With businesses facing a barrage of daily challenges, it becomes important to focus on key decisions that can make a difference. We address three of these key issues in this post: your contractual obligations, keeping in mind added legal obligations that might arise to creditors if your business is closed and facing insolvency, and the liability risk that might exist as businesses reopen under the new normal. Continue Reading
As we previously discussed, on March 22, 2020, federal banking regulators published the Interagency Guidance (“the Guidance”) to encourage lenders to, among other things, enter into short-term loan modifications (if prudent and appropriate) with borrowers impacted by the COVID-19 outbreak. Short-term loan modifications only include those effective for six months or less. The Guidance only applies to those loans that are current (less than 30 days past due) when the modification is implemented. Such modifications can include payment deferrals, fee waivers, repayment term extensions, or other “insignificant” delays.
Those intending to modify existing loans in accordance with the Guidance should keep in mind that modifications may have unintended federal income tax consequences. For tax purposes, a “significant modification” of an existing loan is treated as a deemed sale of the loan in exchange for a new loan bearing the modified terms. The deemed sale treatment could generate income tax for the lender if the lender acquired the loan at a discount from a third party, or could generate cancellation of indebtedness income for the borrower if the modified loan (treated as a new loan for tax purposes) bears interest at a rate that is less than the applicable federal rate.
“Significant modifications” include suspending interest and principal payments for more than half of the original loan term. Because the Guidance requires that short-term loan modifications only include those effective for six months or less, this deemed sale treatment could arise for underlying loans with a term of one year or less.
In a recent post discussing strategies for commercial landlords to manage requests for rent relief during the COVID-19 pandemic, we highlighted the Seattle City Council’s resolution urging state and federal legislators to impose an immediate moratorium on commercial rent and mortgage payments. The Seattle City Council’s resolution came at the heels of state and municipal governments across the country issuing similar orders. Just yesterday, the State of Oregon fell in line when Governor Kate Brown issued Executive Order 20-13, which implements a 90-day moratorium on commercial evictions for non-payment.
Under Governor Brown’s order, landlords of non-residential properties in Oregon are prohibited from terminating any tenant’s lease or otherwise interfere with the tenant’s right to possession for reason of non-payment of rent, late charges, utility charges, or any other service charge or fee. To qualify, Tenants must, within 30 calendar days of unpaid rent being due, provide their landlord with evidence that such tenant’s inability to pay rent is “caused by, in whole or in part, directly or indirectly, the COVID-19 pandemic.” Continue Reading
In light of the COVID-19 crisis, federal and state environmental agencies have issued temporary policies that affect regulated entities. This blog post is intended to help summarize these guidelines and highlights pertinent questions.
U.S. ENVIRONMENTAL PROTECTION AGENCY
Last week, the U.S. Environmental Protection Agency (EPA) released a public memorandum setting forth a “temporary policy” of using its “enforcement discretion” for noncompliance of certain legal obligations during the COVID-19 pandemic.
The new policy may provide some relief on civil enforcement of environmental permits. Many EPA air and water permits require sampling at regular intervals, and visual and other types of monitoring. The EPA’s temporary policy acknowledges that sampling and monitoring may be impossible without personnel being physically present due to state and local “stay-at-home” and “shelter-in-place” emergency orders. In addition, employee furloughs and layoffs may have significantly impacted the ability to comply with air and water permit conditions. In response to these unprecedented circumstances, the EPA will exercise “enforcement discretion” for regulated entities’ noncompliance with environmental permit requirements. Continue Reading
On Monday, the Seattle City Council passed Resolution 31940 calling on Governor Jay Inslee, federal legislators, and the Trump administration to impose an immediate moratorium on residential and commercial rent and mortgage payments. This resolution brings to boil an issue with which many commercial landlords (particularly of non-essential retail, restaurant, and office space) have grappled for weeks – how to provide practical relief to their tenants facing government-imposed restrictions on travel and business while continuing to meet their own financial and operational responsibilities. Below are strategies, from a general leasing perspective, that every commercial landlord should consider when navigating these uncharted waters. Continue Reading
On March 25, 2020, the Senate passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to address the COVID-19 emergency. Although the CARES Act is still subject to final approval by the House of Representatives and being signed by President Trump, it is expected that there will be little or no change to what has been approved by the Senate. The CARES Act includes three sections that will be of particular importance to real estate professionals, as follows. Continue Reading
On Wednesday night, Governor Inslee issued specific guidance regarding construction projects in Washington. The guidance states that “commercial and residential construction is not authorized under the Proclamation because construction is not considered to be an essential activity.” But in general, the following categories of construction may continue:
a) Construction related to essential activities as described in the order;
b) To further a public purpose related to a public entity or governmental function or facility, including but not limited to publicly financed low-income housing; or
c) To prevent spoliation and avoid damage or unsafe conditions, and address emergency repairs at both non-essential businesses and residential structures.
Even for permitted construction activity, contractors and owners must ensure appropriate social distancing between workers and supply appropriate health and worker protection measures before proceeding. We continue to monitor this situation, as there may still be further guidance as the State’s response to this pandemic evolves.
As with most things, COVID-19 has disrupted the land use permitting process in Oregon, causing questions and sometimes chaos for applicants and local governments who are in the middle of such processes. At this time, most local government offices in Oregon are closed to the public, although some are accepting the public by appointment only. The majority of the work in processing land use applications, engineering plans, and building permit applications is continuing, but remotely as people work from home. Continue Reading
COVID-19 now controls our day-to-day, but it may not control our existing contracts. To know the extent of its reach on construction projects, it’s important to touch on how delay is handled under contract law and specifically the role of force majeure.
What is Force Majeure?
An unforeseen, uncontrollable event. Force majeure is an event or effect that can be neither anticipated nor controlled by parties in a contract; an unexpected event, including acts of nature and of other people, which prevents a party from performing its contractual duties.
Why does Force Majeure matter?
It can excuse nonperformance of a contract. Force Majeure is an excuse for nonperformance or untimely performance of a contractual duty, such as constructing a building. General contract law excuses nonperformance only when the contractual duty becomes impossible or “commercially impracticable,” frustrating the basic purpose of the contract by no fault of the party seeking relief—a very high bar¹. A force majeure contract term, however, overcomes that rule and provides an excuse to nonperformance or delayed performance. But in most construction contracts it doesn’t terminate the duty to perform the contract, it only delays it. Continue Reading
Yesterday at 5:30 pm, Governor Inslee issued his “Stay at Home, Stay Healthy” proclamation. The proclamation (much of which takes effect immediately, but which goes into full effect at 5:30 pm on Wednesday, March 25) requires generally that:
- Every Washingtonian stay at home unless they need to pursue an essential activity.
- All gatherings for social, spiritual and recreational purposes are prohibited.
- All businesses except essential businesses must close, unless their business can be conducted remotely.
At the same time, the Governor’s office also issued guidance on “essential workers” and “essential businesses” who are exempt from this edict. The current guidance only exempts construction workers who are working on projects in areas otherwise deemed “essential infrastructure” (such as healthcare, utility and communications projects) and emergency repairs to residences. But the proclamation also exempts “workers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of construction sites and construction projects . . ..”. A number of industry groups (including the Associated General Contractors of Washington) are seeking further guidance as to the scope of this proclamation, given the ambiguity of the quoted clause. If your project does not fit into one of the designated essential critical sectors, proceed cautiously as this proclamation may halt your project. We will post more information once it is available.