Month: March 2020

Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act

NOTE—The Paycheck Protection Program Flexibility Act of 2020 amends the CARES Act and this article updates the information below>> click here to read more. 


The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law by the President on March 27, 2020.  The principal program for small business economic relief under the CARES Act is the Paycheck Protection Program (“PPP”). 

The PPP is intended to provide cash-flow assistance through Small Business Administration (“SBA”) 100 percent guaranteed loans to employers who maintain their payroll during this emergency.  Businesses that maintain their payroll are eligible to have qualified portions of a PPP Loan forgiven.   In addition, all SBA fees are waived, and the borrower can have all PPP Loan payments deferred for six months to one year.  Eligible borrowers can apply for a PPP Loan between February 15, 2020 and June 30, 2020 (the “covered period”).  PPP Loans are made by SBA-approved lenders, rather than the SBA itself, as discussed below.

The CARES Act amends the Small Business Act authorizing special Small Business Administration (“SBA”) loans the proceeds of which can be used to cover payroll costs and other specified qualified expenses.  To be eligible for a PPP Loan a business must be either a small business concern (as defined in the Small Business Act, 15 U.S.C. § 636), or during the “covered period,” in addition to small business concerns, any business concern, nonprofit organization under Section 501(c)(3) of the Internal Revenue Code, a 501(c)(19) veterans organization, or Tribal business concern if the business concern, nonprofit organization, veterans organization, or Tribal business concern  has only one physical location[1] and employs not more than the greater of (i) 500 employees; or (ii) if applicable, the size standard in number of employees established by the SBA for the industry in which the business concern, nonprofit organization, veterans organization, or Tribal business concern operates.[2]  Sole proprietors, independent contractors, and eligible self-employed individuals[3] are eligible for PPP Loans.

The maximum loan amount for which a business is eligible depends, in part, on whether the company was in business on February 15, 2019, but in no event will the loan exceed $10 million.  For a company in business during February 15, 2019 – June 30, 2019, the PPP loan amount will be equal to 250% of average monthly payroll costs incurred during the 1-year period before the date on which the loan is made.   A company that employs seasonal workers, may opt to choose March 1, 2019 as the time period start date. For companies not in business between February 15, 2019 – June 30, 2019, the PPP loan amount will be equal to 250% of average monthly payroll costs between January 1, 2020 and February 29, 2020.[4]  “Payroll Costs” means the sum of:

Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent);

Payment for vacation, parental, family, medical, or sick leave;

Allowance for dismissal or separation;

Payment required for the provisions of group health care benefits, including insurance premiums;

Payment of any retirement benefit; and

Payment of State or local tax assessed on the compensation of employees.[5]

For sole proprietors, independent contractors, and self-employed individuals, “Payroll Costs” means all compensation or income that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period.

Proceeds of a PPP loan may be used for qualified payroll costs and other qualified business expenses, which are limited to:

Payroll Costs (as described above)

Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;

Employee salaries, commissions, or similar compensations (see exclusions above);

Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);

Rent (including rent under a lease agreement);

Utilities; and

Interest on any other debt obligations that were incurred before the covered period.

To receive a PPP loan, Borrowers must submit a good faith certification stipulating: (1) that the loan is necessary to support ongoing operations under the current economic conditions; (2) that the funds will be used for payroll costs; (3) that the business does not have another loan pending under the SBA Paycheck Protection Program; and (4) that the business has not already received a loan under the SBA Paycheck Protection Program.  Personal guarantees and collateral are not required for a PPP loan and there is no recourse to individual shareholders, members, or partners of the borrower, unless the business uses the PPP loan proceeds for an unauthored purpose.  Further, for PPP loans, the affiliation rules are waived and the requirement that a small business be unable to obtain credit elsewhere is suspended during the covered period.

The CARES Act requires lenders to provide deferral of payment obligations under a PPP Loan of all principal and interest for all borrowers that were in operation on February 15, 2020 and have been adversely impacted by COVID-19, and the CARES Act specifies that it is presumed that all borrowers have been adversely impacted.  The payment deferral shall be for a period of not less than 6 months and not more than 1 year.  The SBA is required to provide lenders with guidance on the deferment process within 30 days of the enactment of the CARES Act.

A company with a PPP Loan is eligible for forgiveness of the PPP loan in an amount equal to the sum of the following costs incurred and payments made during the covered period:

Payroll costs;

Interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation);

Payment on any covered rent obligation; and

Payment of covered utility payment.

Amounts forgiven are not to exceed the principal amount of the PPP loan. Additionally, the forgiveness amount will be compared to the amount spent during prior periods proportionate to maintaining employees and wages.

The amount to be forgiven will be reduced proportionally by any reduction in employees compared to the prior period as well as any reduction in payment to an employee beyond 25% of their prior compensation. Further, to incentivize employers to retain and re-hire employees, borrowers will not be penalized for having a reduced payroll at the beginning of the period if they re-hire workers to restore employment levels no later than June 30, 2020.

The reduction formula for fewer employees is the maximum available forgiveness multiplied by the average number of full-time equivalent employees (“FTEEs”) per month – calculated by the average number of FTEEs for each pay period falling within a month – during the covered period divided by either (at election of the borrower), the average number of FTEEs per month employed from February 15, 2019 to June 30, 2019; or average number of FTEEs per month employed from January 1, 2020 until February 29, 2020; or, for seasonal employers the average number of FTEEs per month employed from February 15, 2019 until June 30, 2019.

The borrower must apply to its servicing lender for forgiveness of the PPP Loan. The application must include:

Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings;

Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities; and

Certification from a representative of the business or organization that is authorized to certify that the documentation provided is true and that the amount for which forgiveness is requested was used in accordance with the PPP guidelines for use.

The lender is required to issue a decision on an application for loan forgiveness within 60 days after the on date on which it receives the application.  The amount of loan forgiveness which would ordinarily for tax purposed be reported as income, shall be excluded from gross income of the borrower.

Any PPP loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%. There is no prepayment penalty.  Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan.

All current SBA 7(a) lenders are eligible lenders for PPP. The Department of Treasury is directed to authorize additional lenders to make PPP loans.  The SBA is charged with issuing guidelines for PPP loans within 15 days of the enactment of the CARES Act.  This summary is based on our current understanding of the program as the SBA is still finalizing guidance documents.

For more information and to read additional articles regarding COVID-19, please click here.


[1] During the covered period, any business concern that has more than one business location but employs not more than 500 employees per location and that is assigned North American Industry Classification System (“NAICS”) code beginning with 72 shall be eligible for a PPP Loan.

[2] To see the SBA Table of Small Business Size Standards, See  https://www.sba.gov/document/support–table-size-standards.  Size Standards are based on NAICS Codes for each industry and type of work in that industry.  NAICS Codes for your business can be found at https://www.census.gov/cgi-bin/sssd/naics/naicsrch.

[3] As defined in Section 7002(b) of the Families First Coronavirus Response Act.

[4] Companies that take out an SBA Economic Injury Disaster Loan (“EIDL”) between February 15, 2020 and June 30, 2020 may refinance the EDIL in a PPP loan and receive the benefits of the PPP loan.

[5] Excluded from payroll costs for calculating a PPP loan amount are: individual employee salary in excess of  $100,000; taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code; compensation of employees whose principal place of residence is outside of the U.S.; and qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act

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COVID-19 Isolation – A Good Time to Review Your Estate Planning Documents

Are you stuck at home, isolated from the public, and your normal social interactions?  Perhaps this would be a good time to review those old estate planning documents: your Will, Power of Attorney, Health Care Power of Attorney, and Advance Medical Directive.  Do you have a Revocable Trust that needs to be updated?  Have you been putting this off until you have time?  Now is the perfect time for a review.

Check your fiduciaries – your Executor under your Will, the Agent specified in your Power of Attorney and Health Care Power of Attorney, and the Trustee of your Trust.  Are they appropriate?  Do you have Alternates?  Perhaps your children are older now and can handle the responsibilities?  Perhaps your chosen family member, who is your fiduciary, now has “issues”? 

Do your documents adequately describe your “testamentary wishes”?  Are changes necessary?  It is relatively easy to do a “Codicil” for your Will and even easier to do an Amendment to your Trust.  Rather than amending your Powers of Attorney, it is probably easier (and better) to just do new documents.

Other important considerations:

  • Do your fiduciaries (e.g., your Executor) know where you keep your original documents?
  • Have you made a list of your accounts, which is located with your original documents or some other special place that can be accessed?
  • Are your assets titled appropriately?  (E.g., bank accounts, vehicles, and brokerage accounts.)
  • Do you wish to avoid probate?
  • Does anyone have access to your passwords? Do your documents grant control of your digital assets?
  • Are your Wills outdated “tax wills” that are designed to minimize federal taxes that will no longer be an issue for you?

A few other ideas to consider:

  • Since the stock markets are down, if you do have potential estate tax exposure (or will have exposure after the law changes in 2026), now would be a good time to consider gifts to family members, for example, gifts valued at the $15,000 annual exclusion limit.
  • Lower interest rates also offer the opportunity for “loss harvesting” or realizing losses to offset gains you may have realized.
  • Interest rates are low now, making Grantor Retained Annuity Trusts (“GRATs”) a great opportunity.
  • With lower income tax rates, now may be a good time for doing a Roth Conversion.
  • The new SECURE ACT may adversely affect your plans for your IRA or Retirement Plan. You should reconsider how your beneficiary designations are structured in light of these changes and the elimination of the “Stretch IRA.”
  • Lower interest rates also offer the opportunity to refinance intra-family loans.

The Attorneys in our firm are working remotely; however, we are available to speak with you at your convenience. We encourage you to reach out to us if you have questions or would like to discuss these opportunities.  This is a difficult time.  If you wish to speak with an attorney but do not wish to have a personal meeting, we are happy to speak on the telephone or via video conference (which we can arrange if you have a computer, smartphone, or tablet such as an I-pad).  Please be safe.

For more information and to read additional articles regarding COVID-19, please click here.

EPA and States Issue Temporary Environmental Enforcement Policies During COVID-19

The increased limitations on day-to-day life resulting from efforts to slow the spread of COVID-19 have made previously routine regulatory compliance efforts more difficult.  In some cases, regulated entities may find that they are unable to comply with certain requirements imposed by regulations, a settlement agreement, or a consent decree.  For example, a hazardous waste generator may find it difficult to arrange for the transportation of their wastes to a disposal facility within the relevant accumulation period, emitters may not be able to obtain timely lab results of their emissions, or a gas station operator may be unable to find a contractor to conduct tank integrity testing.

Environmental Protection Agency

Recognizing this new reality, EPA issued a temporary policy on March 26, 2020, regarding the enforcement of environmental obligations.  This policy may provide regulated entities with some enforcement relief if they find they are unable to meet their environmental obligations because of COVID-19.

With this said, it is important to understand what this policy is not – this is not a relaxation of any laws or regulations.  Regulated entities should be suspicious when they read articles on the Internet that claim EPA has stopped enforcing environmental laws.  All current environmental regulatory requirements remain in effect, and regulated entities are expected to attain full compliance unless they are prevented from doing specifically because of the COVID-19 pandemic. 

In addition, this policy does not suspend or relax EPA’s enforcement program.  It articulates that EPA may, on a case-by-case basis, elect not to impose certain enforcement measures, such as the imposition of civil penalties, if a regulated entity can demonstrate it is unable to comply with a requirement because of COVID-19.   EPA’s enforcement program otherwise remains very much active, and the burden will be on the regulated entity to demonstrate that they are unable to comply because of COVID-19. 

We expect the EPA will require stringent compliance with the temporary policy’s requirements before a business or individual may benefit from any enforcement discretion.  This starts with understanding what the policy does not apply to, or otherwise does not affect, which includes:

  • Criminal violations;
  • CERCLA “Superfund” enforcement activities;
  • RCRA corrective action enforcement activities;
  • Importation of regulated products, such as pesticides regulated under the Federal Insecticide, Fungicide, and Rodenticide Act;
  • Noncompliance that is not the result of COVID-19;
  • Accidental releases of oil, hazardous substances, hazardous wastes, or chemicals that normally require statutory or regulatory reporting and response; and
  • State programs.

If a regulated entity, after making every effort to comply, finds it is not reasonably practicable to comply with their environmental compliance obligations, they must:

  • Minimize the effects and duration of compliance caused by COVID-19;
  • Identify the specific nature and dates of the noncompliance;
  • Identify how COVID-19 was the cause of the noncompliance, and the decisions and actions taken in response, including best efforts to comply and steps taken to come into compliance at the earliest opportunity;
  • Return to compliance as soon as possible; and
  • Document the information, action, or condition specified above.

A business which is unable to comply with an environmental obligation should contact EPA as soon as the potential noncompliance is identified.  Early self-reporting is a factor EPA usually considers when assessing possible penalty mitigation and may help businesses preserve any rights they may have under force majeure clauses in their administrative settlement agreement or consent decrees. (For additional information on this topic, see here.)

The EPA’s temporary policy provides guidance specific to the following compliance scenarios:

  • Routine compliance monitoring and reporting;
  • Enforcement of settlement agreements and consent decrees;
  • Facility operations, including those that emit air or water pollution, generators of hazardous waste, and animal feeding operations;
  • Public water systems regulated under the Safe Drinking Water Act; and
  • Critical infrastructure.

State Enforcement Programs

As noted above, EPA’s temporary policy does not apply to State programs.  Regulated entities should therefore consult with state regulatory agencies if they are unable to comply with environmental requirements because of COVID-19.  Some state regulators have posted similar temporary enforcement policies, including regulators in Washington, Oregon, and Texas.  In addition, Virginia’s Department of Environmental Quality (DEQ) announced on March 27, 2020, that it was suspending all field work in order to “assess COVID exposure risks to field staff, develop exposure mitigation plans and prioritize monitoring and inspections for resumption of field activities.” 

Interestingly, Virginia’s announcement does not state it is enacting a similar enforcement approach as EPA and other states.  On the contrary, the announcement suggests DEQ is seeking to re-prioritize agency resources to account for personnel safety while it seeks to continue inspection and monitoring activities.  Therefore, regulated entities in Virginia, at least for the moment, should assume DEQ will continue to treat noncompliance as it has historically until and unless DEQ issues more explicit guidance.

Moreover, regulated entities need to be cautious even in states that have announced temporary enforcement policies because municipal agencies may not adopt similar policies. Many Virginia local governments have their own permitting and enforcement authority for water pollution, wetlands protection, and solid and hazardous waste mishandling and they may not suspend their enforcement initiatives even though DEQ has suspended its field activities.  

Businesses and individuals facing compliance challenges resulting from COVID-19 should consult with counsel as soon as the potential difficulty is known to ensure they fully understand how Federal, State, and local policies may affect their legal rights and liabilities. Vandeventer Black LLP’s environmental law attorneys are available to assist. 

For more information and to read additional articles regarding COVID-19, please click here.

The CARES Act – What the Coronavirus Aid, Relief and Economic Security Act (CARES Act) Means for Businesses 

After a week of negotiations, Congress has come to an agreement on the text of a $2 Trillion dollar relief law. The CARES Act (the “Act”) promises aid to individual Americans, small businesses, hospitals, and large corporations. The President signed the bill into law on March 27, 2020.
 
The major provisions of the law affecting businesses are:

  • Over $100 Billion in assistance to hospitals.
  • Over $350 Billion in assistance to small businesses.
  • Over $500 Billion in assistance to corporations.
  • Over $150 Billion in assistance to state and local stimulus programs.
  • Direct Loan Plan for Mid-Size Businesses.
  • Bolstering of unemployment insurance by providing $600/per week on top of what the state provides to employees.
  • Providing tax credits for qualifying business that continue to pay workers during absence due to COVID-19.
 Small Business Assistance
 
The assistance to small businesses comes through the Act’s Paycheck Protection Plan. Specifically, the law amends the Small Business Act by authorizing special Small Business Administration (SBA) loans to cover payroll costs and certain other qualified expenses.  The law allows SBA loans for eligible businesses with hardships occurring anytime between February 15, 2020 – June 30, 2020 (the “Covered Period”). In order to qualify for the loan, the company must be either a small business, a 501(3)(c) nonprofit, a 501(c)(19) veteran’s organization, or a tribal business, with no more than 500 employees (including part-time employees) in one physical location or having no more employees than the specified size standard for the industry as provided in the Small Business Act.  Additionally, sole proprietors, independent contractors, and self-employed individuals may be eligible for these small business loans. Loan amounts are available for up to 2.5 times the business’s average total monthly payroll costs, up to a maximum of $10 million dollars.
 
Borrowers must submit a good faith certification stipulating the following: (1) that the loan is necessary to support ongoing operations under the current economic conditions; (2) that the funds will be used for payroll costs; (3) that the business does not have another loan pending under the SBA Paycheck Protection Program; and (4) that the business has not already received a loan under the SBA Paycheck Protection Program.
 
Businesses may only use this loan money for items designated in the CARES Act, such as “payroll costs” and other qualified business expenses. Included in the “payroll cost” definition are items such as:
 
  • Compensation for employees (salary, wages, etc.),
  • Payment of cash tips,
  • Payment of various cost related to employee leave,
  • Payment of employee benefits, and
  • Payment of state taxes.
Businesses may also use the loan money for other qualified expenses such as interest on mortgage obligations (excluding prepayments or payments on the principal), rent, utilities, and interest on other debts incurred during the covered period.
 
Businesses may not use the loan money to compensate employees making an annual salary over $100,000, to compensate employees residing outside of the U.S., or to cover the paid leave requirements of the Families First Coronavirus Response Act (because that paid leave is already recoverable as refundable tax credits). After a business receives a loan under the CARES Act, the administrator has no recourse to go after individual shareholders, members, or partners, unless the business used the loan for a purpose not authorized.
 
Under the CARES Act, borrowers are eligible for loan forgiveness equal to the amount that they spent on payroll costs and specified expenses during the 8-week period prior to the origination of the covered loan. Amounts forgiven are not to exceed the principal amount of the covered loan. Additionally, the forgiveness amount will be compared to the amount spent during the same 8-week period in the previous year, proportionate to maintaining employees and wages.
 
Loan forgiveness is conditional on employers retaining their employees. The amount to be forgiven will be reduced proportionally by any reduction in employees compared to the prior year as well as any reduction in payment to an employee beyond 25% of their prior year compensation. Further, to incentivize employers to retain and re-hire employees, borrowers will not be penalized for having a reduced payroll at the beginning of the period if they re-hire workers previously laid off.
 
The law also creates special rules that apply only to small business loans provided under the CARES Act. For example, the loans are non-recourse, the normal borrower and lender fees are waived during the covered period, the requirement that a small business be unable to obtain credit elsewhere is suspended during the covered period, the personal guarantee requirement is waived, no collateral is required, and there is no prepayment penalty. Interest on the loans shall not exceed 4%. The CARES Act also allows complete deferment of loan payments for at least 6 months and not more than a year.
 
Mid-Size Business Assistance
 
The Act also provides some loan assistance to mid-sized businesses (businesses and non-profits with 500-10,000 employees). The Secretary is authorized to make direct loans to mid-sized businesses at an interest rate no higher than 2%. For at least six months, no payment on interest or principle will be due on the loan.
 
Loan applications require certification by the applying businesses that:
  1. economic conditions related to COVID-19 make the loan necessary to support the ongoing operations of the business;
  2. the business will use the funds received to retain at least 90% of the employer’s workforce at full compensation and benefits;
  3. the employer intends to restore not less than 90% of its workforce that existed as of February 1, 2020 and to restore all compensation and benefits to workers no later than 4 months after the termination of the COVID-19 healthcare emergency;
  4. the business is domiciled in the United States with the majority of its employees in the United States;
  5. the business is not involved in a bankruptcy proceeding;
  6. the business is created or organized in the United States or under the laws of the United States;
  7. the business will not pay dividends of common stock or repurchase any equity security while the direct loan is outstanding;
  8. the business will not outsource or offshore jobs during the term of the loan and for two years after the repayment of the loan; and
  9. the business will remain neutral in any union organizing effort for the term of the loan.
  
Tax Credits for Qualified Payroll Costs
 
The CARES Act provides tax relief to businesses and tax-exempt organizations impacted by COVID-19 crisis that have continued to pay employees during the crisis. The credit is available for any quarter in which the business: (i) fully or partially closed due to an order from a governmental authority related to COVID-19; or (ii) experienced a significant decline in gross receipts.  The period of significant decline begins with the first quarter in 2020 in which gross receipts are less than 50% of the gross receipts from the corresponding quarter in 2019, and ends with the first quarter in which the employer’s gross receipts are more than 80% of the corresponding quarter in 2019.  Eligible employers may receive a tax credit for 50% of the qualified wages paid to employees from March 13, 2020 – December 31, 2020 (qualified wages for an individual employee may not exceed $10,000). Qualified health plan expenses are included in qualified wages.  This is a refundable tax credit applied against employment taxes.
 
For employers with more than 100 employees, the “qualified wages” are the wages paid to employees who were not providing services because of COVID-19. For employers with 100 or fewer employees, all wages paid during the government mandated closure or the period of significant decline qualify for the credit. Paid leave required under the Families First Coronavirus Response Act, however, is not included as “qualified wages.” Importantly, a business will not be eligible for this credit if it takes the SBA small business loan available under the CARES Act.
 
In addition, the CARES Act allows employers and self-employed individuals to defer payment of the employer’s share of employment taxes. Employers will be required to pay any deferred 2020 payroll tax over the next two years, with half of the tax being due by December 31, 2021 and the other half due by December 31, 2022.
 
Unemployment Benefits
 
Another important part of this bill is the assistance provided to state unemployment programs by providing $600 per week in addition to state unemployment benefits for up to four months. The law expands unemployment coverage to individuals who would not normally receive unemployment under state law. In order to qualify for the law’s unemployment benefit, an individual must be out of work or unable to work because of circumstances related to COVID-19. These circumstances include, but are not limited to, personal diagnosis, family diagnosis, work closure, care for children due to school closure, and/or physician required quarantine because of high risk factors. While the list of covered individuals is expansive, there are limits. The CARES Act does not cover individuals who can telework with pay or individuals who are receiving some type of paid sick leave or other benefits.
 
Additional Information
 
Along with financial assistance, the law also creates an oversight board and a Treasury Department Special Inspector General for Pandemic Recovery to create oversight for the corporate funds. This includes requiring every loan document to be public and made available to Congress.
 
If you have questions about how this, or other legislation, will affect your business, the attorneys at Vandeventer Black LLP are available to assist you. Please visit our Coronavirus Legal Services webpage for other updates and information.

The CARES Act – What the Coronavirus Aid, Relief and Economic Security Act (CARES Act) Means for Businesses 

After a week of negotiations, Congress has come to an agreement on the text of a $2 Trillion dollar relief law. The CARES Act (the “Act”) promises aid to individual Americans, small businesses, hospitals, and large corporations. The President signed the bill into law on March 27, 2020.
 
The major provisions of the law affecting businesses are:

  • Over $100 Billion in assistance to hospitals.
  • Over $350 Billion in assistance to small businesses.
  • Over $500 Billion in assistance to corporations.
  • Over $150 Billion in assistance to state and local stimulus programs.
  • Direct Loan Plan for Mid-Size Businesses.
  • Bolstering of unemployment insurance by providing $600/per week on top of what the state provides to employees.
  • Providing tax credits for qualifying business that continue to pay workers during absence due to COVID-19.
 Small Business Assistance
 
The assistance to small businesses comes through the Act’s Paycheck Protection Plan. Specifically, the law amends the Small Business Act by authorizing special Small Business Administration (SBA) loans to cover payroll costs and certain other qualified expenses.  The law allows SBA loans for eligible businesses with hardships occurring anytime between February 15, 2020 – June 30, 2020 (the “Covered Period”). In order to qualify for the loan, the company must be either a small business, a 501(3)(c) nonprofit, a 501(c)(19) veteran’s organization, or a tribal business, with no more than 500 employees (including part-time employees) in one physical location or having no more employees than the specified size standard for the industry as provided in the Small Business Act.  Additionally, sole proprietors, independent contractors, and self-employed individuals may be eligible for these small business loans. Loan amounts are available for up to 2.5 times the business’s average total monthly payroll costs, up to a maximum of $10 million dollars.
 
Borrowers must submit a good faith certification stipulating the following: (1) that the loan is necessary to support ongoing operations under the current economic conditions; (2) that the funds will be used for payroll costs; (3) that the business does not have another loan pending under the SBA Paycheck Protection Program; and (4) that the business has not already received a loan under the SBA Paycheck Protection Program.
 
Businesses may only use this loan money for items designated in the CARES Act, such as “payroll costs” and other qualified business expenses. Included in the “payroll cost” definition are items such as:
 
  • Compensation for employees (salary, wages, etc.),
  • Payment of cash tips,
  • Payment of various cost related to employee leave,
  • Payment of employee benefits, and
  • Payment of state taxes.
Businesses may also use the loan money for other qualified expenses such as interest on mortgage obligations (excluding prepayments or payments on the principal), rent, utilities, and interest on other debts incurred during the covered period.
 
Businesses may not use the loan money to compensate employees making an annual salary over $100,000, to compensate employees residing outside of the U.S., or to cover the paid leave requirements of the Families First Coronavirus Response Act (because that paid leave is already recoverable as refundable tax credits). After a business receives a loan under the CARES Act, the administrator has no recourse to go after individual shareholders, members, or partners, unless the business used the loan for a purpose not authorized.
 
Under the CARES Act, borrowers are eligible for loan forgiveness equal to the amount that they spent on payroll costs and specified expenses during the 8-week period prior to the origination of the covered loan. Amounts forgiven are not to exceed the principal amount of the covered loan. Additionally, the forgiveness amount will be compared to the amount spent during the same 8-week period in the previous year, proportionate to maintaining employees and wages.
 
Loan forgiveness is conditional on employers retaining their employees. The amount to be forgiven will be reduced proportionally by any reduction in employees compared to the prior year as well as any reduction in payment to an employee beyond 25% of their prior year compensation. Further, to incentivize employers to retain and re-hire employees, borrowers will not be penalized for having a reduced payroll at the beginning of the period if they re-hire workers previously laid off.
 
The law also creates special rules that apply only to small business loans provided under the CARES Act. For example, the loans are non-recourse, the normal borrower and lender fees are waived during the covered period, the requirement that a small business be unable to obtain credit elsewhere is suspended during the covered period, the personal guarantee requirement is waived, no collateral is required, and there is no prepayment penalty. Interest on the loans shall not exceed 4%. The CARES Act also allows complete deferment of loan payments for at least 6 months and not more than a year.
 
Mid-Size Business Assistance
 
The Act also provides some loan assistance to mid-sized businesses (businesses and non-profits with 500-10,000 employees). The Secretary is authorized to make direct loans to mid-sized businesses at an interest rate no higher than 2%. For at least six months, no payment on interest or principle will be due on the loan.
 
Loan applications require certification by the applying businesses that:
  1. economic conditions related to COVID-19 make the loan necessary to support the ongoing operations of the business;
  2. the business will use the funds received to retain at least 90% of the employer’s workforce at full compensation and benefits;
  3. the employer intends to restore not less than 90% of its workforce that existed as of February 1, 2020 and to restore all compensation and benefits to workers no later than 4 months after the termination of the COVID-19 healthcare emergency;
  4. the business is domiciled in the United States with the majority of its employees in the United States;
  5. the business is not involved in a bankruptcy proceeding;
  6. the business is created or organized in the United States or under the laws of the United States;
  7. the business will not pay dividends of common stock or repurchase any equity security while the direct loan is outstanding;
  8. the business will not outsource or offshore jobs during the term of the loan and for two years after the repayment of the loan; and
  9. the business will remain neutral in any union organizing effort for the term of the loan.
  
Tax Credits for Qualified Payroll Costs
 
The CARES Act provides tax relief to businesses and tax-exempt organizations impacted by COVID-19 crisis that have continued to pay employees during the crisis. The credit is available for any quarter in which the business: (i) fully or partially closed due to an order from a governmental authority related to COVID-19; or (ii) experienced a significant decline in gross receipts.  The period of significant decline begins with the first quarter in 2020 in which gross receipts are less than 50% of the gross receipts from the corresponding quarter in 2019, and ends with the first quarter in which the employer’s gross receipts are more than 80% of the corresponding quarter in 2019.  Eligible employers may receive a tax credit for 50% of the qualified wages paid to employees from March 13, 2020 – December 31, 2020 (qualified wages for an individual employee may not exceed $10,000). Qualified health plan expenses are included in qualified wages.  This is a refundable tax credit applied against employment taxes.
 
For employers with more than 100 employees, the “qualified wages” are the wages paid to employees who were not providing services because of COVID-19. For employers with 100 or fewer employees, all wages paid during the government mandated closure or the period of significant decline qualify for the credit. Paid leave required under the Families First Coronavirus Response Act, however, is not included as “qualified wages.” Importantly, a business will not be eligible for this credit if it takes the SBA small business loan available under the CARES Act.
 
In addition, the CARES Act allows employers and self-employed individuals to defer payment of the employer’s share of employment taxes. Employers will be required to pay any deferred 2020 payroll tax over the next two years, with half of the tax being due by December 31, 2021 and the other half due by December 31, 2022.
 
Unemployment Benefits
 
Another important part of this bill is the assistance provided to state unemployment programs by providing $600 per week in addition to state unemployment benefits for up to four months. The law expands unemployment coverage to individuals who would not normally receive unemployment under state law. In order to qualify for the law’s unemployment benefit, an individual must be out of work or unable to work because of circumstances related to COVID-19. These circumstances include, but are not limited to, personal diagnosis, family diagnosis, work closure, care for children due to school closure, and/or physician required quarantine because of high risk factors. While the list of covered individuals is expansive, there are limits. The CARES Act does not cover individuals who can telework with pay or individuals who are receiving some type of paid sick leave or other benefits.
 
Additional Information
 
Along with financial assistance, the law also creates an oversight board and a Treasury Department Special Inspector General for Pandemic Recovery to create oversight for the corporate funds. This includes requiring every loan document to be public and made available to Congress.
 
If you have questions about how this, or other legislation, will affect your business, the attorneys at Vandeventer Black LLP are available to assist you. Please visit our Coronavirus Legal Services webpage for other updates and information.
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Coronavirus: Additional Consideration for Protecting Community Associations and Continuing to Operate

Since our last posting, the impact of coronavirus on community associations has become real.  Health and safety are paramount.  While Association-related matters may seem trivial compared to a worldwide health crisis and corresponding job losses, basic business and operations must continue, albeit with new considerations.  This supplements the prior article.
 
Membership Meetings: Use of Proxies
If a community association goes forward with an annual or special meeting of its members, the use of proxies is a tool to obtain quorum so that elections and other Association matters requiring a vote may proceed.  Proxies allow a member to appoint another person to cast the member’s vote at a meeting. Proxies are not new to Associations, but the use of proxies take on new meaning now.  Proxies promote participation and are a way to address the current reality that attendance at in-person meetings is curtailed by governmental mandates, if not recommendations.   
 
The “use of technology” provisions in both the Virginia Condominium Act and POA Act permit submission by electronic means, provided the documents do not expressly provide otherwise, and the electronic signature meets the requirements of applicable law or the documents, a record is created as evidence of such signature, consent or approval, and the record is kept as long as required for a nonelectronic form, and the signature can be authenticated.  Electronic means usually means printing, signing and either scanning and emailing or faxing a valid proxy to the Association.  Therefore, include an email address and fax number to submit the proxy on the proxy instructions.  In addition to the relevant provisions in the Condominium Act and POA Act, look at applicable provisions in the Virginia Uniform Electronic Transactions Act, which govern electronic transactions.
 
Review the proxy provisions contained in the Association’s Bylaws and, if applicable, the Articles of Incorporation to ensure compliance with these (and statutory) requirements.  This should be done regardless of a pandemic. Whether an Association uses paper or electronic proxies, all proxy requirements must be followed so the proxy is valid.  Remember that a proxy is not the equivalent of a mail-in ballot – It requires the proxy holder to be present in person to vote for the member in his or her absence.  Proxy wording can be tricky.  It is one of the most common documents to mistake.  When in doubt, contact your Association attorney. A review of the proxy form by counsel is a great way to avoid costly and time-consuming challenges to elections and other Association business. 
 
Limiting Access to Common Areas
Associations generally are charged with maintenance and operating responsibilities for the common areas, to which the members have rights of access, use, and enjoymentBased on the current, extenuating circumstances, including federal, state and local requirements, Boards have to impose limits on member and guest rights to such access, use, and enjoyment.  The restrictions should be taken seriously and should be based on guidelines from federal, state and local authorities.  And, as with all rules, the restrictions must be reasonable, clearly written and communicated. Communication can come in one or more forms (e.g., emails, sandwich boards, flyers, social media, community website posting, mail, etc.).  Non-paper formats are preferable at this time. 
 
Architectural Design Applications
This is probably not an item high on an Association’s priority list right now, but it is something about which to be mindful.  With many owners staying at home, owners may find themselves with additional time to take care of those home improvement projects they did not have time to do before.  Many governing documents and architectural guidelines contain time limitations (usually 45 or 90 day) regarding when design and exterior modification applications must be reviewed by an Association’s Board or architectural review committee (“ARC”).  The Board, ARC, and management team should continue to monitor and calendar submitted and new applications.  There is no tolling of these deadlines during the pandemic and likely no provisions that would permit an extension.  In most cases, no action within the lapse of requisite time will deem the application approved.  Consider reviewing the submissions and making decisions sooner rather than later.  This issue is separate and apart from whether the contractors’ work is essential at this time.
 
Due Process Hearings
To the extent an Association has authority to conduct due process hearings, consider placing a temporary hold on the process unless the violations affect health and safety.  In other contexts, there are many federal and state orders temporarily prohibiting certain enforcement actions from proceeding.  Associations should consider following the government’s lead and temporarily suspend and postpone due process procedures. The Board may want to pass a resolution that formalizes any temporary moratorium on due process and enforcement actions and reserving the Association’s right to proceed at a future date.  If there is a concern that a statute of limitations may arise or rights may be waived, please contact Association legal counsel for guidance.     
 
If you have any questions about what your community association should do or how to conduct business, call your Association attorney. Vandeventer Black has a knowledgeable and experienced team of community association attorneys.  Please contact us if we can assist in providing guidance, drafting policies, proxies, hearing and architectural processes, letters and decisions, and rules for the pandemic, as well as amendments to the governing documents to streamline proxy and other requirements and modify other time limitations for circumstances such as a pandemic. We are available to help protect community associations and assist with continuing to operate during these extraordinary times, as well as when business as usual resumes. Vandeventer Black has put in place technology and resources so that we can continue to conduct business and provide responsive and effective legal services, even if we cannot be in the office.    

For more information and to read additional articles regarding COVID-19, please click here.

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COVID-19, Leasing, and Force Majeure Clauses

To date, COVID-19 has led to the forced closures of many businesses and commercial spaces worldwide, both temporarily and permanently. While some can adapt and continue to work in safe numbers or controlled environments, others have been left with no alternatives, resulting in unemployed and unproductive workers and workspaces. So, what does this mean for commercial leasing relationships now that once-profitable businesses have stalled due to the COVID-19 lockdowns? Many may look to their leases for relief in the form of a force majeure clause.

What is a Force Majeure Clause?

Force Majeure – “superior force” – is a common contract provision which temporarily excuses a party from its obligations as a result of certain extreme and unforeseen circumstances. Depending on the specific language, a force majeure provision may provide relief to the burdened party until normal operating activities can be assumed. 

The specific language of the force majeure clause is very important.  The length, language, and detail of a force majeure clause vary greatly by contract, making its application subjective to the contract at issue. Further, it is important to note that not all contracts include a force majeure clause.

The ability to benefit from a force majeure clause is heavily dependent upon: (1) whether the language of your contract’s provision covers the event in question, (2) whether the event in question directly hinders fulfillment of the contractual obligations, and (3) whether the particular obligation sought to be excused is covered by the provision.  Unless all criteria are met, it is unlikely that the noncompliant party can look to the clause as an excuse for its noncompliance.  In particular, many commercial leases expressly state that the payment of rent is not excused by a force majeure event.  Again, each lease must be reviewed individually to determine whether rent payment, or any other obligation, would be excused by force majeure. 

While some force majeure clauses are more detailed, others are less so, leaving room for interpretation of what events may be covered by the clause. In interpreting the clause’s scope and effect, a court will analyze those events that are expressly contemplated in the language of the contract.  Thus, the common force majeure phrase “or any other event beyond the party’s reasonable control” is not necessarily a blanket release from contractual obligations.  

Courts also consider whether the event causes more than simply economic hardship or impracticality.  Notably, Virginia courts do not recognize the “frustration of purpose” doctrine. While some event may cause contractual performance to be extremely burdensome and costly, if performance does not become impossible, a court will be unlikely to interfere with the terms of the contract and excuse the noncompliant party’s breach.

How does a Force Majeure Clause operate under COVID-19?

The COVID-19 outbreak has put Force Majeure clauses under the microscope.  While it has been internationally deemed a “pandemic,” that does not necessarily mean COVID-19 is, triggers force majeure relief. In Virginia, that requires a contract specific analysis of the force majeure clause. So, unless the contract specifies “pandemic” or “epidemic” (or other similar viral event verbiage) within the actual force majeure clause, a party will likely be unsuccessful in asserting force majeure for  relief under the contract.  Other operative language  in the force majeure clause are terms such as “governmental restrictions” or “emergency government action,” which may be applicable to certain closures and interruptions caused by COVID-19.

The attorneys at Vandeventer Black LLP stand ready to assist you in analyzing your options both as a landlord or commercial tenant if you believe that your contractual rights are in jeopardy.

For more information and to read additional articles regarding COVID-19, please click here.

Fannie Mae and Freddie Mac will grant mortgage forbearance for Borrowers who suspend evictions for renters in multifamily properties with loans backed by Fannie Mae or Freddie Mac

The Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will offer multifamily property owners mortgage forbearance with the condition that they suspend all evictions for renters unable to pay rent due to the impact of coronavirus (“COVID-19”). The eviction suspensions are in place for the entire duration of time that a property owner remains in forbearance. The forbearance is available to all multifamily properties with a Fannie Mae or Freddie Mac-backed performing multifamily mortgage negatively affected by the coronavirus national emergency.  View the full announcement here.

Specifically, Fannie Mae is allowing lenders to grant forbearance to borrowers in properties financed by Fannie Mae for up to three months if the borrower is experiencing hardship due to the impact of the COVID-19 national emergency. As part of the forbearance plan, borrowers must agree to suspend evictions of tenants who are facing financial hardship due to the current crisis.  Click here to read Fannie Mae’s guidance to its lenders.
 
Similarly, under the Freddie Mac program, multifamily landlords whose properties are financed with a Freddie Mac fully performing loan can defer their loan payments for 90 days by showing hardship as a consequence of COVID-19 and by gaining lender approval. In turn, Freddie Mac is requiring landlords not to evict any tenant based solely on non-payment of rent during the forbearance period.

If you have questions regarding this or other legal issues related to the COVID-19 crisis, Vandeventer Black LLP is available to assist you.

Please visit our specialized Coronavirus Legal Services page:

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Employers Must Post Notice to Employees Regarding Families First Coronavirus Response Act (FFCRA) Leave

As we reported earlier, the FFCRA creates two paid leave requirements for employers. The law goes into effect on April 1, 2020, and remains in effect until December 31, 2020.

Employers with fewer than 500 employees are required to post a notice to their employees alerting them of their rights under the FFCRA. The U.S. Department of Labor (DOL) has issued the notice for employers to use here. Employers should post this notice in conspicuous places on their premises where employees will see it. For employees who are not in the office, such as those who are teleworking, employers should send them the notice by email or U.S. mail, or post the notice on an employee information internal or external website. Employers do not need to share the notice with any employees who have been laid off. DOL has issued additional guidance regarding this notice here.

We are still awaiting the DOL’s formal guidance on FFCRA leave. In the interim, the DOL has provided some preliminary information here.

If you have questions about the FFCRA leave, Vandeventer Black LLP’s labor and employment law team is available to assist you.

Please visit our specialized Coronavirus Legal Services page:

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Answers To Some Pressing Basic Commercial Issues Arising From COVID-19

The legal landscape relating to the extraordinary measures taken in connection with COVID-19 is constantly changing. We will attempt to keep this page updated, but you should consult your attorney and tax advisor for the latest information.

General: There are thousands, and perhaps millions of small businesses in your same situation. We expect there to be comprehensive solutions forthcoming, or Bankruptcy Courts will have more patients than hospitals.

Do I have to pay my rent?  What if I can’t? 
At this time, we are not aware of any legal relief from the requirement to pay rent for commercial space.  If rent is not paid within any grace period, if any, then under most leases, the landlord can terminate the lease.

If you landlord terminates your lease, it is unlikely that even a Bankruptcy filing can revive it.   If a Bankruptcy petition is filed before the lease is terminated, the automatic stay would prevent the landlord form terminating the lease.

We recommend communicating with your landlord or tenant, as the case may be, regarding payment of rent, or partial rent, and how deferred rent will be handled.  Carefully document and confirm all agreements reached. 

Do I have to make my loan payment?
Again, at this time, we are not aware of any legal relief from the requirement to pay principal and interest due on commercial loans.  However, we understand that many Banks are working with regulators for a relief package which would delay the payment of principal and interest during the crisis.

We recommend communicating with your lender and carefully document and confirm any agreement. 

Do I have to make my insurance installment payment?
Again, at this time, we are not aware of any legal relief from the requirement to pay installments due on commercial insurance. We recommend communicating with your agent and carefully document and confirm any agreement. 

Can I close my deal?
In Virginia, most courts remain open to handle essential services.  Most courts are accepting electronic filings.  However, some courts are not yet set up for electronic filing. You should consult your attorney on the status of filings in such courts.  Additionally, title searches and insurance could be affected.

How can I find out more about SBA loan assistance?
Small businesses in all Virginia counties are now eligible to apply for low-interest Small Business Administration (SBA) Economic Injury Disaster Loans. Applicants may apply online, receive additional disaster assistance information and download applications here.  Applicants may also call SBA’s Customer Service Center at (800) 659-2955 or email disastercustomerservice@sba.gov for more information on SBA disaster assistance.  You may wish to contact your existing lender for a loan or to determine whether your lender can facilitate an SBA loan or SBA guaranty.  Carefully consider all aspects of an SBA loan, including up-front costs. 

Deferring Tax Payments and Filings.
The IRS has created a special page on their website focused on Coronavirus Tax Relief, where individuals and businesses can see the latest news and guidance provided. That page can be accessed here.

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