March 26, 2020
Real Estate Alert
Real Estate Alert
Author(s): Erica F. Buckley
While most of the state of New York is “on pause” by Executive Order of Governor Andrew Cuomo, the Real Estate Finance Bureau of the New York Attorney General’s Office (“REF”) continues to operate. Because health takes precedence over normal business operations, REF has issued much-needed relief in the form of modified policies and procedures for certain regulated activities and submission of offering plans, amendments, broker-dealer statements, no-action letters, cooperative policy statements, and syndication filings.
This alert serves to highlight key provisions of the business operations of REF during the relief period.
REF has had a long-standing policy of requiring sponsors who enter into contracts or close on a “stale” plan to enter into an assurance of discontinuance (“AOD”) and pay a monetary relief to the State of New York equal to $3,000 per violation. Prior to the COVID-19 pandemic, REF was also taking enforcement action against sponsors that continued to market and advertise (e.g., keep listings on websites, hold open houses) after the offering plan expired. In such cases, REF also seeks monetary relief for such violations. During the relief period, REF will not take enforcement action against sponsors for such violations that take place during the relief period only. The Bureau will continue to pursue enforcement action against sponsors that marketed, entered into contracts, and/or sold units/apartments/homes after an offering plan had expired prior to the relief period.
During the relief period, REF will not take enforcement action against sponsors that advertise, enter into contracts, or close on an apartment/unit/home without having filed a price change amendment when prices changed in any manner from those set forth in the offering plan. The Bureau had been taking enforcement action against this practice prior to the COVID-19 pandemic, and notes that it will continue to pursue violations that took place prior to the relief period. Sponsors should also note that REF states in this guidance document that the failure to file a price change amendment warrants an offer of rescission.
During the relief period, REF will not take enforcement action against sponsors that do not file financial update amendments yet continue to market and sell apartments/units/homes.
However, if a sponsor plans to continue to market and sell apartments/units/homes under an offering plan where there has been a material change, then an amendment must be filed. The COVID-19 guidance provides a non-exhaustive list of material changes:
Broker-Dealer Statements must be updated when there is a material change and otherwise every four years under General Business Law § 359-e.
The relief period provides necessary relief for the health of REF personnel and also loosens filing requirements and enforcement priorities of REF while New York is in a declared state of emergency. Sponsors and other filers should note that the Relief Period commenced on March 25, 2020, and will end on a date solely within the discretion of the attorney general. Moreover, sponsors and filers should note that many of the requirements that are loosened during the relief period must be retroactively complied with by sponsors and filers, in most cases, within 90 days from the expiration of the relief period.
Nixon Peabody will continue to monitor any additional guidance documents issued by REF and is available to discuss the relief period and its implications with clients. While the relief period is welcome news, it does not give sponsors broad flexibility and therefore remaining in compliance with the Martin Act and governing regulations will continue to be a top priority for our clients.
Here is the full text to the Bureau’s memorandum “Temporary Submission and Review Policies and Procedures Due to COVID-19 State of Emergency.”
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.