February 22, 2013

Legal Requirements for the Sale, Mortgage and Lease of Properties Owned by New York Religious Corporations

church.jpgOften the most significant asset owned by a religious corporation such as a church, synagogue or mosque in New York is real estate. For a variety of reasons, the religious institution may wish to sell, mortgage or lease its property. New York's Religious Corporation Law prescribes the procedure to be followed in order to legally complete such a transaction. For the purposes of our discussion in this blog post, we will be discussing a sale by a religious corporation.

New York's Religious Corporation Law declares that "[a] religious corporation shall not sell, mortgage or lease for a term exceeding five years any of its real property without applying for and obtaining leave of the court...". In layman's terms, the New York Statute requires that the religious corporation apply by Petition to the Supreme Court of the county in which the property is located for an order permitting the sale. Without the Supreme Court's consent, the transaction will be void. The purpose of the statute is to prevent the congregational leadership from dissipating congregational assets.

Prior to submitting the Petition, we will assume that the following steps will have already occurred. The congregation must enter into a contract of sale with the party purchasing the property. The Constitution and By-Laws of the congregation will specifically detail the notice and quorum requirements for voting to approve the transaction as a congregation. Our firm will analyze the organizational documents and draft the required documents to hold the vote to approve the transaction as well as conducts the meetings where such vote takes place. In many cases, the Board of Trustees will be required to vote on the matter before the entire congregation also votes to approve the transaction. Written evidence of the congregational vote to approve the transaction will be submitted with the Petition. The Petition will describe the nature of the transaction and indicate that same was approved pursuant to the congregation's organizational documents. Attached to the Petition will also be a Verification of the President or other lay leader of the congregation certifying the authenticity of the contents of the documents, our attorney's Affidavit of Regularity confirming the proper procedures were followed with respect to the congregational vote and other aspects of the transaction, a Certification of Authentication of the organizational and other congregational documents submitted, and the proposed Order.

Another important aspect of the Petition involves the notice and consent requirements of the Attorney General of the State of New York. As part of the documents submitted with the Petition, proof of service on the Attorney General is required. Our firm complies with legal requirements by serving copies of the contract, proof of congregational vote, Petition with all exhibits and proposed Order on the Attorney General's office. In such submission, the consent to the transaction of the Attorney General is requested. After review of the necessary documents, the Attorney General will confirm that the best interests of the congregants are met by the transaction and that the sale proceeds will be properly disbursed. Once obtained, proof of the Attorney General's consent is to be submitted along with the Petition to the Supreme Court. If all is in order, the Supreme Court will issue the Order approving the transaction, which is then served on the Attorney General. Further, the Attorney General must be advised once the transaction closes or if it is abandoned for some reason.

synagogue.jpgIf a title company is insuring the transaction on behalf of the purchaser, it will require a copy of the Order of the Supreme Court and proof of the consent of the Attorney General. The parties to the transaction will also need to detail the disposition of any religious artifacts owned by the selling congregation. Will they reside in the new home of the congregation or will they be donated to a religious organization that will appreciate the historical significance? We look forward to assisting your congregation in your real estate transactions.