New York Simplifies Filing Requirements for Offering Property Located Outside the State of New York

We previously advised you that New York has been considering relaxing some of the cumbersome aspects of its registration requirements for out-of-state properties for condominiums, communities with homeowners’ associations and other properties deemed “cooperative interests in real estate” regulated by their Martin Act.  Today, the Real Estate Finance Bureau of the New York Department of Law (the “Department”) published Cooperative Policy Statement No. 12 (the “CPS-12 Statement”) providing a much simplified process for Developers contemplating the selling of regulated properties to New York residents. New York’s Martin Act requires developers of projects located outside New York, whether domestic or foreign, to file a complete registration with the State that includes the same detailed and costly disclosure requirements for projects located within New York. This includes the preparation of detailed engineering reports and often-duplicative disclosure requirements being imposed on out-of-state properties.  Even minimal acts, such as placing an advertisement in a New York-based magazine or mailing a sales brochure to a potential customer in the state, triggers the need to register in New York, and the cost of such registration is often prohibitive including filing fees as much as $30,000 to the State. 
The new CPS-12 Statement sets forth guidelines for “exempting” certain out-of-state real estate offerings from many of the registration requirements of New York General Business Law, Article 23-A, the Martin Act.  For starters, the abbreviated filing process is only available for “closed” state jurisdictions: “For certain offerings of cooperative interests in realty that: (i) involve realty situated exclusively outside the State of New York; and (ii) are situated within a jurisdiction that has enacted laws to protect realty purchasers through legal protections that are comparable to those of NY, such as the full disclosure of the terms of sale.”  Furthermore, the word “exempting” is a bit misleading.  While some of the more burdensome requirements of the registration process, such as the preparation of a separate, lengthy and often duplicative Offering Plan, architect/engineer reports, certifications and supporting exhibits, have been removed the existing regulations on handling deposit monies from buyers in and from New York remain largely intact with only minor softening on who can hold such deposits.  
Furthermore, the CPS-12 Statement requires an affidavit from the Developer that the offering materials provided by the Developer not omit any material information required by the Martin Act and that it is incumbent upon the Developer in making such filings to address such items in the CPS-12 Application.  Developers should note that registration of out-of-state real estate offerings with the Department is still required and that the CPS-12 Statement in no manner relieves Developers of that obligation. It will simply make the process easier and less costly.
Furthermore, we have been informed by the Department that because of this simplified filing process, they have taken on more enforcement personnel to enforce the provisions of the law with formerly non-compliant developers.  Since the process has been simplified, they expect the developer community to take advantage of the new process and comply with the law.  One significant impact of the CPS-12 Statement is that the filing fees for projects has been reduced from the former maximum fee of $30,000 to a $750 fee which should take much of the sting out of filing.
In the meantime, it is important to note that the CPS-12 Statement expressly states that the exemption is “entirely discretionary” and available to those jurisdictions, “that have enacted laws to protect realty purchasers through legal protections that are comparable to those of New York”. This will be workable for the majority of states which have existing condominium and homeowners’ association registration requirements; however, the missing disclosure from such states’ disclosure documents will need to be addressed in the applications.  On the other hand, projects located in states where no prior registration of real estate offerings is required, Developers will still not be able to take advantage of the newly created exemption and will still have to submit an Offering Plan for Department approval prior to undertaking marketing or sales efforts to buyers in and from New York. 
As a final matter, it should also be noted that the simplified filing procedure established under the CPS-12 Statement follows the issuance of new Guidelines on Internet Marketing which we reported on in August 2015, where New York mandated that any advertising which may reach New York residents must, for projects not properly registered, either contain specific disclaimers or restrict access to the advertising by residents of New York.  As such, we will expect the policing of such activities by new enforcement personnel to hone in on such practices.  
While the overall scope and availability of the exemption is still unclear, we will have more color in the days ahead through ongoing communication with the Department. We intend to provide more detailed information on the applicability and use of a CPS-12 filing to our existing clients and relationships in the near future.  
Clearly, the issuance of the CPS-12 Statement provides some much needed relief and offers an attractive new option for non-New York Developers to open the New York market short of submitting a full Offering Plan to the Department. While the scope of applicability of the newly created exemption is still being vetted, this new process should simplify registration of many out-of-state projects. If you want further information on the CPS-12 Statement or assistance in reviewing how you may take advantage of the loosened requirements, please do not hesitate to contact our offices.