There are two updates on the legislative front that boards of directors or managers for residential cooperatives and condominiums and their managing agents should be aware of: the New York State’s Fair Chance Act and the limbo status of the Corporate Transparency Act.
New York City Fair Chance Act
As part of New York City’s overall effort to give ex-offenders opportunities for employment and housing, effective January 1, 2025, residential cooperative and condominium boards may not ask prospective purchasers or renters about certain criminal convictions.
Among other things, all application forms must be revised to exclude general questions about criminal history, and routine criminal background checks are basically prohibited. Similarly, criminal history questions are not permitted in oral interviews. Managing agents should provide an information sheet about the law to all applicants for cooperative and condominium units.
If there is a full review by the board of the application and other factors and provisional approval, then a background check of three years for a misdemeanor and five years for a felony is permissible. Also, if the person has been released from custody within the last year, looking at the conviction that led to incarceration may be permissible. Any decision to commence a criminal investigation must be documented. It would be best to consult counsel before commencing any criminal background investigation. Moreover, before starting the search, the applicant must be informed and have five days to rebut any adverse information.
The Fair Chance Act does not apply to offenses that result in a listing on the New York State Division of Criminal Justice Sex Offender Registry or other similar registries.
Corporate Transparency Act (CTA)
The CTA is a 2021 federal law intended to disrupt and prevent money laundering and other criminal activities, including financing. The CTA was intended to become fully effective in 2024. As of January 1, 2025, all corporations, LLCs or limited partnerships formed or operating under the laws of the United States or any political subdivision, including individual states, Indian Tribes or territories, were to file with the US Department of the Treasury the names of individual beneficial owners of these companies.
Twenty-three types of businesses, including banks, credit unions and insurance companies, were exempt. Large businesses, defined as those with 20 or more full-time employees or gross receipts (or sales tax receipts) of more than $5 million were also exempt. Beneficial owners were those with functional day-to-day control over the corporation or the ability to remove those exercising such authority.
Failure to register was punishable by civil and criminal fines and up to two years of incarceration. There was no exception for non-willful acts or negligence.
The CTA was controversial, as it was the first time beneficial ownership of a business entity came under the remit of law enforcement agencies. From the outset, the law was criticized for being overreaching and costly. For example, residential cooperative corporations and condominium associations were deemed to be required to report beneficial ownership under the CTA. This was considered an unfair expense for residential cooperative corporations and condominium associations.
The Biden Administration responded to criticism by delaying the effective dates. The Trump Administration has announced it will not enforce the CTA against US citizens or companies. A new proposed rule limiting the CTA to non-US entities is expected to be issued later this month. At least for now, residential cooperative corporations and condominium associations are not going to be forced to file under the CTA and not be subject to civil penalties, criminal fines or incarcerations for beneficial owners.
This column presents a general discussion. This column does not provide legal advice. Please consult your attorney for specific legal advice.
Carol A. Sigmond
Partner
Greenspoon Marder LLP
1345 Avenue of the Americas, Suite 2200
New York, NY 10105
carol.sigmond@gmlaw.com
(212)524-5074
