UPDATED MARCH 26, 2020:
State and federal laws are changing every day with respect to the novel coronavirus called COVID-19. As of Wednesday, March 25, 16 states have or will have implemented stay at home orders affecting more than 40% of the population. As the laws related to your business change, we will continually keep you updated. Here are some guidelines to follow as we await specific legislation related to owners, tenants, property managers, and occupants of real estate and prospective sellers and purchasers of real estate.
If an individual residential tenant or employee of a commercial tenant is diagnosed with COVID-19, the identity of the patient should not be disclosed. It is acceptable to share that a positive diagnosis has occurred within the building and encourage other tenants to take appropriate precautions. If you are a property manager or landlord, take all possible steps to ensure that common areas in your buildings, such as lobbies, security areas, and elevators, are regularly cleaned with solutions that will kill the COVID-19 virus. Consider temporarily closing discretionary social gathering areas, such as exercise rooms, pools, and party rooms, where the spread of COVID-19 is more likely. Follow guidelines from the CDC. The CDC’s website has excellent, up-to-date information about precautionary measures to take to help reduce the spread of COVID-19.
Be aware that even if a contract appears clear, a court may not enforce a contractual obligation that was impossible to fulfill due to governmental ordered closures or that would risk the health and safety of tenants, their employees, or customers. What a court may have done before COVID-19 may not be what a court will do in the current climate of COVID-19.
Contracts, such as purchase agreements and leases, may have a force majeure provision that extends the time of performance based on uncertain, unforeseeable, or uncontrollable events that are outside the control of the party tasked with the obligation. For example, a force majeure provision may apply if there is a construction delay caused by an inability to get permits because the courthouse is closed. However, a force majeure provision may not excuse a payment obligation such as the payment of rent or a mortgage payment. The language of the force majeure provision will determine whether it can be invoked given the circumstances in play at the time. Please note that not all force majeure provisions are the same. Also, there may be a requirement in the contract for you to put the other party on notice that you are invoking the force majeure provision, if it is exercisable.
Purchasers and Sellers
If you are a prospective purchaser or seller of real estate, review your purchase agreement with respect to the expiration of due diligence, financing periods, and the closing date. If your ability to complete due diligence is impacted by an inability to access the property or obtain financing, consider negotiating an extension of affected time periods or reviewing your purchase agreement for a force majeure provision that may allow for an extension of time given an event such as COVID-19. If so, place the other party on notice that you intend to utilize that provision. Also, there are or may be in the coming weeks, closures of courthouses and recording offices that may make closing during your current time frame in the purchase agreement impossible. Additionally, each title company has its own procedures for issuing gap coverage in the event that recording cannot take place due to COVID-19-related closures.
As of this date, deadlines for 1031 exchange transactions have not been extended. The federal income tax filing due date and income tax payments due on April 15, 2020, have been automatically extended from April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount of taxes due. For current information from the IRS, please click here.
Commercial Landlords and Tenants
If you are a landlord or tenant, review your leases to determine which party, if any, has ultimate responsibility for issues associated with COVID-19. For example:
Residential Housing Providers and Residents
In addition to the recommendations offered in connection with commercial and residential property managers, residential housing providers should consider offering materials, in multiple languages, to educate employees, visitors, vendors, delivery personnel, and staff about proper hand hygiene and cough etiquette. As a matter of course, housing providers should install hand sanitizers in high-traffic areas of the building and discuss human resource considerations such as screening employees that have traveled to areas where the COVID-19 virus has been reported and implementing protocols for dealing with a situation where an employee may be infected by the virus.
On March 23, 2020, Ohio House Bill 562 was introduced, proposing an eviction and foreclosure moratorium for the duration of the COVID-19 crisis. Please check back regularly for updates to the proposed legislation.
On March 18, 2020, the Equal Employment Opportunity Commission (“EEOC”) released guidance indicating that, because the CDC and state/local health authorities have acknowledged the community spread of COVID-19 and issued attendant precautions, employers may now measure employee body temperatures for their workforce.
On March 18, 2020, President Trump signed the Families First Coronavirus Response Act into law. This new law, which becomes effective on April 2, 2020, provides for, among other things, emergency Family and Medical Leave Act (FMLA) leave and paid sick leave in response to the COVID-19 outbreak.
Ulmer’s Employment & Labor and Tax Groups hosted a webinar on March 20, 2020 regarding the Act and other employment, labor, and tax considerations related to COVID-19. To view the webinar, click here.
Review your loan documents if your commercial property has financing. Being able to service debt and any required reserve funding on a real estate loan is a critical issue for commercial property owners. As such, it is important for you to review and consider the implications of the following common provisions contained in commercial real estate loan documents:
Our attorneys are watching the commercial lending industry carefully for guidance on relief programs offered by the various real estate lending sectors. For example, on March 23, 2020, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, announced a temporary mortgage forbearance program for multifamily property owners with Fannie or Freddie financing. Most mortgage relief programs to date are focused on single family or residential loans. The big challenge that we are seeing for some commercial real estate borrowers is their inability to connect with decision-makers at the holders of their mortgage (the very same issues faced during the “Great Recession” in 2008). We are finding that commercial borrowers that have developed strong direct relationships with their lenders, including, importantly, direct access to their bankers, are better positioned to develop a proactive workout plan more quickly.
Hazardous Materials and Medical Waste
If you stop operating certain regulated facilities, even temporarily, you may be required to notify regulatory agencies and take steps to secure hazardous materials. If you handle infectious waste, increased quantities of infectious waste during this pandemic may trigger additional registration and reporting requirements.
Construction Projects – Delays and Permitting Issues
If you are currently involved in or about to embark on a build out or construction project, you should call the local boards or permitting authorities to determine whether the processing time is still on track. If it’s not, consider amending your documents to provide for the delay or determine if there is a provision in your contract that can be exercised to give you more time to perform, such as a force majeure provision.
AIA contracts typically provide contractors additional time to complete work when the contractor is delayed by unavoidable casualties or other conditions beyond the contractor’s control. This may require the architect’s approval if the architect is responsible for contract administration on the project. If you are encountering a delay in completing a project, you should review your contract to determine if there is a legal basis for the delay.
The attorneys in Ulmer’s Real Estate Practice Group are closely monitoring developments related to the COVID-19 outbreak and are available to provide strategic advice and counseling as this crisis unfolds. We will continue to provide additional client alerts as more information becomes available. For additional information that may be of interest to you, please see: