New York's Cooperative and Condominium Community
the memeo is under atttorney generals office co-op defining R-15. Holder of unsold shares from 1987.
it is the definition of holders of unsold shares.i
can't cut and paste in nor link to it, tomorrow i will try again, i will have to convert it to a different format.
basicially from what i can understand, not all buyers of unsold shares become owners of unsold shares, they need to pass a lot of stringent requirements.
So it l;ook like , if i come close to understanding this, which i probably don't, that just because a sponsot sells unsold shares to an buyer and they continue to rent it to the tenent in occupancy, upon the tenent in occupancy passing away or moving out, the new owner cannot claim it is unsols shares, they must deal with it as any other shareowner, the unsold share clause has ended, unless they meet the requirements , such as have a bond posted and a lot of things the sponsor was required to have.
if my interpretation is correct, it is unbelievable that this has remained secret from the shareholders for 25 plus years.
Bit like the bills before the senate that would help shareholders, how many boards have performed what i would consider to be fiduciary duty and inform the shareholders of these proposed legislation , which would be to the benefit og the However we have receive a lot on mailings on our postage dime, asking us to vote a certain way or contact our politicians to vote down certain bills that may hurt the real estate industry.
Thus article on the AG site it was very hard for me to transfer to txt to paste on this site, , so there may be some OCR mistakes.,. i will give the exact web link in another post. This is different then has been described ny our management /sponsor in 1983. Also different from the poster above, CDT ,carl,
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DEFINITION OF HOLDER OP UNSOLD SHARES "Unsold shares are any shares not subscribed to and fully paid for prior to closing. At or prior to closing, unsold shares must be acquired by the sponsor or financially responsible individuals produced by the sponsor. A holder of unsold shares is the sponsor or any individual designated to hold unsold shares by the sponsor. Such shares shall cease to be unsold shares when purchased by a purchaser for occupancy." (13 NYCRR Section 18.3(w)(l)) (emphasis added) . The key word in this definition is "designated" . When a. sponsor holds on to unsold shares after the closing he may, thereafter, transfer those shares to others, not necessarily to "holders of unsold shares" . If he designates the grantee of these shares as a "holder of unsold shares" then that individual or entity* becomes a holder of unsold shares. This "designation" is usually evidenced by an amendment to the plan required by IB NYCRR Section 18.3(w)(ii} disclosing his or its identity, business address, background and experience/ prior convictions, injunctions, and judgments against it, prior real estate securities offerings within the past five years and its relationship to the sponsor, the selling agent, managing agent or provider of services to the coop. Additionally such a holder of unsold shares must comply with the escrow and trust fund provisions of General Business Law (GBL) Sections 352~h and 352-e(2-b) and must register as a broker-dealer pursuant to GEL Section 359-e unless already registered and must also supply to the Department of Law a signed registrant information form ("RI-1") concerning prior convictions, judgments, administrative actions, bankruptcy, employment and business affiliations and an affidavit of prior public offerings of cooperative interests in realty with addresses and dates of first closings (13 NYCRR Section 18.3(w)(9), (10)}. Such a holder of unsold shares has the obligation to amend the plan to provide current and accurate information about the offering and must provide prospective purchasers with a copy of the offering plan and all filed, amendments (13 WYCRR Section" 18.3 (w) (11)). Holders of unsold shares must also abide by more stringent rules for cancelling their proprietary leases' (13 NYCRR 18.3(w) (12)) . * The Tax Reform Act of 1986 changed the definition of tenant: stockholder from "individual" to "person" and therefore, for tax years beginning after 1986, corporations, trusts, estates, partnerships, or other entitites may qualify as tenant stockholders of cooperative housing corporations if they satisfy the requirements heretofore applicable to individual tenant stockholders.
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These obligations are normally associated with possible benefits for this special category of purchaser . The sponsor may provide in the plan and in the corporate documents and proprietary lease that these holders of unsold shares so designated as such by him do not need the consent of the board or managing agent to use, lease, sublet, sell, pledge or transfer unsold shares and/or do not have to pay transfer fees (flip taxes), that they may use. the apartments as models or selling offices and may make alterations to the units without the consent of the apartment corporation (13 NYCRR 18.3(w)(8)). Normally, bearing the burdens associated with being a holder of unsold shares is the quid pro quo for the benefits obtained from such status. Sssentially a holder of unsold shares stands in the shoes of a principal of the sponsor. It is not, however, up to the purchaser to say if he or it is a "holder of unsold shares",- Rather it is the sponsor who nust designate such a holder since the sponsor must represent in the plan that he will designate only individuals (or/ now, Bntities) who are financially responsible (13 NYCRR Section L8.3(w)(5)), The sponsor needs to choose these individuals {or entities) wisely since the sponsor must guarantee payment of all naintenance charges and assessments due from a holder of unsold shares (13 NYCRR Section 18.3(w){3}). If the holder doesn't pay, :he sponsor must . It is clear, then, that all unsold shares held yy sponsor and later sold by him do not necessarily result in the jrantee become a "holder of unsold shares" entitled to whatever Benefits are associated with such status. This is true lotwithstanding the fact that the grantee buys for investment and loes not take occupancy. In fact, the regulations make provision :or just such purchasers who are not designated by the sponsor as lolders of unsold shares but who buy for investment or buy a unit occupied by a non-purchasing tenant (13 NYCRR Section 13.3 £;•:) if 5 or more apartments are purchased, 13 NYCRR Section 18.3(n) regardless of the number of units if occupied by a non-purchasing :enant) . The sentence in the regulation which states that 1 [s]uch shares cease to be unsold shares when purchased by a jurchaser for occupancy" (13 NYCRR Section 18.3(w){l)} does not jnply that all sponsor's shares that are sold for investment mtomatically become units held by holders of unsold shares. The sentence does not present an all-inclusive limitation. Although LO purchasers for occupancy are "holders of unsold shares", 'either are all purchasers for investment, ""holders of -unsold ;hares". The sentence is meant to imply that when a holder of insold shares or a member of his immediate family takes occupancy if a unit associated with shares for which he is a designated .older, such status as an unsold shareholder is lost (together dth all the benefits and burdens associated with such status). . 'his sentence in the regulation was meant to stop the sponsor :rom designating a .never-ending line of holders who take iccupancy but who would be able to avoid consent requirements by ,he apartment corporation which will eventually be controlled by .on-sponsor affiliated tenant shareholders. „ 2 —
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It would be possible to have later purchasers zrom holders of unsold shares deemed to be holders of unsold shares but only if the sponsor so designated the new purchasers as such even though the sponsor did not directly sell to the new- purchaser . It would appear in the case at bar that the purchaser would have to produce some evidence of the sponsor's designation o£ him as a holder of unsold shares as well as compliance with the obligations of such a holder i.n order to avail himself of the privileges associated with such status. Such obligation would include his updating of the offering plan and providing the offering plan and all amendments thereto to his purchaser before accepting a contract. I hope this expanded definition of what is a holder of unsold shares is helpful to the Court in making its determination MARY SABA.TINI DISTEPHAN Assistant Attorney General Section Chief, Review Real Estate Financing Bureau _/
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http://www.ag.ny.gov/real-estate-finance-bureau/memos/sponsor-and-holder-unsold-shares-refb-policy-memoranda
To clarify, i am not arguing with carl (CDT) if his info overrides this info, but why is this on the official site of the AG , my understanding of this is still weak,so they may be different fine points,
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YOUR HOME; Unsold Shares in A Co-op
NY TIMES
By JAY ROMANO
Published: August 20, 1995
FOR many co-op dwellers, the main consolation for submitting to the subtle indignities of co-op ownership -- things like flip taxes, sublet fees and the requirement for board approval of sales and sublets -- is the knowledge that fellow shareholders share the same burden.
Some shareholders, however, are exempt from such details.
Original sponsors, for example, need no board approval for their rental tenants, pay no flip taxes or fees for subletting and can sell their units to whomever they want.
Now, an increasing number of nonresident investors who bought apartments from original sponsors are demanding the same rights and privileges as their predecessor shareholders.
The demands, however, are not sitting well with resident owners, co-op boards and the lawyers who represent them.
"Is this a big deal? You bet it's a big deal," said Marc J. Luxemburg, a Manhattan lawyer who is also president of the Council of New York Cooperatives.
The big deal, Mr. Luxemburg said, is the controversy raging in the co-op community over the question of who may be considered a holder of unsold shares.
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"There are thousands, maybe tens of thousands of apartments in New York that are still unsold," Mr. Luxemburg said. "And the question is to what extent an investor can run a rental operation in a co-op by buying unsold units and then renting them out from now until kingdom come."
Morton Rosen, a Manhattan lawyer who specializes in co-op law, said that under New York law, a sponsor of a co-op conversion is entitled to certain privileges designed to enable him to market apartments and complete a conversion.
Among those privileges are the right to be exempt from various rules and regulations in the proprietary lease, exemptions that give them the right to sell or sublet an apartment without board approval, and the right to be exempt from flip taxes and sublet fees.
In, short, Mr. Rosen said, "If you're a holder of unsold shares, you can put Jack the Ripper in your apartment without board approval and without even being subject to any fees."
For original sponsors, it seems, such exemptions are reasonable and even necessary, considering the fact that the ultimate goal is to facilitate the sponsor's attempts to fully convert the building without going broke. Increasingly, however, original sponsors have been selling their unsold shares to people with no intention of occupying the apartments they are buying. And therein lies the rub.
"You have people who are trying to subvert what a co-op is all about by running a rental operation," said Mr. Luxemburg. "They are using the status of the co-op to enhance the value of their rental apartments."
At first blush, it might seem simple to determine whether a person is a holder of unsold shares just by checking to see if the shares have ever been sold.
But that doesn't always work, because, by law, unsold shares can be sold by a sponsor to someone else who still retains the right to be treated as if they are holding unsold shares. The question, then, is how does one become a holder of unsold shares?
As it turns out, most proprietary leases contain a provision that defines unsold shares as shares that have been sold by a sponsor to a transferee who does not personally occupy the apartment. As a result, many people who have bought unsold shares from sponsors, and then never occupied their apartment but rented it instead, have come to the seemingly logical conclusion that they are holders of unsold shares.
The New York State Attorney General, however, doesn't necessarily agree with that reasoning.
In 1987, the Attorney General's office issued a letter "clarifying" the regulations on co-op conversions and making it clear that for anyone other than the original sponsor to qualify as a holder of unsold shares, that purchaser must be "designated" as such by the sponsor.
"What most people don't understand is that the proprietary leases define only what unsold shares are," said Mary Sabatini-DiStephan, an assistant attorney general. "And just because someone owns unsold shares doesn't mean that they are considered a holder of unsold shares unless they have been designated by the sponsor. It may seem like semantics to them, but it makes a real difference to us."
The reason it makes a difference, Ms. Sabatini-DiStephan said, is that when a sponsor "designates" a transferee as a holder of unsold shares, the sponsor is guaranteeing the financial obligations of the transferee to the co-op. If the transferee stops paying maintenance fees, the original sponsor is still on the hook. Moreover, a designated transferee is required to comply with the same requirements the original sponsor had to comply with, including filing annual amendments to the offering plan.
"Essentially," Ms. Sabatini-DiStephan said, "a holder of unsold shares steps into the shoes of the original sponsor."
In many cases, however, the original sponsor never explicitly "designates" an investor-purchaser as a holder of unsold shares. Often, the issue is never even raised.
But when the investor-purchaser reads the proprietary lease, and discovers that according to the lease he or she is the owner of unsold shares, it is easy to conclude that he or she is also a holder of unsold shares and entitled to the significant rights and privileges that that status provides.
And such is the stuff that lawsuits are made of.
"Nobody knows what the law really is," said Peter Stern, a Manhattan lawyer who is representing a client who bought unsold shares from a sponsor. Mr. Stern's client, who did not have a lawyer at the time, never asked for or received the required "designation" from the sponsor, never occupied the apartment herself, but soon noticed a definition of unsold shares in the proprietary lease that fits her situation perfectly.
"The true issue is," Mr. Stern said, "if you buy an apartment and you get a proprietary lease that calls you a holder of unsold shares if you don't live in the apartment, and then you don't live in the apartment, why shouldn't you be treated as a holder of unsold shares?"
In Mr. Stern's case, the State Supreme Court ruled in February that his client was not a holder of unsold shares because she was not designated as such by the sponsor. A couple of months later, however, the court reversed its earlier decision and scheduled the case for trial later this year.
Whatever the outcome, lawyers on both sides agree the stakes are high.
Under current rent regulations, once an apartment in a co-op is vacated by a rent-regulated tenant, the owner of the apartment can rent it for whatever the market will bear. That, coupled with the possibility that co-op boards will have no control over thousands of apartments owned by undesignated holders of unsold shares, could cause problems for co-ops with significant numbers of unsold apartments.
"It completely emasculates the whole right of the board to choose who can buy and who can rent in a building," said Mr. Rosen. "People purchase their apartments on the assumption that there will be some control over who can come into the building. This is not an elitist fantasy, either. We're talking about buildings all over the city."
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i just saw a board member bought an apartment that was initial investor shares" I am sure he plans of renting it out as unsold shares.
I like that the courts understand the concept of co-op ownership, and the reasons why individuals bought co-ops, for security and a place where everybody had an invested piece, ala skin in the game.
However the managements company, who was the sponsor, now has tis cash cow, where they do as little work as possible, collect a good sum in maint fees and do not oversee the managing agents, and we have frozen shut fire doors due to rust, which incurred big fines and cost of replacement of the door and frame.
The pres of the board in cahoots with the management company has converted the building into a rental, , many illegal sublets, where a parent went to th interview stated they were moving n/downsizing and the iterviewee never took possession, their son or daughter moved in. None of these shareholders ever came to an annual meeting nor considered it their home,so we have gone full cycle to a rental, but no laws to protect the shareholders, president states in an annual meeting that he will inside deal, 4 times. refuses to provide any financial transparency, the audit we should get rely s only on the receipts invoices that are given to them, if BS is fed to them, BS is the result. The renters made out in this building,since they have no worries, I can almost guarantee that our maint monies and co-op reserve monies are not being handles properly. Most likely moved to the co-op account , but has been in another account, with no board members, including the treasurer,who fraudulent states he has lived here for over 10 years, yet has never lived here, his sons and daughters have the apartments
some shareholders are given the managing agents email address for easier contact. I received a letter stating to never contact him, since i ask or demand my shareholder rights, board refuse to provide contact info.
Nightmare ,
oh and the managing agent told some shareholders that they don't count the unsold share apartments as sublets or rentals. frauding the owner occupied ratio
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i just saw a board member bought an apartment that was initial investor shares" I am sure he plans of renting it out as unsold shares.
I like that the courts understand the concept of co-op ownership, and the reasons why individuals bought co-ops, for security and a place where everybody had an invested piece, ala skin in the game.
However the managements company, who was the sponsor, now has tis cash cow, where they do as little work as possible, collect a good sum in maint fees and do not oversee the managing agents, and we have frozen shut fire doors due to rust, which incurred big fines and cost of replacement of the door and frame.
The pres of the board in cahoots with the management company has converted the building into a rental, , many illegal sublets, where a parent went to th interview stated they were moving n/downsizing and the iterviewee never took possession, their son or daughter moved in. None of these shareholders ever came to an annual meeting nor considered it their home,so we have gone full cycle to a rental, but no laws to protect the shareholders, president states in an annual meeting that he will inside deal, 4 times. refuses to provide any financial transparency, the audit we should get rely s only on the receipts invoices that are given to them, if BS is fed to them, BS is the result. The renters made out in this building,since they have no worries, I can almost guarantee that our maint monies and co-op reserve monies are not being handles properly. Most likely moved to the co-op account , but has been in another account, with no board members, including the treasurer,who fraudulent states he has lived here for over 10 years, yet has never lived here, his sons and daughters have the apartments
some shareholders are given the managing agents email address for easier contact. I received a letter stating to never contact him, since i ask or demand my shareholder rights, board refuse to provide contact info.
Nightmare ,
oh and the managing agent told some shareholders that they don't count the unsold share apartments as sublets or rentals. frauding the owner occupied ratio
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Dianne, that 1995 article by Jay Romano was a good summary of the situation at the time, but a lot has changed since then. Here's another Romano article on Unsold Shares from 2007 that discusses both the Kralik and Sassi-Lehner decisions: http://www.nytimes.com/2007/08/26/realestate/26Home.html ("Dead Co-op Issue Gets a Second Life").
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This statement from the AG no longer carries any weight. This is the opinion that was overturned by Kralik v. 239 E 79 in 2005. Note that the URL for this memo is http://www.ag.ny.gov/sites/default/files/pdfs/bureaus/real_estate_finance/Repealed-Memos/R-15.%20Holder%20of%20unsold%20shares.PDF -- with "Repealed-Memos" in the middle. I don't know why they bother to leave it on the website; it's pretty confusing to have it there.
As noted earlier, the current tendency in evaluating Unsold Shares -- to judge by the Sassi-Lehner and Rotblut cases -- is to take the complete set of corporate documents into account, including the full Offering Plan and amendments. An argument based solely on language in the Proprietary Lease seems unlikely to carry the day. But the situation remains messy and I'm not a lawyer, so please consult your own attorney if you're wondering about a specific situation in your own building.
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The AG's position on Unsold Shares was unanimously overturned in 2005 by the Court of Appeals (NY's highest court) in Kralik v. 239 E 79. For a few years, it appeared that pretty much any investor who bought the shares associated with an apartment but did not live there was a Holder of Unsold Shares.
But in 2008, the decision in Sassi-Lehner v. Charlton Tenants Corp. took a different tack, asserting that the full Offering Plan (and related documents) had to be taken into account in defining Unsold Shares, not just the Proprietary Lease. In that dispute, the ruling was that the investor was NOT a Holder of Unsold Shares. Note that this never made it to the Court of Appeals; just the Appellate Division of the First Department.
The 2010 Appellate Division ruling in Rotblut v. 150 E 77 applied similar reasoning. Quote: "Plaintiffs failed to demonstrate that they are holders of unsold shares in the corporation under the controlling documents, i.e., the offering plan, amendments to the plan, and proprietary lease."
The language defining Unsold Shares in most co-ops' documents is lamentably murky, and this has led to years of litigation. You're probably safest to assume that any investor may ultimately be considered a Holder of Unsold Shares, though Sassi-Lehner and Rotblut provide evidence that this isn't always the case.
(Disclaimer: I am not a lawyer, though I've followed the Unsold Shares debate for years with considerable interest.)
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