Buyers seeking to enforce their contractual rights by an action for “specific performance” to compel the sale of real property have to demonstrate that they are “ready, willing and able” to acquire the property. Apparently, the determination whether a buyer is “able” to complete the purchase does not refer simply to the buyer’s capabilities, but also depends on the seller’s ability to close the sale.
In a recent case, the Kings County Supreme Court dismissed a specific performance action where the seller was unable to obtain short sale approval from his existing mortgagee to sell the property.[1] Here, the parties contracted for the sale of a single-family residence for $285,000, with a closing to occur on or about sixty days from the short sale approval date. Under the contract, the burden fell on the seller to obtain short sale approval.
The seller’s existing mortgagee refused to give short sale approval, apparently because the property had a fair market value substantially higher than the purchase price. Because the seller was not able to obtain short sale approval, the court determined that buyer was not “able” to purchase the property even though the buyer itself had no intrinsic deficiencies to moving forward. Interestingly, the complaint also did not allege the purchaser was “able” to acquire the property, a necessary element of the specific performance action (perhaps because the buyer already knew that the bank would not release its mortgage lien). In any event, the complaint was dismissed.
[1] Monroe 485 LLC v Hall (King. Cty. Sup. Ct. 1/10/20)
For real estate owners, managers and brokers seeking to make sense of (and engage in damage control from) the Housing Stability and Tenant Protection Act of 2019 (“TPA”) passed nearly 8 months ago, the clarity provided by the NY Department of State in its latest “Guidance for Real Estate Professionals” issued on January 31, 2020, offers little welcome news.
It is now clear under the TPA that a landlord cannot compel a tenant to pay the landlord’s real estate broker’s fee for signing a lease for an apartment. Instead, the fee must be collected by the broker from the landlord; meanwhile the landlord, in turn, must try to recover the amount of the fee by charging and collecting increased rents from the tenant over the course of the lease term. Of course, landlords of rent stabilized and rent controlled apartments are never able to pass on these costs to tenants participating in those programs.
Also, it is well known in the industry that the TPA – as passed in June 2019 — prohibits collection from tenants of a security deposit in excess of 1 month’s rent. Now the Department of State has taken the position that no additional fee can be collected in advance in the form of a pet deposit or a move-in/move-out deposit. Conversely, sums for damage caused by tenants’ pets or moving in or out may not be deducted from the security deposits unless those damages exceed “ordinary wear and tear.” We wonder whether pet urine in the elevator would now be considered an “ordinary” consequence of ownership. We also find it hard to understand how any damage caused when a tenant moves in or out could be considered “ordinary wear and tear.”
Under the TPA, landlords and agents may still collect up to $20 from tenants as reimbursement for fees actually incurred for background checks and credit checks. And yet, even this modest fee may be reduced or even eliminated upon application of possible exceptions laid out by the State Department in its latest “Guidance”. [NOTE: in a recent article we reported that until a court or other body with jurisdiction states otherwise, the Department of State will not enforce this limitation against fees charged by Condo and Co-op Boards and their managing agents to process purchase and lease application fees so long as the board is not the owner of the unit.]
A copy of the latest Guidance is availableHERE. The interpretations of the Department of State also remain subject to court guidance as well. Please contact us for further information on how evolving interpretations of the TPA may impact your business.
Members of a cooperative’s board of directors enjoy the protections of both the corporate shield and the business judgment rule, such that they may not be held personally liable for property damage or personal injury when a claim is made in connection with actions taken by directors in their official capacity as board members. But that protection is not absolute and does not always provide an immediate exit from litigation.
In one recent case[1], the New York County Supreme Court was faced with a complaint alleging that a restaurant operating on the ground floor of a Coop building suffered significant damage when a fire erupted in its premises. A fire department report concluded that the sprinkler system for the premises had been turned off manually, and the restaurant thereafter alleged negligence, gross negligence and contract claims against the cooperative, its managing agent and various board members. Prior to answering the complaint, the board members moved to dismiss, arguing that they could never be held personally liable for the acts alleged.
The Court disagreed. While recognizing the general principles protecting board members, the Court held that at this very early stage in the litigation, the restaurant’s only burden was to assert a viable claim that (if proven) would justify piercing the corporate veil or falling outside of the business judgment rule, regardless of whether that claim was likely or unlikely to ultimately prevail. Disclosure of information and records in the course of the litigation might very well relieve the subject board members from liability. For now, though, even though the directors’ dual protections under the corporate shield and the business judgment rule would be preserved, the restaurant could proceed with its claims against the individuals pending development of the facts.
[1] Manna Amsterdam Avenue LLC. v. West 73rd Tenants Corp. et al (Sup. Ct. NY Cty. 12/20/19)
As a New York Times article from last October[1] described, religious institutions strapped for operating funds or wishing to utilize their real property as investment vehicles can enter into sales or long-term lease agreements with developers. However, New York State Religious Corporation Law requires religious institutions to obtain judicial and/or New York State Attorney General approval for such transactions, and the article pointed to concerns raised by city officials that such transactions are not always made in the best interest of congregants and community stakeholders.
A recent decision from the Appellate Division, Second Department noted that one concern arises when a developer wants to acquire the religious (or other not-for-profit) real estate through a purchase money mortgage.[2] A purchase money mortgage is a mortgage the seller gives to the buyer, to be repaid post-closing. The buyer takes title and/or possession of the property at closing but makes post-closing purchase payments to the seller, with the property held as collateral.
In the case at issue, the Court found that using a purchase money mortgage as a substantial component of the purchase price was not “fair and reasonable” to the Church, as required by New York State law, because that type of transaction would have rendered the Church a lender risking receiving less than the fair market value for the property. When the buyer presented revised terms including an increased purchase price, but still acquiring largely through a purchase money mortgage, the Church declared the contract null and void. The Court agreed, finding that Church was not required to continue using its “best efforts” under the contract to obtain court approval where the buyer insisted on contract terms initially unsatisfactory to the Court.
Purchases and developers looking to acquire or lease religious and not-for-profit real estate are reminded that freedom to contract in New York State is not absolute, and negotiating “in good faith” will require satisfying judicial and/or New York State Attorney General intervention.
[1] “For Churches, a Temptation to Sell”, New York Times (10/4/19)
[2] GG Acquisitions LLC. v. Mount Olive Baptist Church of Manhasset (11/8/19)
Imagine that your 30-unit building suffers a catastrophic fire. Maintenance charges (rent) usually abates for the affected tenants after a casualty. How certain are you that your coverage for lost maintenance, known as “Business Income” coverage, will last through the full restoration?
Coverage limits are expressed in terms of maximum coverage, time and allowed expenses. Your insurer may advertise that your coverage for lost rents is a set dollar figure. But deep within the policy, that recovery may be limited to the loss sustained over a particular time period, which time may be less than the time needed to restore the building after a casualty. Furthermore, the insurer may challenge whether the reasonable actual costs of operation during restoration are more or less than the sum of the rents. (Did you need as many employees? Is common area utility consumption the same?)
The real-life limits of Business Income coverage can be difficult to determine in your policy, and carriers don’t make it easier. One widely used insurer for Co-ops states on its Declarations page that its lost business income coverage is a set number (say $500,000). The coverage endorsement is part of a package of endorsements labeled, “Enhanced Property Insurance Coverage for Cooperatives and Condominiums.” When you read the actual “enhanced” endorsement, though, the standard policy places a limit of twelve months on recovery for your losses. In other words, if you haven’t completed your restoration within 12 months after the loss, you don’t get reimbursed for lost maintenance after that. The other shareholders have to pick up the difference until the work is done. Ouch!
Your carrier may provide an option to extend coverage beyond one year, but you have to ask for it and it costs extra. Would your insurance broker know whether to alert you? Co-ops should determine whether your timetable for restoration after a major casualty will exceed the Business Income limits imposed by your insurer, and adjust accordingly.
Over the last year or so, New York State has passed significant new legislation on employment issues and labor rights, some of which have been effective since October 2019. Thus, a three month checkup is in order.
Have you faced any harassment claims under the New York State Human Rights Law? Since October 2019, claims under the Human Rights Law could be proven under a lower evidentiary standard than what was previously in effect.
Have you provided sexual harassment prevention training, now required by nearly every employer? Check with the Department of Labor or consult a professional on what materials and information are required to be covered, when, and through what means.
Have you faced discrimination claims and wish to include confidentiality provisions in settlements with employees? Those confidentiality provisions are now prohibited in settlement of discrimination claims unless the employee specifically requests. So be careful how you structure settlement agreements with employees.
Finally, have any non-employees (e.g., independent contractors) brought discrimination claims against you under the New York State Human Rights Law. Since October 2019, they can.
A personnel checklist every few months provides a valuable way for employers to assess the health of your employee relationships, and to address areas which need improvement.
Low attendance at Co-op annual or special shareholder meetings can result in a lack of a quorum and can delay or even prevent boards of directors from taking actions that require shareholder approval. Thus, co-op boards and shareholders alike may welcome a new law authorizing boards to permit remote shareholder attendance and electronic voting at co-op meetings. New Subsection “(b)” of NY Business Corporation Law Section 602, effective as of October 23, 2019, will likely increase shareholder participation and could forever change the shareholder meeting as we know it.
The new law allows boards to “implement reasonable measures to provide shareholders not physically present at a shareholders’ meeting a reasonable opportunity to participate in the proceedings …” (such as by “audio webcast or other broadcast”) and to “enable shareholders to vote or grant proxies … by means of electronic communication” (such as by “telephonic and internet voting”). In other words, shareholders must have a way to hear what is happening and to send in a contemporaneous vote. Boards implementing means for electronic participation must also (a) verify that participants are in fact shareholders of record, and (b) keep records of votes and other actions by shareholders participating by electronic means. In addition, the Board needs to confirm shareholder attendance and voting (possibly by an e-mail with a “read receipt”).
Of course, the new provisions do not “limit, restrict or supersede other forms of voting and participation,” and implementing measures for electronic participation may not guaranty 100% participation; however, doing so will likely reduce the impact of physical limitations such as shareholder immobility, scheduling conflicts or just plain inconvenience to some shareholders that can contribute to low meeting turnout. Thus, positive tangible impacts may include increasing chances of achieving a quorum and even the evasive “supermajority” vote required to amend co-op governing documents. Allowing electronic participation may also include speeding up the rate at which business is conducted and achieving voting results (including elections) that are representative of a higher percentage of the particular co-op community.
Let us know what YOU think …
A client recently presented our firm with an interesting and complex question regarding employers’ rights to request medical documentation under the Americans with Disabilities Act (“ADA”). The inquiry gave us the opportunity to review the law on this subject and to offer two important points that all employers should consider when addressing ADA-related issues. First, medical documentation issues can be difficult to recognize, regardless of an employer’s experience with the ADA or similar state and local law. Second, whether an employer prevails or loses in a dispute concerning these issues may be the result of only slight differences in the actions the employer takes.
Under settled law, employers may require an employee with a disability to provide documentation sufficient to show the limitation the employee experiences that allegedly requires a reasonable accommodation. Once the employee and employer move past this initial step, a dispute can arise concerning the extent to which the employer may demand additional documentation from the employee and the point when the employee has fulfilled all of the required obligations. The situations that ultimately require court intervention are those in which the employer demands supplemental documentation and the employee either fails to provide it or the employer finds the supplemental documentation to be inadequate. Courts must then determine whether the employer or the employee caused the breakdown of the interactive process.
Due to the complexity of the issues regarding medical documentation and the importance in understanding the applicable legal standards, an employer would be well served to consult with legal counsel before requiring an employee to provide additional documentation. For the same reason, a well-planned response to the medical documentation provided by an employee claiming limitations is preferable to a premature determination regarding the sufficiency of the documentation provided for the purposes of ADA-related compliance.
Lien Law Section 79 criminalizes the diversion of trust funds from the purpose created by the trust. In layman’s terms, that basically means that a contractor who receives payments from a property owner for a project must use the payments for the purposes intended under the project (e.g., labor, subcontractors, vendors, etc.). Diverting those funds to other purposes or for other use subjects the contractor to potential prosecution for larceny.
But who is a contractor? Or more precisely, is the “contractor” for Lien Law Section 79 purposes the entity which is the party to a contract with the owner, or is the “contractor” the principals of the entity? One may assume that the corporate shield protects the individual principals from wrongdoing or liability committed by the contractor entity. Of course, you know what is said about those who “assume” too much.
Last month, a decision out of the Fourth Department[1] (from a case in Monroe County) held that under Lien Law § 79, the principal of an entity contractor was a “trustee” as defined under the Lien Law. Therefore, that principal’s conviction for grand larceny in the third degree was affirmed. Although the “person” who entered into the contract with the harmed owner was a corporation, that corporation’s principal was its sole shareholder, its sole authorized signatory of the account in which trust funds were deposited, and he held himself out in writing as the actual contractor.
The point of this discussion is not to suggest that if a contractor were to divert trust funds, the contractor should do so through a more corporate structure. Quite the contrary, the case law applies common sense and reason when holding wrongful parties to account in a Lien Law §79 diversion claim. Yes, establishing proper corporate norms and structures is a good and valuable business practice. But responsibility for malfeasant acts will fall on those who are actually in control, corporate shields notwithstanding.
[1] People v. Cahoon, 2019 WL 4893064 (4th Dep’t 2019).
NY State and NYC transfer tax laws were recently amended to require that transfer tax returns filed by limited liability companies (“LLC’s”) for the sale or purchase of residential real property include the names, addresses and taxpayer ID numbers of all of the individual members of both the LLC itself and of its non-natural members. This change in the law applies to LLCs whether they are selling or buying.
The new transfer tax forms now must be accompanied by a separate document listing the name, business address and taxpayer identification number of all members. In addition, if any member of the LLC is itself an LLC or other business entity, you must list the names and business addresses of all shareholders, directors, officers, members, managers, or partners of that entity. The filer must keep drilling down on membership until all natural persons with interests in the seller, purchaser or any of their members have been identified and the total membership interest adds up to 100%. If the transfer tax forms are received without the accompanying documentation establishing 100% of the beneficial ownership by natural persons, they will be rejected.
LLCs quite often use “authorized persons” to sign at the closings. Authorized persons are defined as “a person, whether or not a member, who is authorized by the operating agreement, or otherwise, to act on behalf of an LLC or foreign LLC”. The new law requires that the authorized person’s name, business address and taxpayer identification number also be included with the documentation. For example, if an attorney has signing authority at closing, their personal information would need to be included in the supporting documentation in order for the transfer tax forms to be accepted.
The new law complicates preparing the transfer tax forms for closings, especially if the members of an LLC are owned by multiple LLCs or foreign business entities. Therefore, attorneys should make sure that they can identify the full chain of ownership before their client signs a contract. Clients also need to be informed ahead of signing that they no longer can shield their identities from the transfer tax forms as was done in the past.
Although the State has not promulgated an official form, some title companies have prepared acceptable affidavits. Click here for one such form.
