Legal Line Question: Unsold Shares
What are the characteristics of Unsold Shares in a cooperative housing corporation and who may be considered a Holder of Unsold Shares?
Unsold Shares in a cooperative housing corporation (a “Co-op”) are shares in a Co-op that, from the time of the conversion of the co-op, have never been used for occupancy purposes by the shareholder. A Sponsor, or any affiliated or outside individual or entity that subsequently purchased the shares for investment purposes, may be considered a “Holder of Unsold Shares.” However, if at any time a Holder of Unsold Shares occupies the Co-op apartment unit as a residence, the shares automatically lose their status as Unsold Shares.
Additionally, the New York State Attorney General has identified five (5) criteria that may be used to help determine if a particular shareholder is a Holder of Unsold Shares. The five criteria are:
(1) The individual or entity has obtained the designation as a Holder of Unsold Shares from the Sponsor.
(2) The individual or entity has obtained a written guarantee of payment by the Sponsor to the Co-op of all financial obligations of the Holder of Unsold Shares.
(3) The individual or entity has adhered to the escrow and trust fund provisions of the New York State General Business Law.
(4) The individual or entity has registered with the New York State Department of State as a broker-dealer.
(5) The individual or entity has filed regular updating amendments to the Co-op’s Offering Plan.
Important Tip: Most Co-op Offering Plans afford special privileges to Holders of Unsold Shares. For example, purchasers of Unsold Shares generally do not have to be approved by the Co-op’s board of directors and Holders of Unsold Shares generally are not bound by the Co-op’s sublet restrictions.
|Neil B. Garfinkel,
REBNY Broker Counsel
Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP