On December 20, 2018, the New York State Department of Law (“DOL”) published a memorandum (“Memo”) setting forth guidelines to sponsors who wish to submit a condominium offering plan (“Plan”) and withhold certain units from the initial offer. The following summarizes the pertinent items from the DOL Memo, all of which will need to be clearly disclosed throughout the Plan, prior to withholding any units:
★ Applies to newly constructed, vacant or non-residential condominiums only. Other submissions (e.g. occupied conversions) will require prior written approval from DOL.
★ DOL will not permit sponsors to reserve the right in the Plan to withhold units from the offer in the future (thereby effectively removing previously offered units from the market).
★ Sponsors shall not withhold units to deceive the public about the number of sales. Therefore:
(1) For marketing/advertising, % of units sold must utilize total number of anticipated units in the condominium.
(2) Sponsors must not offer any withheld units (e.g. by engaging in sales/marketing activity, executing purchase agreements, or transferring title to units) prior to amending the Plan. VIOLATION MAY TRIGGER DOL INVESTIGATION FOR VIOLATION OF THE MARTIN ACT.
★ Declaring the Plan effective must be based upon the total number of anticipated units in the condominium.
★ Prior to declaring the Plan effective, sponsor must at all times offer at least 15% of the total anticipated units in the condominium.
★ Sponsor must not rent any units (including withheld units) before the consummation of the Plan.
★ Offering of previously withheld units may be done via a price change amendment provided the only information not previously not disclosed in the Plan is the offering price. If more information needs to be disclosed, a substantive amendment must be filed.
A complete copy of the Memo is attached for your convenience. If you should have any questions at all, please reach out to us.