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Business Assistance for Landlords

The widespread economic upheaval resulting from the coronavirus outbreak has led to business interruptions and job loss throughout the US. Governments have stepped in to assist renters and homeowners through measures such as temporary eviction bans, mortgage assistance, and individual financial assistance under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. These programs are critical to preserving many people’s ability to remain in their housing and pay basic expenses, and will also indirectly assist landlords by making it possible for many tenants to continue paying rent despite experiencing income loss.

However, questions remain as to whether any large-scale solutions will be available to landlords seeking to remain financially afloat when much of their rental income has abruptly dried up, particularly if they do not hold mortgage loans. Most government aid thus far has not been tailored specifically to landlords, but there are some opportunities they may be able to take advantage of in order to replace lost cash flow and defer loan payment obligations. Negotiating solutions with their tenants and mortgage lenders can also be an important strategy for landlords navigating the economic challenges that have arisen from the pandemic.

Mortgage Assistance and Foreclosure Relief

Under the CARES Act, landlords who hold mortgages backed by Fannie Mae, Freddie Mac, or HUD on multifamily properties are eligible for up to 90 days of forbearance due to financial hardship they have experienced related to COVID-19. Borrowers cannot evict or charge late fees to tenants during the forbearance period. Additionally, the new law prohibits foreclosure on all federally backed mortgage loans for a period of 60 days starting March 18, 2020, and also provides 180 days of forbearance for borrowers in this category who have been impacted by the coronavirus outbreak. Note that there are eviction and late fee restrictions on rental properties with these types of mortgages as well. These federal mortgage and foreclosure relief programs will end on the earlier of the date the national emergency related to the pandemic ends, or December 31, 2020. States like California and New York, along with some local governments, have also issued orders related to mortgage forbearance and foreclosure prohibitions related to coronavirus, though the details and degree of relief available vary greatly by jurisdiction.

Small Business Assistance

Landlords with qualifying expenses may also be able to benefit from some of the $349 billion in small business assistance funds that are available under the CARES Act. For example, under the Paycheck Protection Program, small businesses are eligible to borrow the lesser of $10 million or 2.5 times the amount of their average monthly payroll expenses to cover costs associated with payroll, mortgage interest, and utilities. Any such loan proceeds that are expended on these items within the first 8 weeks after the loan is funded are also forgivable, and the forgiven amount is not counted as taxable income. Qualifying entities include businesses with fewer than 500 employees, sole proprietors, and people who are self-employed.

Small businesses can also access disaster assistance loans from the Small Business Administration (SBA) to an increased extent and subject to fewer restrictions than normal under the COVID-19 emergency. These low-interest loans are available in amounts of up to $2 million, and can be used for expenses including fixed debts, accounts payable, payroll, and other bills that landlords could have paid if the pandemic had not occurred. These disaster loans can also include an immediate grant of $10,000 that does not need to be repaid, even if the loan application is denied.

Tax Solutions

Under the CARES Act, small businesses can also take advantage of new tax provisions that can assist them in weathering this time of uncertainty. For example, tax returns from 2018, 2019, and 2020 can be amended to distribute net operating losses across a period of up to five years, with no taxable income limit. Employers and people who are self-employed can also defer paying the employer share of their Social Security payroll taxes incurred from the CARES Act enactment date through the end of 2020, with half of the deferred amount being due at the end of 2021, and the rest payable at the end of 2022. With regard to local real estate and business taxes, landlords may be able to access some relief through state and local government policies, though these options vary by location.

Negotiating With Lenders and Tenants

Another key strategy for most landlords during the COVID-19 outbreak will be to reach out to their lenders as well as their tenants to see if alternative arrangements are possible. In situations where tenants are unable to pay their full rent, it can be wise to accept a lower negotiated amount based on what the tenant can pay, and possibly spread the remaining amounts owed over future months. With regard to mortgage or other debt payments that are not eligible for government assistance, landlords can contact their lenders to discuss whether forbearance, loan modifications, or other revised terms may be available.

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