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BLOG / 04.23.20 /Eric P. Blaha,Kenneth R. Jacobs,Emanuela Lupu,Thomas W. SmithandDomenick J. Tammaro

Coronavirus: The latest on PPP Eligibility for Co-ops and Condos; Handling Visitation Issues during the Lockdown; Sales and Closings in the Virtual Market

Latest on PPP Eligibility for Co-ops and Condos. The SBA still hasn’t changed its official position under its “Interim Rule” that cooperatives are not eligible for the PPP. However, we have spoken with the managers for at least two cooperatives (one in NYC and one in Virginia, which also treats its co-ops as business corporations) who have received PPP approval. A colleague of ours has also reported that SBA personnel in Washington have expressed that “It’s up to your lender,” not the SBA, whether to make the loan.

The common thread seems to be the lender with whom you are dealing. The above two co-ops both got their loans through smaller institutional lenders such as a community bank. They did not report any special review at the SBA level once their applications were filed. With the multitude of applicants, it makes sense that the SBA would push the responsibility for verification to the lenders rather than the SBA assuming that obligation.
In any case, we don’t think the criteria set forth in the SBA’s regulations for “ineligible businesses” disqualifies either co-ops or condos in NY State. We’ve made that point to the SBA in a letter, and await their response. Local politicians and our senators also have sent requests for the SBA to change its interim position, but with no progress yet.

Visitation Rights for Non-Residents. A number of condos and co-ops have passed rules and regulations barring any outside visitors from the building, with limited exceptions. One condo bars all except “essential workers” who care for elderly, sick or disabled residents. Another barred housekeepers, stopped allowing dog walkers last week, but only recently decided to restrict social visitors. In a few cases the residents have demanded that the building’s policy be loosened for social visitors or service providers. How have they fared?

At one co-op in New York, a resident with young children went to court to demand that her nanny be allowed in because “child care providers” are “essential workers.” She asked for a temporary order until her application could be heard on a more formal basis. The court refused to sign her application, stating that the criterion for admission was whether the applicant – an attorney herself — was an “essential worker,” not whether her nanny was. His humbling opinion was that attorneys do not qualify as “essential.”

In another case from Florida, property owners asked a federal court to allow them to swim on their private beach, even though the county had closed all beaches (including private beaches). The court ruled that the property owners were not suffering an “irreparable injury” by being temporarily barred from swimming; nor did the equities favor them over the county, which was trying to protect the population at large. Accordingly, he deemed their “likelihood of success” to be low and denied the demand.

A third case (back in NYC) has been commenced against a shareholder who was observed sneaking guests into the building through its garage, despite several prior warnings by the Co-op not to violate the guest restrictions. The complaining building sought emergency relief (the court will not consider non-emergency actions at this time), characterizing the shareholder’s actions as an ongoing danger to the community in light of the pandemic.

As we indicated in our first e-mail blast a month ago, going to court is a last resort, but events have shown that with public health authorities and first responders overwhelmed with managing the effects of the coronavirus on the community, the courts may be the best option to protect your building. Furthermore, the courts seem to be siding with condos and co-ops asserting that the right to protect the residents as a whole outstrips the rights asserted by an individual owner.

Sales and Closings. Contracts continue to be signed, applications filed, and closings scheduled despite social distancing restrictions. The state is allowing remote notarization when needed and scanned signatures on documents are being accepted. Interviews are being conducted using Zoom. Lenders and payoff banks are cooperating with closing counsel and transfer agents to hold documents in escrow until payments have been wired to the necessary parties and they authorize release. Unfortunately the City Register (which records deeds) is still requiring original signatures, so there is a delay in getting closing documents onto the public record. Also, expenses may increase somewhat to accommodate all of the extra time it takes to arrange remote closings and to messenger and overnight mail documents.

A few brokers are still trying to show home to prospective buyers, as virtual tours don’t seem to be an adequate substitute. We also were recently asked to review a “Hold Harmless Agreement” from a home inspector, requiring the selling owner to acknowledge that COVID-19 is hazardous and can be easily transmitted, and to agree to release and “hold harmless” the inspector from any liability if the homeowner falls ill from COVID-19 after the inspection. Perhaps mutual releases will become the norm for brokers, inspectors, appraisers, or even between the seller and buyer before coming into closer contact during a transaction, until we all feel safer again.

Stay healthy and safe. We will continue keep you updated on COVID-19 related issues affecting cooperatives and condominiums in the meantime.