LAW-47-15-00007-RP Clarification of Protections for Senior and Disabled Tenants During Condominium or Cooperative Ownership Conversions

2/24/16 N.Y. St. Reg. LAW-47-15-00007-RP

NEW YORK STATE REGISTER

VOLUME XXXVIII, ISSUE 8

February 24, 2016

RULE MAKING ACTIVITIES

DEPARTMENT OF LAW

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. LAW-47-15-00007-RP

Clarification of Protections for Senior and Disabled Tenants During Condominium or Cooperative Ownership Conversions

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following revised rule:

Proposed Action:

Addition of sections 18.1(e)(5), (6), 18.5(e)(10), 23.1(e)(5), (6) and 23.5(e)(10); and amendment of sections 18.3(d), (l), 23.3(d), (m) and (n)(8) of Title 13 NYCRR.

Statutory authority:

General Business Law, section 352-e(6)

Subject:

Clarification of Protections for Senior and Disabled Tenants During Condominium or Cooperative Ownership Conversions.

Purpose:

To clarify the Martin Act’s non-purchasing tenant protections for eligible senior citizens and eligible disabled persons.

Text of revised rule:

A new section 18.1(e)(5) is added to title 13 to read as follows:

(5) If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-e(2-a) or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also state:

If you are a senior citizen or disabled tenant as defined by G.B.L. section 352-e(2-a)(a)(iii) and 352-eeee(1)(f) or G.B.L. section 352-e(2-a)(a)(iv) and 352-eeee(1)(g), respectively, you have additional rights and protections, including the right to elect to become a non-purchasing tenant within 60 days from the date you receive the filed offering plan from the sponsor. Senior citizen and disabled tenants are advised to read the section of the offering plan entitled “Rights of Eligible Senior Citizens and Eligible Disabled Persons.”

If the offering plan is submitted to the Department of Law on or after July 1, 2016 pursuant to G.B.L. sections 352-e(2-a) or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after July 1, 2016, the notice shall also include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-1 and SH-2, respectively.

A new section 18.1(e)(6) is added to title 13 to read as follows:

(6) If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. section 352-eee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also state:

If you are a senior citizen or disabled tenant as defined by G.B.L. section 352-eee(1)(f) or G.B.L. section 352-eee(1)(g), respectively, you have additional rights and protections, including the right to elect to become a non-purchasing tenant. Senior citizen and disabled tenants are advised to read the section of the offering plan entitled “Rights of Eligible Senior Citizens and Eligible Disabled Persons.”

If the offering plan is submitted to the Department of Law on or after July 1, 2016 subject to G.B.L. section 352-eee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-5 and SH-2, respectively.

Section 18.3(d) of title 13 is amended to read as follows:

(d) [In an eviction plan, if] If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. section 352-eee [is applicable], and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-5 and SH-2, respectively. [In an eviction plan, if] If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. section 352-e(2-a) or 352-eeee [is applicable], and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-1 and SH-2, respectively.

Section 18.3(l) of title 13 is amended to read as follows:

Rights of eligible senior citizens and eligible disabled persons. If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L., section 352-e(2-a), 352-eee or 352-eeee [is applicable], and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, [and the plan provides that it is an eviction plan,] include the following information on the rights of eligible senior citizens and eligible disabled persons.

A new section 18.5(e)(10) is added to title 13 to read as follows:

(10) If the plan was submitted on or after September 1, 2016 subject to G.B.L. sections 352-e(2-a), 352-eee, or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, include copies of all executed eligible senior citizen and/or eligible disabled person election forms (forms SH-1/SH-5 and SH-2, respectively), if any. In such instances, sponsor must also submit to the Department of Law, if requested, copies of the renewal leases for any tenants who have elected eligible senior citizen or eligible disabled person status.

A new section 23.1(e)(5) is added to title 13 to read as follows:

(5) If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-e(2-a) or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also state:

If you are a senior citizen or disabled tenant as defined by G.B.L. section 352-e(2-a)(a)(iii) and 352-eeee(1)(f) or G.B.L. section 352-e(2-a)(a)(iv) and 352-eeee(1)(g), respectively, you have additional rights and protections, including the right to elect to become a non-purchasing tenant within 60 days from the date you receive the filed offering plan from the sponsor. Senior citizen and disabled tenants are advised to read the section of the offering plan entitled “Rights of Eligible Senior Citizens and Eligible Disabled Persons.”

If the offering plan is submitted to the Department of Law on or after September 1, 2016 pursuant to G.B.L. sections 352-e(2-a) or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-1 and SH-2, respectively.

A new section 23.1(e)(6) is added to title 13 to read as follows:

(6) If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-eee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also state:

If you are a senior citizen or disabled tenant as defined by G.B.L. section 352-eee(1)(f) or G.B.L. section 352-eee(1)(g), respectively, you have additional rights and protections, including the right to elect to become a non-purchasing tenant. Senior citizen and disabled tenants are advised to read the section of the offering plan entitled “Rights of Eligible Senior Citizens and Eligible Disabled Persons.”

If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-eee, and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, the notice shall also include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-5 and SH-2, respectively.

Section 23.3(d) of title 13 is amended to read as follows:

(d) Election forms for eligible senior citizens and eligible disabled persons. [In an eviction plan, if] If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. section 352-eee [is applicable], and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-5 and SH-2, respectively. [In an eviction plan, if] If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. section 352-e(2-a) or 352-eeee [is applicable], and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, include the eligible senior citizen and eligible disabled person election forms promulgated by the Department of Law, forms SH-1 and SH-2, respectively.

Section 23.3(m) of title 13 is amended to read as follows:

Rights of eligible senior citizens and eligible disabled persons. If the offering plan is submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. section 352-e(2-a), 352-eee or 352-eeee [is applicable] (or in cases where applicable local law confers special rights for senior citizens, disabled persons, or other protected class of tenants), [and the plan provides that it is an eviction plan,] and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, include the following information on the rights of eligible senior citizens and eligible disabled persons.

Section 23.3(n)(8) of title 13 is amended to read as follows:

(8) Highlight as special risk and discuss if by reason of the termination of real estate tax benefits, tenants will no longer be subject to rent regulation. State when rent regulation will cease. If the plan is [an eviction plan] submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. section 352-eee, [or] 352-eeee, or [is a plan subject to] section 352-e (2-a), and the sponsor executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, discuss any protection against rent increases for eligible senior citizens and disabled persons contained in those sections. [If the plan is a noneviction plan subject to G.B.L. section 352-eee or 352-eeee, discuss any protection against rent increases for nonpurchasing tenants contained in those sections.]

A new section 23.5(e)(10) is added to title 13 to read as follows:

(10) If the plan was submitted to the Department of Law on or after September 1, 2016 subject to G.B.L. sections 352-e(2-a), 352-eee, or 352-eeee, and the sponsor executed a contract of sale for the building or group of buildings on or after September 1, 2016, include copies of all executed eligible senior citizen and/or eligible disabled person election forms (forms SH-1/SH-5 and SH-2, respectively), if any. In such instances, sponsor must also submit to the Department of Law, if requested, copies of the renewal leases for any tenants who have elected eligible senior citizen or eligible disabled person status.

Revised rule compared with proposed rule:

Substantive revisions were made in sections 18.1, 18.3, 18.5, 23.1, 23.3 and 23.5.

Text of revised proposed rule and any required statements and analyses may be obtained from

Jacqueline Dischell, Department of Law, Real Estate Finance Bureau, 120 Broadway, 23rd Floor, New York, NY 10271, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

30 days after publication of this notice.

Revised Regulatory Impact Statement

1. Statutory Authority.

New York General Business Law Article 23-A (“the Martin Act”) regulates the advertisement, sale, purchase, and investment advice given to securities and other covered investment vehicles. See NYS CLS GBL § 352(1). Included under the Martin Act’s purview is the regulation of real estate syndication offerings, including the conversion of residential buildings to cooperative and condominium ownership. See NYS CLS GBL 352-e, 352-ee, 352-eee, 352-eeee. Section 352-e(2-b) of the New York General Business Law (“GBL”) authorizes the Department of Law (“DoL”) to “adopt, promulgate, amend and rescind suitable rules and regulations to carry out the provisions of this subdivision.” See also NYS CLS GBL § 352-e(6).

2. Legislative Objectives.

The legislative history of the 1982 revisions to the Martin Act demonstrates a clear intent to maintain and improve neighborhoods and housing by permitting the conversion of residential real estate to cooperative or condominium ownership, while also “protecting tenants in possession who do not desire or who are unable to purchase the units in which they reside from being coerced into vacating such units.” McKinney’s 1982 Session Laws of New York, Volume 2, p. 1474. The legislature also aimed to add additional protections for senior and disabled tenants, regardless of income. The official bill memorandum for the 1982 revisions to the Martin Act specifically states, “All senior citizens and handicapped non-purchasing tenants are protected from eviction (income and residency requirements are eliminated)” (commenting on the removal of the statute’s previous income-based eligibility ceiling for senior non-purchasing tenants). In fact, Senator Goodman, a co-sponsor of the bill, listed this as a “principal provision” of the entire bill. Indeed, the notion that, as a matter of public policy, all senior and disabled tenants should be protected during the conversion process appears repeatedly throughout the Martin Act’s legislative history. See New York Summary of Legislation, 1982, p. 27-5.

The Martin Act states that tenants who are unwilling or unable to purchase their apartments during the condominium of cooperative conversion process are “entitled to possession at the time the plan is declared effective.” NYS CLS GBL 352-e(2-a)(a)(ii), 352-eeee(1)(e), and 352-eeee(1)(e). These “non-purchasing tenants” benefit from numerous protections under the Martin Act, including, in part, protection against eviction at any time, and continuation of any government regulation regarding rent and occupancy to which the apartment was subject prior to the conversion. See NYS CLS GBL 352-eee(2)(c)(ii),(iii), and (iv); 352-eeee(2)(c)(ii),(iii), and (iv). The Martin Act further provides that if a tenant is “sixty-two years of age or older” or has “an impairment resulting from anatomical, physiological, or psychological conditions,” he or she can elect to become a sub-category of “non-purchasing tenant” – an “eligible senior citizen” or an “eligible disabled person,” respectively. Indeed, the statute unequivocally defines “eligible senior citizens” and “eligible disabled persons” as “non-purchasing tenants.” NYS CLS GBL 352-e(2-a)(a)(iii) and (iv); 352-eee(1)(f) and (g); and 352-eeee(1)(f) and (g). If a tenant successfully elects to become a “non-purchasing tenant” based upon his or her status as an “eligible senior citizen” or “eligible disabled person,” the Martin Act accords protection against eviction during the conversion process. See id.

Under the Martin Act, “non-purchasing tenant” protections are available in both eviction and non-eviction conversion plans. However, current DoL regulations require only eviction plans to disclose “eligible senior citizen” and “eligible disabled person” election rights, which can result in the majority of senior and disabled market-rate tenants being susceptible to eviction during the conversion process. This regulatory protection gap directly conflicts with the Martin Act and its legislative intent. The DoL therefore proposes to amend its regulations to prospectively extend “non-purchasing tenant” election rights to “eligible senior citizens” and “eligible disabled persons” in both non-eviction and eviction conversion plans.

These regulatory revisions are consistent with, and permissible under, the Martin Act. The legislature authorized the Attorney General to promulgate suitable rules and regulations necessary to carry out the provisions of the Martin Act. NYS CLS GBL 352-e(2-b). The statute provides protections to “non-purchasing tenants,” and defines “eligible senior citizens” and “eligible disabled persons” as a sub-category of “non-purchasing tenants” entitled to such protections. Furthermore, the underlying intent of the Martin Act – a tenant protection and anti-harassment statute – is to protect “non-purchasing tenants,” particularly those who are senior or disabled, from being coerced into vacating their homes. The DoL’s regulatory revisions better effectuate the intent of the Martin Act to protect seniors and disabled tenants by taking into account the serious change in the tenant landscape: an increase in the number of market-rate tenants in buildings converting to cooperative or condominium status.

3. Needs and Benefits.

Current DoL regulations, drafted in 1989, only extend the “eligible senior citizen” and “eligible disabled person” election process to tenants subject to eviction plans. Senior and disabled market-rate tenants subject to non-eviction plans currently have no mechanism to elect to become “eligible senior citizens” and “eligible disabled persons,” and as such, cannot take advantage of the “non-purchasing tenant” protections available to them under the statute. Consequently, this class of tenants risks eviction from the date the offering plan is submitted to the DoL until the date the offering plan is declared effective – a period that can last 10 to 24 months, and during which a property owner may permit market-rate leases to expire without offering renewal leases.

When the DoL promulgated its regulations in 1989, few market-rate tenants were subject to conversion plans; rather, almost all tenants in occupied buildings undergoing conversion (pursuant both to eviction and non-eviction plans) were rent-regulated. Rent-regulated tenants in non-eviction conversions had statutory protections from displacement, and DoL regulations provided rent-regulated senior and disabled tenants in eviction plans the opportunity to seek protections from eviction. At present, however, most conversion plans are non-eviction plans, and most tenants in buildings undergoing conversion are market-rate. To illustrate, the DoL recently conducted an internal analysis of 30 rental conversion plans under review and found that approximately 65% of the tenants were market-rate, and approximately 95% of their leases were set to expire during the conversion process. Current DoL’s regulations require only eviction plans to extend the “non-purchasing tenant” election process to “eligible senior citizens” and “eligible disabled persons,” and therefore do not adequately protect senior and disabled market-rate tenants from displacement throughout the non-eviction conversion process. Consequently, the DoL’s regulations no longer reflect the Martin Act’s intent to protect “non-purchasing tenants” from eviction during the conversion process, particularly the senior and disabled. Such changes in the rental market compel the DoL to revise its regulations to better reflect the current residential real estate landscape in which numerous senior and disabled non-purchasing tenants risk eviction during the conversion process.

Under the DoL’s revised regulations, sponsors of both eviction and non-eviction conversion plans submitted to the DoL on or after September 1, 2016, and where sponsor has entered into a contract of sale or acquired the building or group of building on or after September 1, 2016, must permit “eligible senior citizens” or “eligible disabled persons” to elect “non-purchasing tenant” status within 60 days of the presentation date of the offering plan. The September 1, 2016 effective date ensures that sponsors have adequate notice of these regulatory revisions as well as adequate time to adjust their business plans to take into account that certain tenants may remain in occupancy as “non-purchasing tenants” for a greater period of time than previously anticipated. Unless a sponsor is able to successfully challenge a tenant’s election, the protections afforded by “eligible senior citizen” and “eligible disabled person status” will accrue as soon as the election form is filed (so long as it is filed within 60 days of the presentation date), thereby ensuring that, in accordance with the Martin Act, the vast majority of eligible senior and disabled tenants can protect themselves from eviction at an earlier point in the conversion process.

4. Costs.

(a) Costs to regulated parties.

Under the regulatory revisions, certain sponsors of future condominium or cooperative non-eviction conversion plans must: (1) include the “eligible senior citizen” and “eligible disabled person” election forms in the offering plan when first submitted to the DoL and in the Notice to Tenants, (2) provide renewal leases to “non-purchasing tenants” who elect “eligible senior citizen” or “eligible disabled person status,” and (3) include copies of all executed election forms (if any) when submitting the effectiveness amendment to the DoL. The DoL believes that the costs associated with providing the above documents will be minimal.

Sponsors may also incur professional costs associated with the preparation their offering plans, such as legal fees. But because the DoL’s regulations already require sponsors to employ these services, any additional costs are likely to be minimal. The DoL will provide sponsors with model election forms, thereby further limiting professional costs.

Although the revised regulations are not retroactive in application and thus afford notice to sponsors, certain sponsors may need to adjust existing business plans to take into account that certain tenants may remain in occupancy for a greater period of time than anticipated. The revised regulations apply to offering plans submitted to the DoL on or after September 1, 2016 wherein the sponsor executed a contract of sale or acquired the building or group of buildings subject to conversion on or after September 1, 2016. Therefore, some sponsors may have additional unanticipated costs if their business plans were created prior to the publication of the revised regulations. However, market-rate non-purchasing tenants must continue to pay prevailing market rents, therefore costs to regulated parties should be minimal, as there are no restrictions on rent other than a prohibition against imposing unconscionable increases.

The aforementioned minimal costs to regulated parties are outweighed by the large public benefit of protecting senior and disabled market-rate tenants from eviction.

(b) Costs to the agency, the state and local governments.

The DoL foresees no costs to any state agencies or local governments as a result of the regulatory revisions.

(c) Information and methodology upon which the estimate is based.

The estimated costs are based on the assessment of the Attorney General, in reliance upon data and information maintained by the DoL’s Real Estate Finance Bureau.

5. Local Government Mandates.

The revised regulations do not impose any programs, services, duties, or responsibilities on any county, city, town, village, school district, fire district, or other special district.

6. Paperwork.

The revised regulations require sponsors of future conversion plans to: (1) include the “eligible senior citizen” and “eligible disabled person” election forms in the offering plan when first submitted to the DoL and in the Notice to Tenants, (2) provide renewal leases to “non-purchasing tenants” who elect “eligible senior citizen” or “eligible disabled person” status, and (3) include copies of all executed election forms (if any) when submitting the effectiveness amendment to the DoL. This additional requirement affects only conversion plans submitted to the DoL after September 1, 2016 wherein the sponsor executed a contract of sale or acquired the building or group of buildings subject to conversion on or after September 1, 2016.

7. Duplication.

The revised regulations do not duplicate any existing state or federal rule.

8. Alternatives.

The DoL believes that there are no alternatives to the regulatory revisions. There is no other means by which the DoL can make its regulations consistent with the intent of their authorizing statute other than by amending its regulations.

9. Federal Standards.

The regulatory revisions do not exceed any minimum standards of the federal government for the same or similar subject.

10. Compliance Schedule.

The revised regulations will go into effect on September 1, 2016. Additionally, the revised regulations apply only to conversion plans submitted to the DoL on or after September 1, 2016 wherein the sponsor executed a contract of sale or acquired the building or group of buildings subject to conversion on or after September 1, 2016. The revised regulations will not apply to conversion plans not satisfying this requirement, and are not retroactive in application.

Revised Regulatory Flexibility Analysis

1. Effect of rule.

The Department of Law’s (“DoL”) revised regulations have the effect of extending “non-purchasing tenant” election rights to “eligible senior citizens” and “eligible disabled persons” in future condominium or cooperative non-eviction conversion offering plans, in addition to eviction offering plans. The regulatory revisions ensure that the DoL’s regulations are consistent with their statutory authority, New York General Business Law Article 23-A (“the Martin Act”), the intent of which is to protect “non-purchasing tenants” from eviction during the conversion process, particularly those who are senior or disabled.

The revisions will not affect any local governments. The regulatory revisions do affect certain small businesses: specifically, sponsors of condominium or cooperative non-eviction conversion offering plans. However, the majority of conversion plans submitted to the DoL are sponsored by single-purpose limited liability corporations that are directly affiliated with larger entities. The State Administrative Procedures Act (“SAPA”) Section 102(8) defines a defines a small business as, “[a]ny business which is resident in this state, independently owned and operated and that employs 100 or less people.” Accordingly, the DoL believes that very few small businesses, as defined by SAPA Section 102(8), will be affected by the proposed revisions. In addition, the only sponsors that will be affected by the revised regulations are those whose conversion plans were submitted to the DoL on or after September 1, 2016 and wherein sponsor executed a contract of sale or acquired the building or group of buildings subject to conversion on or after September 1, 2016. The revised regulations will not apply to conversion plans not satisfying this requirement, and are not retroactive in application.

2. Compliance requirements.

The regulatory revisions do not require local governments to undertake any new obligations in terms of reporting, recordkeeping, or other affirmative acts in order to comply with the rule.

The revised regulations require certain sponsors of future condominium or cooperative non-eviction conversion plans to: (1) include the “eligible senior citizen” and “eligible disabled person” election forms in the offering plan when first submitted to the DoL and also in the Notice to Tenants, (2) provide renewal leases to “non-purchasing tenants” who elect “eligible senior citizen” or “eligible disabled person status,” and (3) include copies of all executed election forms (if any) when submitting the effectiveness amendment to the DoL. The revised regulations will affect only those conversion plans submitted to the DoL on or after September 1, 2016 wherein the sponsor executed a contract of sale or acquired the building or group of buildings subject to conversion on or after September 1, 2016.

3. Professional services.

The regulatory revisions do not require local governments to employ any professional services to comply with the rule. Under the revised regulations, sponsors of condominium and cooperative non-eviction conversion plans must employ professionals, such as attorneys and architects, in order to prepare their offering plans. But because the DoL’s regulations already require sponsors to employ these services to prepare their offering plans, any additional professional services and related costs are likely to be minimal. The DoL will provide sponsors with model election forms, thereby further limiting professional costs.

4. Compliance costs.

The DoL foresees no initial capital costs and no additional annual costs that will be incurred by local governments, regardless of their size, as a result of compliance with the regulatory revisions.

As described above, the revised regulations require certain sponsors of future condominium or cooperative non-eviction conversion plans to: (1) include the “eligible senior citizen” and “eligible disabled person” election forms in the offering plan when first submitted to the DoL and also in the Notice to Tenants, (2) provide renewal leases to “non-purchasing tenants” who elect “eligible senior citizen” or “eligible disabled person status,” and (3) include copies of all executed election forms (if any) when submitting the effectiveness amendment to the DoL. The DoL believes that the costs associated with providing the above documents will be minimal and will not vary depending on the size of the sponsoring entity.

Although the revised regulations are not retroactive in application and thus afford notice to sponsors of condominium and cooperative conversion plans, certain sponsors may need to adjust existing business plans to take into account that certain tenants may remain in occupancy for a greater period of time than anticipated. Therefore, some sponsors may have additional unanticipated costs if their business plans were created prior to the publication of the revised regulations. However, market-rate “non-purchasing tenants” must continue to pay prevailing market rents, so costs to regulated parties should be minimal, as there are no restrictions on rent other than a prohibition against imposing unconscionable increases.

No other compliance costs exist. Moreover, the aforementioned minimal costs to regulated parties are outweighed by the large public benefit of protecting senior and disabled market-rate tenants from eviction.

5. Economic and technological feasibility.

The regulatory revisions contain no technological requirements for regulated small businesses or local governments, and thus are technologically feasible. Compliance with the revised regulations is also economically feasible, because, as described above, there are no compliance costs for local governments and minimal compliance costs for regulated small businesses.

6. Minimizing adverse impact.

The regulatory revisions are designed to minimize any adverse economic impact on local governments and small businesses. The revisions have no adverse economic impact on local governments, as they neither require any action on the part of local governments nor affect them in any way. Likewise, the revisions do not impose an adverse economic impact on regulated small businesses. While certain small businesses may incur costs as a result of compliance with the revised regulations, the DoL expects these costs to be minimal and believes such costs are necessary to effectuate the intent of the Martin Act.

The DoL has considered the approaches for minimizing adverse impact set forth in SAPA Section 202-b(1). Nevertheless, the DoL has concluded that there is no other means by which the DoL can make its regulations consistent with the intent of their authorizing statute other than by amending its regulations.

7. Small business and local government participation.

To ensure that small businesses and local governments have an opportunity to participate in the rule making process, a copy of the regulatory revisions will be sent to members of the Bar who represent sponsors and purchasers of condominiums and cooperatives. Copies of the regulatory revisions will also be posted on the DoL’s website.

Revised Rural Area Flexibility Analysis

1. Types and estimated numbers of rural areas.

The regulatory revisions apply uniformly throughout the state, including all rural areas. Executive Law, Article 19-F Rural Affairs Act, Section 481(7) defines a rural area as a county with a population of less than 200,000. New York currently has 44 rural areas. However, nearly all cooperative and conversion plans submitted to the Department of Law (“DoL”) are for properties in New York City. To illustrate, of the 28 conversion offerings (2 cooperatives, 26 condominiums) submitted to the Department of Law in 2014, only 1 was located outside of New York City, and it was not in a rural area. Accordingly, the DoL believes that the revised regulations will have very little impact on rural areas.

2. Reporting, recordkeeping, and other compliance requirements.

The regulatory revisions do not require rural public entities to undertake any new obligations in terms of reporting, recordkeeping, or other affirmative acts in order to comply with the rule.

The revised regulations require certain sponsors of future condominium or cooperative non-eviction conversion plans to: (1) include the “eligible senior citizen” and “eligible disabled person” election forms in the offering plan when first submitted to the DoL and also in the Notice to Tenants, (2) provide renewal leases to “non-purchasing tenants” who elect “eligible senior citizen” or “eligible disabled person status,” and (3) include copies of all executed election forms (if any) when submitting the effectiveness amendment to the DoL. The revised regulations will affect only those conversion plans submitted to the DoL on or after September 1, 2016 wherein the sponsor executed a contract of sale or acquired the building or group of buildings subject to conversion on or after September 1, 2016. The revised regulations will not apply to conversion plans not satisfying this requirement, and are not retroactive in application.

3. Compliance costs.

The DoL foresees no initial capital costs and no additional annual costs that will be incurred by rural public entities, regardless of their size, as a result of compliance with the regulatory revisions.

As described above, certain sponsors of future condominium or cooperative non-eviction conversion plans must: (1) include the “eligible senior citizen” and “eligible disabled person” election forms in the offering plan when first submitted to the DoL and in the Notice to Tenants, (2) provide renewal leases to “non-purchasing tenants” who elect “eligible senior citizen” or “eligible disabled person status,” and (3) include copies of all executed election forms (if any) when submitting the effectiveness amendment to the DoL. The DoL believes that the costs associated with providing the above documents will be minimal.

Sponsors may also incur professional costs associated with the preparation their offering plans, such as legal fees. But because the DoL’s regulations already require sponsors to employ these services to prepare their offering plans, any additional costs are likely to be minimal. The DoL will provide sponsors with model election forms, thereby further limiting professional costs.

Although the revised regulations are not retroactive in application and thus afford notice to sponsors of condominium and cooperative conversion plans, certain sponsors may need to adjust existing business plans to take into account that certain tenants may remain in occupancy for a greater period of time than anticipated. Therefore, some sponsors may have additional unanticipated costs if their business plans were created prior to the publication of the revised regulations. However, market-rate “non-purchasing tenants” must continue to pay prevailing market rents, so costs to regulated parties should be minimal, as there are no restrictions on rent other than a prohibition against imposing unconscionable increases.

The aforementioned minimal costs to regulated parties are outweighed by the large public benefit of protecting senior and disabled market-rate tenants from eviction.

4. Minimizing adverse impact.

The regulatory revisions have no adverse economic impact on rural public entities, as they neither require any action on their part nor affect them in any way.

The revised regulations have minimal adverse economic impact the very few sponsors of cooperative and condominium conversion plans operating in rural areas. Although these few sponsors may incur certain costs as a result of compliance with the revised regulations, the DoL expects these costs to be minimal and believes such costs are necessary to effectuate the intent of New York General Business Law Article 23-A (“the Martin Act”).

The DoL has considered the approaches for minimizing adverse impact set forth in SAPA Section 202-bb(2). Nevertheless, the DoL has concluded that there is no other means by which the DoL can make its regulations consistent with the intent of their authorizing statute other than by amending its regulations.

5. Rural area participation.

To ensure that regulated rural entities have an opportunity to participate in the rule making process, a copy of the regulatory revisions will be sent to members of the Bar who represent sponsors and purchasers of condominiums and cooperatives. Copies of the revised regulations will also be posted on the DoL’s website.

Assessment of Public Comment

The Department of Law’s “Notice of Emergency Adoption and Proposed Rule Making” entitled “Clarification of Protections for Senior and Disabled Tenants During Condominium or Cooperative Ownership Conversions” was published in the State Register on November 25, 2015. Pursuant to State Administrative Procedure Act (“SAPA”) § 206(6)(d)(iii), this “Notice of Emergency Adoption and Proposed Rule Making” both publicized the adoption of the Department of Law’s emergency regulations and proposed the permanent adoption of identical regulations. The emergency regulations went to into effect on November 10, 2015, and pursuant to SAPA § 202(6)(b), expire 90 days thereafter on February 8, 2016. A 45-day public comment period followed the publication of the proposed permanent regulations in the State Register, as required by S.A.P.A. § 202(1)(a).

The Department of Law received no comments on the regulations during the public comment period afforded under SAPA, but prior to the issuance of these revised regulations, the Department of Law received comments, both written and verbal, from sponsors of condominium and cooperative conversion offerings. The Department of Law received one written comment. The commenter said the regulations were beyond the statutory authority afforded to the Attorney General in many respects – a position the Department of Law disagrees with since the rule is firmly grounded in statutory authority, and serves to protect the interests of seniors and disabled persons, as the statute intended. The Department of Law also received verbal comments, which echoed the sentiments of the written comment, but mostly were about possible retrospective application of the regulations. There was concern that the current language of both the emergency and proposed regulations failed to make clear that such regulations were prospective in application. Specifically, they explained that any retrospective application of the regulations would result in undue burdens on sponsors. The commenters suggested that if the regulations were to apply retrospectively, units that sponsors expected to be available for sale could be encumbered by unanticipated tenancies. One commenter stated that such unforeseen changes would “likely have far-reaching economic impact on developers who will suddenly find themselves with assets vastly diminished in value.” Notwithstanding, many commenters said they understood why the Department of Law was amending the regulations to extend the election process to seniors and disabled persons in non-eviction plans, but asked that the requirement be set into the future so as to make clear the change is not retrospective and to give developers an opportunity to reorganize their existing business plans. Because the emergency and proposed regulations were never meant to be retrospective in application, nor punitive in nature toward sponsors, the Department of Law has decided to revise the proposed regulations published in the State Register on November 25, 2015 to make abundantly clear that the regulations affect only future condominium and cooperative conversion offerings. The Department of Law always intended that these regulations would only apply prospectively, for the reasons stated by the commenters as well as the fact that retrospective application of these regulations would disrupt already settled tenant and purchaser relationships.

The Department of Law has included a specific effective date in its revised regulations to dispel any additional confusion about their retrospective application. Indeed, the revised regulations state that only sponsors who have submitted their conversion offering plans to the Department of Law on or after September 1, 2016, and executed a contract of sale for the building or group of buildings or acquired the building or group of buildings on or after September 1, 2016, must comply with the new regulatory requirements. The Department of Law has also revised its Regulatory Impact Statement, Regulatory Flexibility Analysis, and Rural Area Flexibility Analysis to reflect these changes.

The Department of Law believes that the above revisions effectively address any concerns of retrospective application. In addition, the Department of Law maintains that the prospective application of the revised application is not unduly burdensome to sponsors of conversion offerings. Although sponsors may need to adjust their existing business plans to take into account that certain tenants may remain in occupancy for a greater period of time than anticipated, senior and disabled market-rate non-purchasing tenants must continue to pay prevailing market rents; therefore, the cost to sponsors should be minimal, as there are no restrictions on rent, other than a prohibition against imposing unconscionable rent increases. The September 1, 2016 effective date in the revised regulations ensures that sponsors have adequate time to adjust their business plans accordingly.

The Department of Law’s proposed revisions are permissible under and consistent with the Martin Act. The statute authorizes the Attorney General to “adopt, promulgate, amend and rescind suitable rules and regulations” to carry out the provisions of the Martin Act. NYS CLS GBL §§ 352-e(2-b). See also NYS CLS GBL § 352-e(6). The intent of the Martin Act – a tenant protection and anti-harassment statute – is to protect non-purchasing tenants, particularly those who are senior or disabled, from being coerced into vacating their homes during the condominium or cooperative conversion process. At the time the Department of Law’s initial regulations were promulgated in 1989, the real estate landscape was quite different. In 1989, almost all tenants in buildings subject to cooperative or condominium conversion were occupied by rent-regulated tenants. Rent-regulated tenants are only at risk of displacement in eviction plans because in an eviction plan, a tenant who does not buy may be evicted three years after the offering plan is declared effective. That is why the Department of Law drafted its regulations in 1989 the way it did – to ensure that rent-regulated seniors and disabled tenants could elect to become non-purchasing tenants and thereby avoid eviction. Now, in 2016 where most tenants are in fact market-rate, the ability to elect to become a non-purchasing tenant in a non-eviction plan matters. Therefore, the Department of Law’s revised regulations, which provide all eligible senior and disabled market-rate non-purchasing tenants the ability to protect themselves from eviction at an earlier point in the condominium or cooperative conversion process, are fully warranted and are designed to carry out the intent of the statute.