FAQs - Sales of Assets

Q: How much is all or substantially all of a corporation's assets?

A: There is no arithmetic test for determining how much is substantially all. We use a common sense approach. If the asset in question constitutes most of the corporation's assets, court approval should be obtained. Even if the asset is a small percentage of the corporation's total assets, if the transaction will affect the ability of the corporation to carry out its corporate purposes it is considered to be substantial and court approval should be obtained. If the asset is the corporation's main premises or a house of worship, court approval should be obtained. When in doubt, it is prudent to obtain court approval.

Q: Do not-for-profit corporations require court approval for mortgages?

A: No. However, certain financing transactions (such as Industrial Development Authority bond financing transactions) require the lease or conveyance of property serving as collateral for the loan. If such property constitutes all or substantially all of the corporation's assets, court approval is required for the transfer or lease in connection with the mortgage. Religious corporations require court approval under RCL § 12 for mortgages of any of its real property, unless the mortgage is a purchase money mortgage.

Q: Can the sale contract be assigned?

A: If the sale contract is to be assigned at or prior to closing, the assignment must be disclosed in the petition and order and the assignment agreement must be included as an exhibit. If the assignee is an LLC or other entity created by the purchaser for purposes of taking title at closing, these facts should be explained in the petition. If the assignee is an unrelated third party, new board and membership resolutions approving the assignment will be required.

Q: If a church is incorporated under the Not-for-Profit Corporation Law or the Membership Corporations Law instead of the Religious Corporations Law, is it subject to RCL § 12?

A: Yes. RCL § 12 is applicable to any corporation that acts as a house of worship and meets for religious worship services, even if it incorporated under a different statute.

Q: If the corporation's house of worship is in Brooklyn/Kings County but the property that is the subject of the sale is located upstate, in which county should the petition be brought?

A: Kings County. Venue is determined by the county in which the corporation's principal office is located and where it carries out its corporate purposes.

Q: If a dormant church no longer conducts worship services and no longer has a congregation, can it sell its real property under RCL § 12?

A: In many cases, no. If a dormant church no longer has a congregation that can approve the proposed sale, it cannot meet the statutory requirement of obtaining a membership resolution approving the sale. In such cases, the church should dissolve pursuant to RCL § 18 and seek court approval for the sale of its real property as part of the dissolution proceeding. However, denominations that do not have voting memberships under the RCL can still proceed under RCL § 12.

Q: Can the corporation use an appraisal obtained by the purchaser?

A: No. The corporation must obtain its own independent appraisal valuing the property as of the contract date. Furthermore, the appraisal cannot be prepared by the real estate broker who handled the sale.

Q: Is an appraisal necessary if a church is transferring real property to another religious or charitable corporation for nominal consideration?

A: No. RCL § 12(8) provides that a religious corporation can sell real property to another religious, membership, educational, municipal or not-for-profit corporation for nominal consideration. However, the petitioner religious corporation must be solvent and there must be a showing that the claims of creditors will not be impaired. The petition should include a full explanation.