Foiled plans: AG limits condo disclosures — but open government advocates say action is “contrary to law”

No matter what New York’s next multibillion dollar condominium project is, the details are likely to stay under wraps for longer than they do now.

That’s because the New York State Attorney General’s Office stopped making condo offering plans available to the public before they have been approved. The move will save the AG’s office a lot of procedural headache and paperwork, but a noted open government advocate noted the decision was a blow to transparency and described it as being “contrary to law.”  

Until now, the public and the media could view developers’ submitted condo plans before they were approved by filing a Freedom of Information Law (FOIL) request with the AG’s office. But a Real Estate Finance Bureau memorandum dated May 8 cited General Business Law 352-e of the Martin Act to justify the new action. The Martin Act came into being in 1921, but rose to prominence during the tenure of AG Eliot Spitzer, then known as the “Sheriff of Wall Street,” who employed its powers to obtain information about shady practices at large financial institutions.

Now the law is being wielded to scale back access to information that’s been public for years. Why the sudden change?

A source at the AG’s office told The Real Deal the decision was taken after a recent uptick in requests to view pre-filed offering plans. The surge in activity — and paperwork — prompted the office to review whether it was required to comply with these requests in the first place. It concluded that it was not.

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According to the interpretation of the Martin Act in the bureau’s memo, offering materials for a real estate security, such as a condo offering plan, cannot be publicly distributed until they have been officially “filed,” meaning not only submitted to the AG, but also approved by the AG for the public. The memo also cites Public Officers Law 87(2)(a), which details the rules of FOIL and the qualifying exemptions from it.

Under these laws, the AG’s office has come down hard on condo FOILers: “FOIL requests for pending plans and amendments shall be denied as exempt.”

But Robert Freeman, the executive director of the New York Department of State’s Committee on Open Government, dismissed this reasoning as poppycock. Furthermore, he sees nothing in the law that would exempt these “pre-filed” offering plans from FOIL.

“A policy of not accepting FOIL requests until a certain point is reached, in my opinion, is simply contrary to law,” said Freeman, who many consider the de facto FOIL “czar” of New York State.

“The first exemption in FOIL refers to records which are specifically exempted from disclosure by state or federal statute,” he continued, quoting from Public Officers Law 87(2)(a). “I don’t see anything there that requires confidentiality [for these plans],” he said, adding that he saw nothing justifying an exemption in GBL 352-e, either.

When exemptions are made, agencies need to be clear about why the disclosure of documents would do harm and who it is that they would be harming, Freeman said. The finance bureau’s memo, however, while seeking to show that the early release of plans circumvents what are essentially consumer protections in the Martin Act, gives no specific indications as to what was harmful about condo releases up to now, nor does it state how limiting disclosure will reduce harm going forward.

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But some do see the harm of revealing too much too soon. Stuart Saft, a top real estate attorney and partner at Holland & Knight, said he agreed with the AG’s decision.

“While an offering plan is being reviewed at the AG it can change significantly,” Saft said. “By allowing FOIL requests of what is essentially a draft,” he continued, “potentially incorrect information is being disseminated, which is in no one’s best interest.”

Finally, the finance bureau memo states that the office will continue to allow FOIL requests for submitted (but not yet “filed”) condominium and co-op conversion plans, as current tenants of occupied buildings have a right to see plans before they are approved. Developers may also file what’s called a CPS-1 Application, which allows them to test the market with some details of a potential plan, including pricing information and floor plans.

CPS-1 applications will also still be subject to FOIL requests, as they can be released, the memo states, “without compromising the purpose of the Martin Act.”