Executive Order From Gov. Cuomo Tolls Certain Key Condo and Co-op Offering Plan Deadlines
The COVID-19 state of emergency and resulting federal and state orders, including “PAUSE,” has made the meeting of certain deadlines and filing requirements in connection with condominium and cooperative offering plans increasingly impractical, if not impossible, thereby jeopardizing the viability of numerous housing and other developments critical to New York's economy. On April 16, 2020, New York Gov. Andrew Cuomo issued Executive Order No. 202.18 (the “Order”), pursuant to his broad emergency powers to temporarily suspend or modify statutes, local laws, ordinances, rules and regulations during periods of disaster emergencies, which Order tolls certain of these deadlines and requirements for the period of time commencing on April 16, 2020 and continuing through May 16, 2020, which period may be further extended by amendment to the Order (the “Tolling Period”).
The key provisions and impacts of the Order are as follows:
- 15-Month Period within which to Declare a Conversion Plan Effective is Tolled. Offering plans to convert a building or group of buildings from residential rental status to condominium or cooperative ownership (commonly referred to as conversion offering plans) must be declared "effective" within 15 months after acceptance, failing which they must be abandoned and all contracts rescinded and purchaser deposits refunded. An offering plan may only be declared effective if the sponsor has entered into contracts with bona fide purchasers for a specified minimum number of the condominium units or the co-op shares offered under the plan within such 15-month period. The Order tolls the running of, thereby extending, the 15-month period by the length of the Tolling Period and allows sponsors additional time to reach the required sales threshold.
- Rescission Deadline for Conducting a First Closing Is Tolled. Purchasers in new construction or vacant condominium and co-op projects are entitled to an automatic right to rescind their contracts if the first closing for the development does not occur within 12 months of the projected first closing date set forth in the offering plan. With construction largely on hold and governmental department operations (necessary, for example, to grant approvals, perform inspections or receive and review required filings) disrupted, sponsors through no fault of their own face the prospect of being unable to timely conduct their first closing by the applicable deadline. The Order tolls the running of the 12-month deadline by the length of the Tolling Period, thereby granting sponsors additional time to conduct their first closing before they must offer rescission. Sponsors are required to update the first year of operation, as necessary, within 30 days from the expiration of the Order.
- Budget for First Year of Operation. Typically, sponsors are required to update the projected budget for the first year of operation if the development is delayed by more than six months. However, this requirement is temporarily suspended for the duration of the Tolling Period. Sponsors are required to update the first year of operation, as necessary, within 30 days from the expiration of the Tolling Period, and purchasers shall not be entitled to a right of rescission so long as such budget for the first year of operation does not increase by 25 percent or more during the pendency of the state of disaster emergency.
The issuance of the Order follows instrumental lobbying efforts spearheaded by the Real Estate Board of New York and included direct involvement by the Kramer Levin condominium team. The attorneys in Kramer Levin’s Condominium practice group are available to strategize with and help guide sponsors through these challenging times. Clients and contacts are encouraged to reach out to a member of our Condominium practice group for further details and insights regarding this Order. The complete Order can be found here.