Religious organizations in New York State, including churches, synagogues, mosques, and temples, are required to use their assets—including churches, schools, and parsonages—for their religious and charitable purpose. However, for many religious corporations, the decline membership, rising maintenance and operational costs, and unforeseen expenses, have created a situation where these assets owned by these institutions are now underutilized or no longer necessary. In response, many religious organizations and their leaders and members have begun to discern and evaluate other ways to use and occupy property—that has often been with the organization for several generations—for other not-for-profit (and in some cases for-profit) and non-religious purposes. In certain situations where members are unable to sustain the religious component and there is no longer the means to even operate or manage the property or its other corporate responsibilities, religious organizations determine to sell real property and to shed itself from the never-ending costs and expenses, with the intention of utilizing the proceeds from the sale of its real property to create and financially support mission and ministry.
In order to accomplish these real property transactions, religious corporations, and their religious and lay leaders, are required to navigate their own corporate and ecclesiastical process along with the New York State’s unique regulatory framework. The legal requirements placed on religious organizations will shape the real property transaction process, from the point of discernment through to consummating the transaction. Therefore, it is encouraged that all institutions, and the individuals that lead them, which are considering selling, mortgaging, or leasing any portion of real property owned by a religious corporation to first recognize and understand the basic legal requirements, and who to turn to for assistance, in order to be able to have a valid and enforceable real estate transaction.
Statutory Foundation: New York Religious Corporations Law & New York Not-for-Profit Corporation Law
Understanding and complying the procedural obligations is essential to ensure a real property transaction reflects the institution’s best interests of the religious corporation and the interest of its members, and that the chosen real transaction can occur.
New York Religious Corporations Law (RCL) establishes that a religious corporation[1] cannot sell, mortgage[2], or lease any portion of its real estate for a term exceeding five (5) years without securing an approval from the New York State. Section 12(1) of the RCL provides that a religious corporation must apply for, and obtain, permission—or leave—before such a real property transaction can legally take place. The process to obtain permission to transact such business from New York State requires that the religious corporation comply with RCL, including Section 12 of the RCL, along with New York Not-for-Profit Corporation Law (NPCL), specially Section 511 of the NPCL or Section 511-A of the NPCL.
Section 511 of the NPCL sets forth the statutory standard for obtaining permission from the New York State Supreme Court for these real property transactions, where NPCL Section 511-A provides certain religious organizations, in lieu of obtaining approval from the New York State Supreme Court, an alternative method for obtaining approval from the Charities Bureau of the Office of the New York State Attorney General. In many scenarios, Section 511 of the NPCL also requires religious organizations to also provide notice of the proposed real estate transaction to the Office of the New York State Attorney General[3], in order to afford its Charities Bureau an opportunity to appear before the New York State Supreme Court and provide an opinion and position on whether or not the Court should grant an approval of the transaction or deny the religious corporation’s request. The petition, among many other things, outlines the details of the transaction, demonstrates that the transaction was duly authorized following the religious corporation’s governing documents as well as why the transaction was pursued and for what purpose, and describes how the proceeds will be used to promote the religious organization’s purpose. Absent such regulatory approval, the religious corporation—and its leaders—are legally unable to transact such business in connection with the organization’s real property, and the transaction could be deemed unenforceable.
This oversight by the New York State Supreme Court and the New York State Attorney General is designed to protect religious congregations from mismanagement or unilateral decisions that could compromise the integrity of their mission or the sustainability of their assets. It ensures that all proposed transactions are thoroughly reviewed, that congregational governance structures (and in certain situations, that the ecclesiastical governing body) are respected, and that any sale proceeds will be used for proper and lawful purposes, and consistent with the religious corporation’s purpose.
Our Role and Commitment
At Capell Barnett Matalon & Schoenfeld LLP, our team regularly guide religious corporations, and their directors/trustees, officers, executives, and members, through the sale and regulatory approval process, which oftentimes involves internal and ecclesiastical approvals and oversight by the New York State Supreme Court and/or the Charities Bureau of the Office of the New York State Attorney General.
Capell Barnett Matalon & Schoenfeld LLP has decades of experience advising religious institutions across New York State on all aspects of real estate transactions. From the initial consideration by a religious organization to sell its real property and the ecclesial considerations, to contract negotiation through to the regulatory approval process, and then to ultimately closing of the real property transaction, our team can provide religious and lay leaders, and the institution’s members, thorough and reliable legal counsel tailored to each religious corporation’s unique needs, internal doctrines, and regulations. If your congregation is contemplating the sale of its real estate, Capell Barnett Matalon & Schoenfeld LLP welcomes the opportunity to assist and ensure your organization’s transaction proceeds smoothly and in compliance with the law.
For purposes of applicability, please reference RCL Section 2-a, which establish that the RCL applies to corporations that are formed in accordance with (i) RCL; (ii) any other New York State statute or special act, which would, if it were to be formed currently per the New York State laws, be formed per the RCL; and (iii) the laws other than the statutes of New York State, which is otherwise authorized to conduct or chooses to conduct activities in New York State and which would, if it were to be formed currently per the New York State laws, be formed per the RCL.
However, RCL Section 12(1) specifically excludes purchase money mortgage and similar purchase money transactions from the statutory approval process. Therefore, if a religious corporation is purchasing a new property and securing a mortgage for that purchaser, then that real property transaction does not trigger the statutory approval requirement set forth in RCL Section 12(1).
RCL Section 12(1) modifies NPCL Section 511, and allows certain churches affiliated with historical and hierarchical denominations to not involve the Office of the New York State Attorney General. The churches exempt from providing notice to the Office of the New York State Attorney General on its real property transactions includes: (1) Protestant Episcopal church, (2) Roman Catholic church, (3) Ruthenian Catholic church of the Greek Rite, (4) African Methodist Episcopal Zion, (5) Presbyterian church connected with the General Assembly of the Presbyterian Church (U.S.A.), (6) United Methodist church, and (7) Reformed Church connected with the General Synod of the Reformed Church in America.
Footnotes
[1] For purposes of applicability, please reference RCL Section 2-a, which establish that the RCL applies to corporations that are formed in accordance with (i) RCL; (ii) any other New York State statute or special act, which would, if it were to be formed currently per the New York State laws, be formed per the RCL; and (iii) the laws other than the statutes of New York State, which is otherwise authorized to conduct or chooses to conduct activities in New York State and which would, if it were to be formed currently per the New York State laws, be formed per the RCL.
[2] However, RCL Section 12(1) specifically excludes purchase money mortgage and similar purchase money transactions from the statutory approval process. Therefore, if a religious corporation is purchasing a new property and securing a mortgage for that purchaser, then that real property transaction does not trigger the statutory approval requirement set forth in RCL Section 12(1).
[3] RCL Section 12(1) modifies NPCL Section 511, and allows certain churches affiliated with historical and hierarchical denominations to not involve the Office of the New York State Attorney General. The churches exempt from providing notice to the Office of the New York State Attorney General on its real property transactions includes: (1) Protestant Episcopal church, (2) Roman Catholic church, (3) Ruthenian Catholic church of the Greek Rite, (4) African Methodist Episcopal Zion, (5) Presbyterian church connected with the General Assembly of the Presbyterian Church (U.S.A.), (6) United Methodist church, and (7) Reformed Church connected with the General Synod of the Reformed Church in America.
Author Note
This article was prepared by the attorneys at Capell Barnett Matalon & Schoenfeld LLP. It is intended for informational purposes only and does not constitute legal advice. For guidance specific to your organization, please consult qualified legal counsel.