Off-plan property purchases in New York: legal protections and escrow rules

Statutory Framework and Regulatory Supervision

Buying an off-plan property in New York State, referred to legally as purchasing a unit in a newly constructed condominium or cooperative prior to completion, is subject to strict legal oversight. The primary statute governing off-plan developments is Article 23-A of the New York General Business Law, commonly known as the Martin Act. Under this law, a developer (termed the sponsor) is prohibited from offering or selling off-plan property without first submitting a comprehensive disclosure document, known as an Offering Plan, to the Real Estate Finance Bureau.

The Real Estate Finance Bureau operates under the authority of the New York State Attorney General. Its primary role is to ensure full disclosure of all material facts regarding the physical site, legal ownership structure, financial projections, construction timeline and administrative rules of the proposed development. The Attorney General reviews the Offering Plan for compliance with statutory disclosure standards before accepting it for filing. Developers cannot legally market units, host promotional presentations or accept purchase deposits until the Offering Plan has been formally filed or a specific pre-filing exemption, such as Cooperative Policy Statement 1 (CPS-1), has been granted.

Mandatory Escrow Requirements for Buyer Deposits

Under New York General Business Law Section 352-e(2-b), mandatory escrow rules govern all down payments paid by off-plan buyers. Developers are strictly prohibited from receiving buyer deposits directly or using purchaser funds to cover ongoing construction costs, land acquisition or marketing overheads.

All deposit monies paid upon contract signing must be deposited directly into a segregated, interest-bearing escrow account maintained by a designated escrow agent, typically the sponsor’s legal counsel, at a federally insured bank operating within New York State. Within five business days of receiving a signed purchase agreement and deposit cheque, the escrow agent must execute the agreement and place the funds into the escrow account. Within ten business days of placing the money in escrow, the escrow agent must send written confirmation to the purchaser stating the bank name, account number and initial interest rate. If a buyer does not receive this confirmation within 15 business days of tendering their deposit, they hold a legal right to cancel the purchase agreement within 15 days and receive a full refund.

Any interest accrued on deposit funds held in escrow belongs to the purchaser unless the contract specifically states otherwise or the purchaser defaults under the purchase contract. Escrow accounts cannot incur administrative fee deductions, and maintenance charges must be covered entirely by the developer.

Payment Milestone Structures in New York Off-Plan Transactions

Unlike off-plan property transactions in some international jurisdictions that require progressive, construction-linked stage payments, New York operates on a deferred lump-sum balance structure.

Upon executing the purchase agreement, the buyer pays an initial deposit, which customarily ranges between 10% and 20% of the total purchase price. In higher-end developments or during initial pre-construction releases, developers may split this deposit into two installments: an initial 10% at contract signing, followed by a further 5% or 10% payable either 30 to 60 days later or when an amendment to the Offering Plan is accepted by the Department of Law.

No further construction milestone payments are paid during the building phase. The remaining balance, typically 80% to 90% of the purchase price, is due only at final closing. Final payment occurs after the developer obtains a Temporary Certificate of Occupancy (TCO) or Permanent Certificate of Occupancy (CO) from the local authority (such as the New York City Department of Buildings) and title is formally transferred to the buyer.

Legal Remedies and Rescission Rights for Delayed Handover

Construction delays are a common challenge in multi-family real estate developments. New York law provides specific mechanics to manage completion timelines and protect buyers when completion is unreasonably delayed.

In the Offering Plan and purchase agreement, developers establish an anticipated date for the first closing. A critical contract clause for buyers is the Outside Closing Date. This provision sets an absolute deadline by which the developer must deliver the completed unit and transfer title. If the sponsor fails to achieve closing on or before the agreed Outside Closing Date through no fault of the purchaser, the buyer has the contractual right to issue a notice of rescission. Upon valid rescission, the buyer is entitled to terminate the contract and receive a 100% refund of their escrowed deposit along with any accrued interest.

Additionally, New York Department of Law regulations dictate that an Offering Plan must become effective within 15 months of its initial filing. To declare a plan effective, the sponsor must secure bona fide purchase contracts for at least 15% of the total units offered. If the developer fails to achieve this 15% pre-sale threshold within the 15-month window, the plan expires, and the sponsor must offer all contracted buyers the immediate right to rescind their contracts and recover their deposits.

Furthermore, if a developer submits a material amendment to the Offering Plan during construction, such as a budget increase raising annual common charges by 25% or more, or a major structural reduction in unit size, the Real Estate Finance Bureau requires the sponsor to grant signed buyers a right of rescission.

Deposit Security During Developer Bankruptcy or Failure

If a developer experiences insolvency, default or bankruptcy prior to completing the building, buyer deposits remain protected due to statutory escrow segregation.

Because General Business Law Section 352-e mandates that buyer down payments are kept in separate escrow accounts and not commingled with developer corporate funds, the deposit monies do not form part of the developer’s general estate. Lenders holding construction mortgages, general contractors or unsecured creditors cannot claim escrowed buyer funds to satisfy the developer’s debts.

If the developer defaults on its financing and the project is foreclosed upon by a senior lender, or if the sponsor enters Chapter 7 or Chapter 11 bankruptcy proceedings, the escrow agent remains legally obligated under state regulations to hold the funds until released via mutual written consent or a court order from the New York State Supreme Court or Bankruptcy Court. Purchasers can petition the court or apply to the Attorney General to order the release and full return of their escrowed deposit funds.

Verifying Development Registrations and Public Registers

Prior to entering into a contract or paying a deposit, buyers and their legal representatives should independently verify the regulatory status of the off-plan project.

Official verification can be carried out through two main public channels:

1. New York State Department of Law Real Estate Finance Bureau Lookup: The Attorney General maintains a public database of all filed offering plans. Buyers can verify the plan's current filing status, file number (e.g., CD number for condominiums), acceptance date and all registered plan amendments. 2. Automated City Register Information System (ACRIS): For properties located within New York City (Manhattan, Brooklyn, Queens, and the Bronx), land titles, site deeds, declarations of condominium, construction mortgages and land encumbrances are registered with the Office of the City Register and searchable online via ACRIS. For Staten Island and counties outside New York City, property records are maintained by the respective County Clerk’s Office.

This guide provides general factual information regarding off-plan real estate regulations in New York State as of 2026 and does not constitute formal legal or financial advice.