Not-for-Profit companies and Religious organizations have a unique role and responsibility to their members, to safeguard assets and provide for the interest of its members and beneficiaries. Therefore, New York State law requires a review by the Attorney General and/or the New York State Supreme Court for certain types of transactions before the disposition and/or refinancing of those assets.
Section 510-511 of New York Not-for-Profit Law and Section 12 of Religious Corporate law requires that a religious corporation shall not sell its property, mortgage its property, or enter into a lease for a length of time greater than five years without applying for and obtaining the permission of The Court. On December 11, 2015, Governor Cuomo of New York signed Chapter 555 of the Laws of 2015, which changed the requirements. Before the enactment of Chapter 555 of the Laws of 2015, court approval was always required. This process required an application to the Attorney General to be drafted and only once it obtained a signature from the Attorney General endorsing its lack of objection to a proposed transaction be received; would the court review the application.
Exceptions to the above requirement do exist, which required the consultation of a qualified attorney.
For transactions which require the endorsement of the Attorney General and/or Order from the court, if the entity disposes of the asset without seeking permission; the transaction can be challenged in court, and the court in its discretion can rule that the transaction was invalid and in certain situations reverse the transaction.
Before submitting the application for sale approval to the Attorney General or the New York State Supreme Court, the entity should have a willing buyer ready to enter into a contract to purchase the property at a fair market price. The seller should explain to the purchaser that since this not a typical transaction, the time between contract and closing will be lengthier than a standard transaction. It is important to inform the purchaser that they enter the contract with the exact name that will go on the deed in the transaction, do not have a discrepancy with the Court Order, an amendment to contract later on will only complicate matters. Additionally, the selling entity will be required to have a meeting with its board of trustees and members, if applicable, to approve the sale.
The by-laws of the selling entity will detail the notice necessary to be provided for a meeting of its board and/or members, quorum requirement, details of who is considered a member, and any other voting requirements. The selling entity’s board of directors or trustees must approve the transaction, by 2/3 of the corporation’s entire board. If the board has over 21 directors, a majority of the board vote will suffice. If the by-laws of the selling entity endow the membership of the organization with voting rights, the board must adopt a resolution recommending the transaction, stating in detail the terms and conditions of the transaction, an explanation as to how the proceeds will be used, and a statement as to whether or not dissolution of the corporation is contemplated. The members entitled to vote (granted by the entity’s by-laws) must approve the transaction by as much as a 2/3 vote of the members present, which can vary depending on facts and circumstances and require the consultation with an experienced non-profit transactional attorney.
As stated above, the Attorney General and/or Court has the responsibility to make certain that Religious and Not-for-Profit entities are safeguarding the interest of their members. Therefore, to determine if the price for the transaction is fair and reasonable, the selling entity may have to order an appraisal from an appraiser who is completely independent of both the buyer and seller, to prove the fair market value.
The law firm of Schubin and Isaacs will guide the organization through the above process and explain what and how matters should be conducted and handled, should complications arise. We assist our clients in setting up meetings, ordering the appraisal, and drafting the contract. Moreover, will review all of the organization’s corporate formation documents, appraisal, minutes of the meeting, address any questions or concerns and proceed with the drafting of the petition and order; describing the nature of the transaction.
Schubin & Isaacs knows how to complete complex transactions where in the chain of title; transactions were completed without the requisite approvals, original formations documents are missing, appropriate exemptions are needed, and where numerous expensive liens and debts are placed on the property. The law firm of Schubin and Isaacs makes it a priority to be available 24/7 to our clients and works with the Attorney General’s office and/or court until a favorable disposition occurs.