|
RCBJ-Audible (Listen For Free)
 |
AG’s Charities Bureau Says Transaction Is Not A Bona Fide Lease; More Akin To An Impermissible Transfer Of Charitable Assets For Below Market Consideration
By Tina Traster
The New York Attorney General is urging a Rockland County Supreme Court justice to deny the Town of Haverstraw’s efforts to enter into a 25-year lease arrangement with the Knights of Columbus, saying the terms of the lease undermine the fraternal organization’s mission and are monetarily unfair, one-sided. and practically unworkable.
On top of that, the AG’s office, which denied the Knights (via a nonprofit holding company that holds title to the building on behalf of the Knights) a requested change of status from a charitable to a non-charitable, nonprofit corporation argues the request constituted an impermissible and fundamental change of the organization’s “charitable character and purpose.”
For more than two years, Haverstraw Town Supervisor Howard Phillips has led an effort to take hold of the Knights’ building at 56 West Broad Street in the Village of Haverstraw. A plan for the Knights to sell its building to an affordable housing developer for $2.4 million was scuttled after Phillips persuaded a couple of newly sworn-in members of the Knights’ board to donate the building to the town. That plan went sideways when the Knights recognized it would not receive the AG’s approval, and the Town and the Knights cooked up a new scheme for a long-term lease.
However, the provisions of the lease, and the way in which the Knights (through its holding company) have pursued the necessary approvals needed for a charity to change its structure, have presented one obstacle after another. Now it will be up to Justice David Fried to decide whether the Knights can change their status and engage in a long-term lease with the town.
In the meantime, the Town of Haverstraw continues to use the taxpayer’s purse to keep the Knights propped up. The fraternal organization, with less than 250 members, is maintaining a nearly 10,000 square-foot building with ongoing costs and maintenance. Ironically, the once-planned sale of the building, which might have passed muster with the AG’s office, would have provided a large endowment for the Knights to continue their work and charitable mission while remaining on the property.
In late 2023, the Knights pivoted away from the prospective sale in exchange for an interim financial arrangement in which the town, through the course of 2024, paid the Knights nearly $120,000, undertook some maintenance projects, and funded the organization’s attorneys who were supposed to file petitions to the AG’s office to secure permissions to donate its building to the Town. After nearly a year, it became clear the Knights’ effort was going to fail, so the taxpayer-funded endeavor pivoted to a leasing arrangement with the Knights’ building for 25 years.
Instead of submitting the lease agreement to the AG’s office, the Knights’ attorneys at Girvin and Ferlazzo, an Albany-based law firm, came up with a new plan: submit an application requesting a change of status from a nonprofit charitable organization to a nonprofit noncharitable organization. The attorneys believed that if they had a noncharitable status, they’d be free to lease, sell, or donate the property without seeking the AG’s approval.
However, in December, the AG reviewed their petition, saying “it is apparent that this proposed change is not a clarification of an existing status, but rather a fundamental redesignation of the entity’s corporate type and purpose. The OAG takes the position that the organization established as, and continued to function as, a charitable entity as defined by New York law.”
In late April, in a last gasp to save the deal, the Knights’ attorney withdrew the petition with the AG and filed a lawsuit in Rockland County Supreme Court seeking the same relief the AG had denied. In addition, and alternatively, they’ve asked the court to review the lease agreement and approve it.
Meanwhile, the town has found yet another way to keep the Knights financially propped up even though there has been opposition to the various schemes from the AG, along with community groups, public officials, and First Amendment groups that say the town is violating the separation of church and state.
DRIP, DRIP, DRIP – Town Keeps Knights On Life Support
Last month, Grand Knight Joe Vargas signed an Interim Lease Agreement at a rate of $700 per event (hosting the Town’s senior citizens’ meetings), netting the Knights between $2,800–$3,500 per month of taxpayer money through December 31, 2027, according to an internal memo. Prior to this interim agreement, the Knights were paid $300 per event in 2025, an increase from $150 per event dating back to 2021.
Vargas has been engaged in the various negotiations and legal transactions on behalf of the Knights’ holding company (56 West Broad Street Angels, Inc.), which exists to hold the title to the building. Vargas is one of the members on the five-member board of directors.
As of January 2026, the town has not formally voted on the interim agreement, according to an examination of town board agendas.
On Friday, the AG’s office filed a response in court opposing the petition, arguing the long-term lease agreement is slanted unfairly against the Knights, and that its efforts to secure approval fail to meet the requirements of New York law and the AG’s policies. The AG notes that when the Knights’ attorneys filed the petition with the court, they did not disclose the AG’s rejection of the organization’s change of status.
Attorneys have a fundamental obligation of candor toward the court to advise the court of relevant facts in litigation.
The AG also says that when asked for “a detailed explanation of the reason for the proposed amendment and change in corporate purpose, as well as information concerning whether the Petitioner intended to sell, lease or otherwise dispose of the real property,” it received no response.
Arguing against the requested change of status, the AG’s attorney says the “transaction may not constitute a bona fide lease arrangement but instead may operate as a de facto transfer of charitable assets for below market consideration.”
The AG, urging the court to deny the petition, points out that the transaction fails to adequately protect and preserve the property and fails to promote the Knights’ charitable mission. The AG’s response notes that it has received “expressions of concern from the public regarding the proposed lease,” and the town’s efforts to transfer the property to the town. The AG also says the proposed transaction has also generated significant media coverage.
The AG has a wide range of supervisory powers over charitable organizations and the fiduciaries of property held for charitable purposes. Under New York State law, a non-profit charitable organization that divests itself of its principal asset must seek approval from the attorney general’s office under a rigid set of conditions.
In a strongly worded brief to the court, the AG says the “petitioner cannot disclaim the charitable character expressly embedded in its corporate structure and organizational purpose merely because doing so would facilitate the lease transaction now before the Court and avoid statutory and fiduciary obligations attendant to its charitable status.”
“The Certificate of Incorporation is not incidental evidence of the Petitioner’s corporation status; it is the foundational legal instruments that defines Petitioners’ nature, powers, and purposes.”
In its argument to the court, the Knights’ attorneys says that if the change of status is approved, the fraternal organization would not need approval for the lease transaction. The AG office says that assertion is false, adding that a change in the holding company’s tax status or charitable status would not allow the Knights to divest the corporation of its charitable character.
The AG’s response goes to great length to explain the Knights and its holding company have an interdependent relationship, and that the property, which the Knights bought 20 years ago and serves as its meeting house and headquarters, is not simply a “passive real estate holding.”
Lease Agreement Unfavorable to Knights; Not Properly Authorized
In addition to its philosophical and legal opposition, the AG also says that the proposed lease is both unfavorable to the Knights and that the “lease transaction does not appear to have been properly authorized.”
The AG says the transaction had to be signed by a two-thirds vote of the entire board of directors, but the resolution from the August 6, 2025 meeting minutes show only three of the five directors were present. “The meeting lacked a valid quorum under Petitioner’s own Bylaws.” Further, and more egregiously, the AG says “the board’s resolutions fail to disclose or address the corresponding relinquishment by Petitioner of significant possessory, operational, and practical control over the Property, including the limitations of the Knights’ continued use and access to its meeting house.”
The Knights in 2024 were poised to sell their building to an affordable housing developer for $2.4 million. For more than a year, the Knights were negotiating with Kings Katherine LLC, which planned to build 100 affordable housing units, a parking deck, and allocate space in the building for the Knights in perpetuity.
But since Vargas became Grand Knight, and has worked often behind the scenes with Phillips, many say the scheming has been behind closed doors, and does not necessarily reflect the desires of the entire fraternal organization.
The AG points out that the Petitioner “fails to establish the required membership approval,” and that the Bylaws says members are entitled to their say. “No member resolution, vote, or written consent authorizing the proposed lease has been submitted to the court,” the AG wrote. “The absence of membership approval constitutes a further failure to satisfy the statutory authorization requirement.”
The AG also takes aim at the terms of the proposed leased agreement, laying out an extensive argument over its lopsidedness in favor of the Town of Haverstraw. The lease was drafted by attorneys paid by the Town of Haverstraw, though they purportedly represented the Knights.
Finally, the AG says the lease might have been negotiated before any independent valuation was obtained. The rental analysis submitted in support of the lease is dated Aug. 4, 2025, months after the parties negotiated the subject lease. The AG says it appears the Knights may have committed to the concept of a lease with the town without first obtaining an independent assessment of the property’s fair rental value.
“The sequence of events here suggests that the Rental Analysis may have been obtained to support and rationalize terms already negotiated, rather than to inform the negotiations through the objective assessment of market value.”
In other words, the Knights did not explore what a willing and informed purchaser or lessee might have been prepared to pay, and whether a more favorable deal was possible. The Petition offers no explanation as to why the property was not publicly marketed, the AG says.
The terms of the leasing agreement beggar belief given that town seemingly holds all the power.
The town would lease 7,220 square feet of interior space with all exterior grounds and outdoors areas on the nearly one-acre property for an initial five-year term at a base rent of $500 per month ($6,000 annually), granting the town four automatic five-year renewal terms, that only the town can option. Each renewal is subject to only a ten percent rent rise, in exchange for a one-time $20,000 payment.
The town would assume responsibility for all costs and obligations to run the building, as well as payment of real estate taxes, utilities, property and liability insurance.
The terms of the lease give the Knights 1,000 square feet of office, recreation, meeting and storage space, but space is not exclusive and the town will have shared access to some of those spaces.
The lease, according to the AG, grants the Town “broad ‘at will’ use and operational control over those areas, while the Knights regain only limited, pre-scheduled reserved usage rights subordinate to the town’s primary occupancy and control.”
Phillips has waged a campaign to take over the building without outlining a vision for its use. But the effort coincided with two other campaigns to scuttle affordable housing in the Village. Both the West Hab project and the Chair Factory have prevailed.
In the leasing proposal, the Knights are restricted not only in the limited number of days permitted each month but by constrained and impractical hours. General use is limited to Mondays from 3 pm to 7 am and on Tuesday through Thursdays from 4 pm to 7 am. “The purported ‘reserved use’ largely consists of partial-day occupancy during evening, overnight and early-morning hours when meaningful charitable, fraternal, civic, or community programming would be realistically difficult to conduct,” the AG says.
The AG added, “petitioners actual annual occupancy equates to approximately 62 days per year – not the approximately 100 days represented in the Rental Analysis.” The lease put the town in control of scheduling and booking, requiring the Knights to reserve use of the premises in advance.
Most egregiously, the lease has no meaningful protection for the preservation of the property if the town fails to fulfill its obligations, and it grants the town a unilateral right to terminate the lease in the event of substantial casualty damage, while imposing the long-term ownership and restoration risk on the Knights.
“The casualty clause raises concern that the transaction disproportionality allocates economic risk to the Knights without the corresponding benefit.”
The AG points out that the lease contains no termination rights for cause, and no mechanism permitting the Knights to reassess or unwind the transaction, while exposing the organization to the whims and changes of annual budgetary processes, changing political administrations, and changing governmental priorities.
