New York Relaxes Martin Act Registration Requirements for Out-of-State Cooperative Real Estate Interests | Practical Law

New York Relaxes Martin Act Registration Requirements for Out-of-State Cooperative Real Estate Interests | Practical Law

A recent policy change by the New York Department of Law provides a key registration exemption from state Blue Sky laws for developers of cooperative interests in real estate located outside New York State. The exemption went into effect on May 5, 2016.

New York Relaxes Martin Act Registration Requirements for Out-of-State Cooperative Real Estate Interests

by Practical Law Real Estate
Published on 07 Jun 2016 • New York, USA
A recent policy change by the New York Department of Law provides a key registration exemption from state Blue Sky laws for developers of cooperative interests in real estate located outside New York State. The exemption went into effect on May 5, 2016.
On May 5, 2016, a new policy from the New York Department of Law went into effect that provides an exemption from Martin Act registration requirements to certain offerings of cooperative interests that:
  • Involve real estate situated exclusively outside of New York.
  • Are located in a jurisdiction that has existing laws protecting purchasers of real property similar to those in New York.
The policy was published in Cooperative Policy Statement 12 (CPS-12) entitled Application for Exemption from Regulatory Filings for Offerings of Cooperative Interests in Realty Where the Realty is Situated Outside the State of New York.
The exemptions covered in CPS-12 include interests in:
  • Condominiums.
  • Cooperatives.
  • Homeowners' Associations.
  • Timeshares.
  • Senior Residential Communities.

Background

The Martin Act provides New York State's Blue Sky laws (N.Y. Gen. Bus. Law §§ 352 to 359-H). It generally requires that developers file an offering plan in New York and make a full disclosure of the terms of the sale before offering cooperative interests for sale to New York residents.

Cooperative Policy Statement 12

Under CPS-12, developers of out of state realty intending to sell to New York purchasers may file a short-form offering plan, known as the CPS-12 Application, and provide New York purchasers with the offering materials required by the state or country where the property is located. This is a change from the original rule that required developers to file two separate offering plans and provide purchasers with both plans for examination.
The exemptions provided in CPS-12 are discretionary, so the Department of Law may deny a developer's application even if they comply with all requirements. A material misstatement or omission in the application may render the application void.
The CPS-12 application must be affirmed by the preparing attorney under the penalty of perjury, including an unqualified statement contained in the application instructions. The offeror and each principal of the offeror must certify the application.

Non-Exempt Requirements

Some requirements of the Martin Act remain in effect, including the following:
  • Out-of-state developers must continue to register as broker/dealers of securities with the Department of Law under New York General Business Law section 359-E.
  • The Martin Act contains escrow trust fund mandates that are not waived. However, CPS-12 contains an exemption request for developers to hold a New York purchaser's funds in an account outside of New York provided the bank is a member of the Federal Deposit Insurance Corporation (FDIC).
  • The offeror is not exempt from applicable regulations requiring a schedule of prices and related information.

Practical Implications

CPS-12 will allow developers to more easily offer cooperative interests to New York purchasers. Counsel for developers should familiarize themselves with the requirements of CPS-12 and ensure that all applications are fully and accurately completed. Omissions and misstatements may cause applications to be denied or delayed.