability of New York residents from being able to access information, the Guidelines make clear that unless steps are taken to ensure that no offering is directed to New York residents the offering must be registered under the Martin Act.  The Guidelines rely on an older line of cases as authority to support the Department’s position that the law has not really changed in decades despite significant changes in the manner people now communicate.  The Guidelines cite In re Cenvill Communities, Inc., 82 Misc. 2d 418 (N.Y. Sup. Ct. 1975) where the court held that the Martin Act applied even to property located outside of New York so long as such property was being marketed for sale in New York. The Guidelines also cite Ledgebrook Corp. v. Lefkowitz, 77 Misc. 2d 867 (N.Y. Sup. Ct. 1974), where Connecticut based sponsors placing advertisements in New York newspapers for the sale of the condominium units located in Connecticut were ruled to be subject to the Martin Act registration requirements.               

The Guidance offered seems even harsher than what has been articulated in the past.  Rewording their descriptive guidance, an out-of-state developer will be required to file an offering plan or prospectus with the New York Department of Law prior to engaging in the offering and sale of regulated real estate unless:

A. Sponsor takes adequate measures to prevent New York state residents from accessing the advertisement such as requiring the purchaser to input his state of residence or zip code prior to access the Web site or App and prior to the sale;


B. Sponsor discloses the following on the offering Web site or App in a manner that is “clear and conspicuous”:

(i) the sponsor and principal(s) taking part in the public offering or sale are not incorporated in, located in, or resident in the State of New York;

(ii) the offering is neither made in the State of New York nor made to the residents of the State of New York;

(iii) the offering is not directed to any person or entity in the State of New York by, or on behalf of, the offeror or anyone acting with the offeror’s knowledge; and

(iv) no offering or purchase or sale of the security shall take place as a result of this offering, until all registration and filing requirements under the Martin Act and the Attorney General’s regulations are complied with . . . .

“Clear and conspicuous” is given the usual definition that makes certain that the above information will be clearly noticed by a prospective purchaser of real estate.  Interestingly, the Department of Law appears to have mandated that one or the other of these requirements must be met for developers offering out-of-state real estate within 30 days of their memorandum or September 4, 2015.  While we don't believe their deadline is meaningful, we are recommending that all of our clients currently review their internet based advertising as well as any other advertising that may reach residents of the State of New York or touch the State of New York right away to ensure compliance with these directives. The requirements are more restrictive than those imposed in the past.

Click here  for Guidelines. If you want assistance in reviewing current offering literature and plans associated with any regulated real estate property or if you are interested in compliance information relative to registration of regulated real estate in New York, please do not hesitate to contact our offices.