The State of New York is once again taking Policy 103 Exemption Applications from municipal bond issuers and will pursue enforcement actions against issuers that fail to comply with timely filing of their applications, ending temporary procedures put in place during COVID.
While the Real Estate Finance Bureau has instituted a grace period during which it will not pursue enforcement actions, that period ends on July 1 and the Bureau strongly encourages municipal issuers to make Exemption Applications for transactions prior to that date.
Along with the change, the Real Estate Finance Bureau has launched a new electronic eSubmission Portal to make it easier to file applications. Using the portal is mandatory and it will allow for electronic signatures, online notarization and confirmation via email. Instructions and a demonstration video are available at the portal to help submitters understand and use the system.
Real Estate a Challenge with Municipal Bonds
As we noted in a prior legal alert, part of the challenge for municipal bond issuers in determining their obligations under Blue Sky laws lies in properly characterizing the nature of the underlying securities. Under New York law, it is illegal and prohibited to make a public offering in or from the State of “securities constituted of participation interests or investments in real estate, mortgages, leases, including stocks, bonds, debentures, evidences of indebtedness, limited partnership interests or other security or securities…when such securities consist primarily of participation interests or investments in one or more real estate ventures” — except when, prior to the offering:
- The issuer files an offering statement or prospectus containing the information required by the statute; and
- The offering is exempted under the exclusion set forth in the statute or by rule or action of the attorney general.
Through experience and conversations with staff, we believe there are three situations where this provision of New York law would apply to municipal bonds:
- The bond issue is secured by an interest in real estate such as a mortgage whether in favor of a bond trustee or pledged to a bond trustee; or
- More than 50 percent of the proceeds of the bond issue will be used to acquire land or an interest in real estate; or
- More than 50 percent of the revenues that are the source of payment are derived from rental income, notwithstanding whether the underlying lease is pledged to the payment of the bonds.
Plan Ahead with Filing Exemption Applications
If one of these three situations applies, filing an Exemption Application is important to preserve an exemption from registration. While New York suspended the acceptance of Policy 103 Exemption Applications and did not take enforcement action on failures to file, that now changes, but with a grace period.
The Exemption Application form requires information such as the name, address and legal nature of the issuer and the purpose of the offering. The application also requires a Notice of Appearance signed by the lawyer who prepared the Policy Statement 103 Application, and a check to cover the filing fee.
Retroactive Applications
Importantly, issuers need not submit retroactive applications if:
- the issuer did not file an applicable Policy Statement 103 Exemption Application during the relief period;
- the issuer would have been required to file such Exemption Application but for REF’s relief period policies and procedures set forth in prior guidance;
- the issuer marketed, offered, and/or sold real estate securities in or from New York state during the relief period;
- the issuer does not intend to market, offer, and/or sell real estate securities in or from New York State on or after July 1, 2026.
Looking forward, now is the time to review past issuance and plan ahead for future issuances, file necessary paperwork and make sure everything is appropriate and in compliance. If you need assistance with this or have questions, please reach out to attorney Christopher A. Andreucci of our Public Finance and Economic Development Practice Group at (585) 419-8606 and candreucci@harrisbeachmurtha.com, or to the Harris Beach Murtha attorney with whom you most frequently work.
This alert is not a substitute for advice of counsel on specific legal issues.
Harris Beach Murtha’s lawyers and consultants practice from offices throughout Connecticut in Bantam, Hartford, New Haven and Stamford; New York State in Albany, Binghamton, Buffalo, Ithaca, New York City, Niagara Falls, Rochester, Saratoga Springs, Syracuse, Long Island and White Plains, as well as in Boston, Massachusetts, and Newark, New Jersey.
