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Note 7 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2026

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

7. Commitments and Contingencies

Legal

On October 15, 2021, Rodney Sanchez (“Plaintiff”) filed a Class and Collective Action Complaint (the “Complaint”) against and the Company and certain of its affiliates and Clipper Equity LLC (collectively, the “Defendants”) in the United States District Court for the Southern District of New York. The Plaintiff alleged that he was jointly employed by the Defendants and that the Defendants: (a) failed to pay Plaintiff and similarly situated employees overtime in violation of the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”); (b) failed to pay Plaintiff and similarly situated employees for training sessions in violation of the FLSA and NYLL; (c) failed to pay Plaintiff and similarly situated employees on a timely basis in violation of NYLL; and (d) failed to provide Plaintiff and similarly situated employees with wage statements and wage notices as required by NYLL. On February 24, 2026, the court granted both summary judgment in favor of the Plaintiffs and class certification for 22 buildings. The Company has appealed against the judgement to the Second Circuit Court of Appeals. The Company and the Plaintiff attended a mediation session on April 13, 2026. As a result of the court rulings and the discussions held during the mediation session, on May 28, 2026, the Company reached a settlement with the plaintiffs. Based on the settlement, the Company has reserved $209 and $3,809 for the three and six months ended June 30, 2026, respectively for the Company’s estimated share of the Defendants’ loss and legal fees. Due to the nature of class action settlements, the loss may be lower or higher based on final claims.

On or about May 1, 2019, a former employee (“Plaintiff”) of a contractor (“Contractor”) commenced a lawsuit against 250 Livingston Owner LLC and Clipper affiliated entities (the “Company”), alleging personal injury claims and labor law violations while performing work for the Contractor who had agreed to indemnify the Company for such claims. Notwithstanding, the Court incorrectly named the Company and the Contractor as liable for a $2.5 million settlement between Plaintiff and Contractor. The Company has undertaken to have the Company removed from the judgment. The Company does not deem it probable that a loss will be incurred.

On March 20, 2025, Wells Fargo Bank, National Association, as trustee for the benefit of the registered holders of certain pass-through certificates issued by trusts that are the holders of the promissory mortgage notes secured by the 141 Livingston Street property, referred to as "Plaintiff,” filed a lawsuit against the Borrower, as well as us and our Operating Partnership subsidiary, as guarantors, in the Supreme Court of the State of New York. Plaintiff demands, among other things, that (i) the 141 Livingston Street property be sold and the Plaintiff be paid the amounts due under the loan agreement, with interest thereon to the time of such payment, together with, among other items, the expenses of the sale, Plaintiff’s attorneys’ fees; (ii) Plaintiff be paid all rents and revenues of the 141 Livingston Street property as they become due and payable; (iii) a receiver be appointed to manage the 141 Livingston Street property, with power among other things to demand and recover payment from anyone who has received a distribution from 141 Borrower after any event of default; (iv) Plaintiff have such other and further relief as may be just and equitable; (v) guarantors pay to Plaintiff the amount of any losses or damages suffered or incurred by Plaintiff as the court may determine to be just and equitable and amounts owed under the guaranty.

On December 24, 2025, the Company entered into the Loan Modification Agreement (the “Agreement”) with Wells Fargo Bank, National Association, as trustee for the benefit of the registered holders of certain commercial mortgage pass-through certificates related to the Loan (collectively, the “Lender”), to settle the ongoing litigation between the Lender, the Borrower, the Company and the Operating Partnership. The Agreement became effective on December 30, 2025. Pursuant to the Agreement, the Company provided a $10,000 renewal tenant reserve account letter of credit and paid fees of approximately $2,200 to the special servicer and to counsel to the Lender, the Lender waived its claimed late charges and default interest, agreed to dismiss with prejudice the pending foreclosure actions, and approved the previously submitted five-year lease extension with the Property’s New York City tenant effective December 28, 2025.

On March 25, 2026, Wells Fargo Bank. National Association, as trustee for the benefit of the registered holders of GS Mortgage Securities Trust 2019-GC40, commercial mortgage pass through certificates, series 2019-GC40 and the Pooled RR Interest owner (the “Lender” and the “Plaintiff”) the lender for the 250 Livingston Street (the “Property”) mortgage note (the “Note”) filed a complaint against 250 Livingston Owner LLC (the “Borrower”), the Company and the Company’s subsidiary Clipper Realty L.P. in the Kings County Supreme Court due to the Borrower’s defaults under the Note and the other Loan documents. The Plaintiff demanded, among other things, that a receiver be appointed to manage the Property and that the Property and the personal property within the Property be sold and the proceeds be applied to the satisfaction of indebtedness evidenced by the Note and other Loan documents. On April 29, 2026, the court entered an order granting the Lender's demand to appoint a temporary receiver. Pursuant to the court order, the receiver is authorized to enter into the possession of the Property, to rent or lease any part of the premises, to collect and receive all rents and fees due and unpaid in connection with the premises, and the Company must turn over to the receiver all rents collected from and after the date of the court order.

The Borrower, the Guarantors and the Lender entered into the Consent and Cooperation Agreement (the “Agreement”), effective as of June 4, 2026 (the “Effective Date”). Pursuant to the Agreement, the Lender and the Borrower agreed to jointly market and sell the Loan to a third-party buyer during a marketing period that commenced on the Effective Date and ends 45 days thereafter (the “Marketing Period”), subject to extension at the Lender’s sole discretion. At the end of the Marketing Period, the Lender has the right to foreclose on the Property, including taking the deed to the Property in lieu of foreclosure. As of August 6, 2026, the Lender has not taken any such actions. The Agreement also provides that the Borrower has the right to submit an offer to purchase the Loan.

In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

Commitments

On June 29, 2023 the Company entered into the Article 11 Agreement. Under the Article 11 agreement, the Company has entered into a Housing Repair and Maintenance Letter Agreement (“HRMLA”) in which the Company has agreed to perform certain capital improvements to Flatbush Gardens over the next three years. The current estimate is that the costs of that work will be an amount of up to $27 million. The Company expects those costs to be offset by the savings provided by property tax exemption and enhanced payments for tenants receiving government assistance (See note 1). As of July 22, 2026, the Company has substantially completed the scope of work required under the HRMLA.

On December 24, 2025, the Company issued a $10,000 irrevocable standby letter of credit with Valley National Bank, NA, to the benefit of Midland Loan Services as Master Servicer for Wells Fargo Bank, National Association, as trustee, in connection with the Loan Modification Agreement at our 141 Livingston property (see footnote 7 above). The letter of credit expires on December 24, 2026, but will be automatically extended annually for a one-year period until April 7, 2032, the date of the mortgage loan expiration on 141 Livingston Street. Midland Loan Services may draw on the loan in accordance with the Loan Modification Agreement.

Concentrations

The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.

The breakdown between commercial and residential revenue is as follows (unaudited):

		Commercial				Residential				Total
Three months ended June 30, 2026			16	%			84	%			100	%
Three months ended June 30, 2025			26	%			74	%			100	%
Six months ended June 30, 2026			16	%			84	%			100	%
Six months ended June 30, 2025			26	%			74	%			100	%