On Friday, the president signed the COVID-19 aid, relief and economic stimulus package known as the CARES Act providing a $2 trillion stimulus package which includes $349 billion allocated to small businesses, expands unemployment insurance payments, provides certain tax credits and benefits, grants certain student loan relief and provides direct payments to taxpayers via an immediately available refundable tax credit. Property owners and small businesses with 500 or fewer employees (with certain exceptions) should benefit greatly from the $349 billion Paycheck Protection Program which is intended to ease the impact of the COVID-19 crisis by providing forgivable loans through qualified SBA lenders, banks and other financial institutions, of up to $10 million per business depending on the company's average monthly payroll costs which is available for working capital, payroll support, payment of employees' salaries, mortgage payments, rent and utility payments, insurance premium payments and certain other existing debt obligations. Recipients of these forgivable loans must satisfy certain criteria of eligibility, and the debt forgiveness will be reduced in proportion to any reduction in the number employees as compared to the prior year and certain reductions in employee compensation, thus providing an incentive for small businesses, including property owners who operate their own building maintenance, security and management businesses, to rehire workers previously laid off in an effort to restimulate the economy. Importantly, the SBA generally aggregates affiliated entities for the purpose of counting employees. While the text of the bill is still under review, these loans appear to be backed by the U.S. Small Business Administration (SBA) through its 7(a) loan program. A full summary of the CARES Act may be found here at U.S. Senator Chris Murphy's website.
In addition to the CARES Act, SBA's Economic Injury Disaster Loan (EIDL) program makes available low-interest working capital loans of up to $2 million to property owners and small businesses that incur "substantial economic injury" resulting from the COVID-19 crisis. The determination of whether or not a business is a "small business" for the purposes of obtaining EIDL financing is based on a combination of factors including the particular business industry, average revenues and/or number of employees. Other underwriting factors are also considered (e.g., credit, substantial economic injury to the business, and business location), and collateral is required for all EIDL loans over $25,000. SBA will take real estate as collateral when it is available.
Importantly, you cannot avail yourself of both a SBA 7(a) loan (as included as part of the CARES Act) and an EIDL loan for the same purpose, so you will want to look in to each carefully if you are considering either of these programs for your property or business.
In Connecticut, the $50 million Connecticut Recovery Bridge Loan program administered by the Department of Economic and Community Development (DECD) is being offered on a first-come-first-served basis and will provide small businesses consisting of 100 or fewer employees and nonprofit organizations with access to no-interest loans for terms of up to 18 months at an amount of up to $75,000.00, depending on operating expenses. If you own a business that has been profitable prior to March 10, 2020, and you are in good standing with the Department of Revenue Services and DECD (among other specific requirements), the Recovery Bridge Loan may be a good option for your business. Note, however, that businesses specifically excluded from eligibility for the Recovery Bridge Loan program include those engaged in the business of real estate, multi-level marketing, adult entertainment, cannabis or firearms. As of the time of this writing, DECD has paused accepting applications for the Recovery Bridge Loan program due to receiving over 4,000 applications in approximately 24 hours.
In addition, the Connecticut Department of Labor's Shared Work program provides an alternative to layoffs by permitting the temporary reduction of hours of full-time employees by up to 60% with workers eligible to collect partial unemployment benefits to assist with lost wages. Employers with two or more permanent employees are eligible to participate, allowing for a quicker recovery at the end of the COVID-19 crisis. A similar Shared Work program is offered by the New York Department of Labor.
Other avenues of potential economic relief are available through the rescheduling of Tax Day to July 15th, and paid leave for certain workers and tax credits for small and midsize businesses through certain payroll tax changes for eligible employers with respect to qualifying sick and child care leave.
If you are a landlord operating a building and, perhaps like so many property owners with a mortgage loan, you are unable to abate or waive tenant rents due to lender restrictions, it may be prudent to consider these and other relief options in light of the COVID-19 crisis to bridge building maintenance, front desk and security (or other) expenses, mortgage interest payments, rent payments or other eligible operating expenses and/or payroll costs required to keep your business operational for your tenants. Similarly, if you are a small business owner leasing space and unable to make your rent payments, these and other relief programs may provide you with working capital, payroll, rent and utility payments, insurance premium payments and other monetary obligations. In the multifamily space, the direct cash to eligible taxpayers offered by the CARES Act will potentially provide an avenue for residential renters who may otherwise be unable to pay rent and whose landlords cannot (or will not) provide a rent abatement.
We will be addressing the suspension of mortgage foreclosures and eviction matters in both the commercial and residential context in a later writing, which will offer additional relief to property owners and operating businesses alike. Shipman & Goodwin attorneys possess the knowledge and experience needed to help landlords and tenants navigate leases with functional and pragmatic solutions during these uncertain times. We will endeavor to analyze and explain the relevant law in these areas, and update our Coronavirus Resource Center (specifically, the Real Estate Leasing page) periodically to include relevant Connecticut, New York, federal and local laws, rules and regulations that are enacted during this crisis, as well as court filings and relevant precedent or other topical information, which are being circulated on these matters.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
