The Pitfalls Involved in Disposing or Mortgaging Real Property Owned by Religious Corporations
The pastor of a small church in Manhattan contacted me several years ago asking for help. The congregation had outgrown its space and was seeking to sell its building and move to a larger building in the Bronx. In fact, the church was already under contract to sell the building to a developer, but the attorney representing the church had stopped responding to emails and phone calls. Was there any way I could take over the file?
Representing a religious corporation, or any not-for-profit, in the disposition of real property requires a methodical approach combined with a firm grasp of which rules apply under the circumstances and how to address them to achieve the desired result: Attorney General and/or Supreme Court approval of the sale.
Unlike the representation of a for-profit corporation, counsel for a church, synagogue, or mosque needs to procure a good deal of specific information from the client, and in many cases, assist them in generating it, in order to draft a well-constructed petition for approval of the sale. The application process can be a slow one, made all the more drawn out if it’s not approached correctly.
These transactions are guided by Not-for-Profit Corporation Law (“N-PCL”) §§ 510-511 and Religious Corporations Law (“RCL”) § 12. The RCL requirements are generally triggered when the religious entity seeks to sell, mortgage, or lease its property for a term of five years or more, or exchange or otherwise dispose of a real property asset. The religious entity needs to petition the New York Supreme Court or the Office of the New York State Attorney General, Charities Bureau (or in some instances both) depending initially on the denomination of the entity. The amendments to the Nonprofit Revitalization Act of 2013 simplified the process by allowing some entities to submit applications to the Attorney General alone, and, barring any complications, to receive a final order approving the sale from the Attorney General without the necessity of seeking court approval as well.
The applicant needs to procure an appraisal as a requirement of the petition, ideally prior to marketing the property so that it is untainted by an already agreed upon contract price. The RCL also has very specific requirements for soliciting votes for approval of the transaction from the Seller’s board of directors and membership. The contract itself must stipulate that the disposition is subject not only to approval by both the Seller’s board of directors and its congregation, but also by the Attorney General and/or the court. Seller’s counsel must also ensure that the closing provision of the contract gives the entity adequate time to apply for approval of the sale, which at best will take several months. It’s recommended that counsel address this issue with the parties up front, because while praying for a quick approval couldn’t hurt, strict attention to detail and a thorough knowledge of the statutes are still the best ways to expedite the process when representing a nonprofit or religious entity in the disposition of real property.