09
Sep 2014

Recent changes impacting NY Title Insurance procedures for a Non-For-Profit Sale

By admin

On December 18, 2013, Governor Cuomo signed into law the Non-Profit Revitalization Act of 2013 (“the Act”). The Act represents the first major overhaul of New York’s nonprofit laws in more than 40 years. Its’ goal is to update governance, oversight, formation and the administration of nonprofit organizations in the state of New York. Most of the Act’s provisions went into effect on July 1, 2014.

Among the many changes made to the Not-For-Profit Corporation Law, following is a brief summary of some of the significant changes:

Elimination of Letter Categories

Prior to the passing of the Act not-for-profit corporations were formed as either type A, B, C or D corporations. The Act NY-Revitalization-Acteliminates the letter designations and simplifies the categories into two: “charitable” and “non-charitable”. As of July 1, 2014, all existing A corporations will be considered non-charitable corporations, all existing type B or C corporations will be considered charitable and all existing type D corporations will be considered charitable only if the corporation has a “charitable purpose”. Any corporation that has both charitable and non-charitable purposes will be considered a charitable corporation.

Real Estate Transactions

These recent changes will have an impact on NY Title Insurance procedures and requirements for a Non-For-Profit sale.

The Act changes voting requirements for approval of real property transactions depending on whether such transactions involve all or substantially all of a nonprofit corporation’s assets. Under the current law, a two-thirds vote of the entire board is required to approve ordinary real estate transactions for nonprofits with fewer than 21 directors. The Act makes it easier to approve such transactions by only requiring a majority vote of the directors to approve the transaction. The two-thirds voting requirement however will still continue for transactions involving all or substantially all of the nonprofit corporation’s assets, unless the corporation has more than 20 directors, in which case only a majority is required.

Approval for Major Transactions

The Act allows a non-profit corporation seeking to sell, lease, exchange or dispose of all or substantially all of its assets to seek approval directly from the attorney general without the requirement of court approval. However, nonprofits continue to have the right to seek court approval for a transaction should they wish to do so.

[All clients, counsel, etc. will notice that future title reports may contain additional language due to these changes]:

Purchase of real property -all or substantially all of the assets:

If the proposed purchase involves all or all or substantially all of the not-for-profit corporation’s assets, proof is required that said purchase is authorized by the vote of two-thirds of the entire board unless there are 21 or more directors, in which case a simple majority will suffice.

Purchase of real property- not all or substantially all of the assets:

If the proposed purchase does not involve all or all or substantially all of the not-for- profit corporation’s assets, proof is required that said purchase is authorized by the vote of a majority of directors of the board or of a majority of a committee authorized by the board.

Sale, lease, exchange or mortgage – all or substantially all of the assets:

If the proposed sale, lease, exchange or mortgage to be insured involves all or substantially all of the not-for-profit corporation’s assets, the transaction must be authorized as follows:
If there are members entitled to vote thereon, the board’s resolution recommending such sale, lease, exchange or other disposition must be approved at either an annual or a special meeting by a two-thirds vote of the members entitled to vote thereon.

If there are no members entitled to vote thereon, such sale, lease, exchange or other disposition shall be authorized by the vote of at least two-thirds of the entire board, provided that if there are twenty-one or more directors, the vote of a majority of the entire board shall suffice.

If the corporation is, or would be if formed under the Not for Profit Law, classified as a charitable corporation under Not For Profit Law Section 201, (formerly a B or C corporation) said transaction must be approved by the Attorney General of the State of New York or the Supreme Court in the judicial district or of the county court of the County in which the corporation has its office or principal place of carrying out the purposes for which it was formed.

Sale, lease, exchange or mortgage – not all or substantially all of the assets:

If the proposed sale, lease, exchange or mortgage to be insured does not involve all or substantially all of the not-for-profit corporation’s assets, the transaction must be authorized by the vote of a majority of directors of the board or of a majority of a committee authorized by the board.

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