The Reserve Fund Law and Its Many Unanswered Questions

The process of converting a rental building in New York City to a condominium or co-op is a complicated one, involving many elaborate statutes. Local Law 70 of 1982, now Title 26, Chapter 8 of the New York City Administrative Code, colloquially known as the “Reserve Fund Law,” is one of them. The Reserve Fund Law requires sponsors seeking to convert a New York City building with residential units to condominium or co-op ownership to establish a reserve fund in order to provide the building with adequate funding to make capital repairs, replacements, and improvements to the building for the health, safety, and welfare of the residents (the Reserve Fund). But, the Reserve Fund Law is a byzantine and hyper-technical law that has rarely been interpreted by the courts. Recently, in Bd. of Managers of 150 E 72nd Street v. Vitruvius Estates (Vitruvius), the court examined the particulars of calculating the Total Price under the Reserve Fund Law. 173 A.D.3d 589 (1st Dept. 2019), aff’d on different grounds, 2018 N.Y. Slip Op. 31213[U], 10-11 (Sup. Ct., NY Cty. 2018).

Calculating the Total Price To Fund the Reserve Fund

The Reserve Fund Law requires the sponsor to stock the Reserve Fund in an amount equal to 3% of the “Total Price,” which the law defines as the sum of all the units being offered for sale at the last price that was offered to tenants in occupancy prior to the effective date of the offering plan. See Reserve Fund Law 26-702(b) (2); 26-703 (a) and (b). Vitruvius presented two issues related to the Total Price: (1) what was the “last price” offered to tenants in occupancy prior to the effective date of the plan; and (2) could commercial units be included in the calculation of the Total Price.