Tag Archives: wcre
With the fall season in full swing, it’s time to start preparing commercial HVAC systems for winter. If your HVAC system isn’t ready for the frigid winter season, you’ll be left out in the cold. Take action now to make sure that doesn’t happen!
Hutchinson, a leading energy services and mechanical services contractor serving the region’s commercial customers, offers tips to help add life to your systems, enhance comfort and improve your bottom line.
1. Take Advantage of Energy Efficiency Programs. Upgrade to energy efficiency with Direct Install from New Jersey’s Clean Energy Program and up to 70% of the cost will be covered for energy upgrades, including lighting and HVAC equipment. Instead of pumping money into your outdated, inefficient units, why not upgrade to a new, state of the-art energy efficient system?
2. Use Energy Star Portfolio Manager to see how your building rates with other similar buildings. If you rate low, there are many things you can do to improve the operation of your building.
3. Check HVAC settings to get maximum efficiency. By setting your thermostat at 68°during the day and at 60° at night, you can save approximately 3% on heating costs for every degree under 70.
4. Install a programmable thermostat. Forget to adjust the temperature before you left the office? No worries. With a web and cloud based control system during and after office hours, you’ll keep settings maintained. Now, that’s peace of mind!
5. Establish a preventive maintenance program. When your HVAC system runs smoothly, so can your business. Prevent equipment problems before they start!
• Change or clean all air filters, preferably every month.
• Repair leaks in piping, air duct s, coils, fittings and at the unit(s).
• Replace defective equipment insulation, ducting and piping.
• Install/upgrade HVAC controls to include new energy management systems technologies.
6. Clean Heating Ducts Heating ducts periodically to allow efficient heating and provide fresh, clean air. Also check to make sure the ducts are properly insulated.
Contact Hutchinson at 888-777-4501 or firstname.lastname@example.org for help preparing commercial HVAC systems for winter
Hutchinson is a leading energy/mechanical services contractor performing heating, cooling, plumbing, and energy services throughout the greater New Jersey, Southeastern Pennsylvania, and Northern Delaware Region. Visit www.hutchbiz.com for more information.
Let’s explore the sale and leaseback of commercial real estate. With COVID-19 affecting so many businesses many may be looking at their real estate holdings to see if they should entertain a sale-leaseback transaction with a nonprofit real estate foundation for a particular property to free-up cash tied up in their real estate. For mission critical buildings that are being leased from non-profit or for-profit landlords, they may consider negotiating with the property’s owner for a sale-leaseback with a nonprofit real estate foundation, attempting to reduce rent expense. A nonprofit real estate foundation is a third-party nonprofit entity that sources low-cost capital to acquire or develop properties used by hospitals in furtherance of their charitable mission. The sale-leaseback option for so monetizing these non-core assets will work as well with traditional sources like insurance companies, REITs and other institutional investors.
Confer with the professionals at WCRE or ask us for a seasoned real estate or tax attorney but here’s one technique Abo has seen work well with business clients. Although real estate is generally thought of as an illiquid asset, some liquidity can be achieved by taking out a loan backed by the property. Alternatively, a sale and leaseback may be used effectively if a company’s balance sheet is burdened with excessive debt or just having difficulty in obtaining new capital. Typically, the transaction involves the company owned property being sold to a third party and then leased back to the company under a long-term lease.
Sale and leaseback transactions may be on the rise but clients need to be aware that the IRS often focuses on transactions between closely-held corporations and their controlling shareholder to make sure that these transactions benefit the company as well as the shareholder. In one common type of sale and leaseback transaction, the company sells the land with a building on it to the shareholder and, in turn, the shareholder leases it back to the company. Some of the financial and tax benefits we’ve seen have included:
• The rental deductions the company could take might be significantly larger than the former depreciation deductions if the property had been in service for many years.
• After the sale and the leaseback transaction, the shareholder’s basis in the property will be its fair market value which is usually greater than the price paid for the property by the corporation. Thus, the shareholder’s depreciation deduction would be much greater than what was previously available to the corporation (also still need to consider the tax consequences of the sale to the corporation).
• The sale and leaseback may enable the shareholder to generate passive rental income that could be offset
against passive losses of the shareholder.
The IRS would obviously be concerned that these transactions have economic substance and that they are
based on reasonable market conditions, and not just designed to generate larger tax deductions. Thus, for
a sale to be valid, the controlling shareholder should have taken an equity interest in the property and also
assumed the risk of loss. For the leaseback to be valid, four tests come to mind that really should be met:
1. The useful life of the property should exceed the term of the lease.
2. Repurchase of the property by the corporation at the end of the lease term should be at fair market value and not at a discount.
3. If the leaseback allows for renewal, the rate should be at a fair rental value (speak to WCRE, not necessarily the accountant).
4. The shareholder should have a reasonable expectation that he or she will generate a profit from the sale and leaseback transaction based on the value of the property when it is eventually sold and the rental obtained during the lease term.
I suspect one of the biggest risks for the seller-lessee is the loss of a valuable asset that could have substantially appreciated over its useful life. Also, the rental market could drop, leaving the seller locked into a rental rate in excess of fair value. On the other side of the table, the seller could move or default, leaving the buyer with unattractive real estate in a soft market.
Even if there are no other problems, the benefits of the deal could be substantially reduced if the IRS deems that it is merely a “financial lease.” In that case, the IRS will treat the seller-lessee as the true owner of the real estate, with all the appropriate tax assessed, and the buyer-lessor will be treated as a lender-mortgagee.
Since sale and leaseback transactions can be quite complicated and also have to pass IRS muster, as I stated earlier, whether you are a buyer, seller or investor, you are well advised to consult with WCRE and seasoned real estate/tax counsel about your financial and tax consequences and the manner of structuring and implementing them to withstand possible IRS challenge.
FOR MORE INFORMATION:
Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com.
Martin H. Abo, CPA/ABV/CVA/CFF
307 Fellowship Road, Suite 202
Mt. Laurel, NJ 08054
For more information, contact:
Did you prepare your parking lot for winter? Most property owners neglect this because many property managers and commercial property owners are unaware of how the winter weather, salt and plowing can cause damage to their parking lot. Winter weather can wreak havoc on a commercial parking lot, specifically in our region. The harsh freeze-thaw cycles cause asphalt to expand and contract, allowing water to seep into the foundation. This creates permanent damage, in the form of cracks and potholes.
Ways Prepare Your Parking Lot for Winter
Crack Sealing: As a preventative measure, consider filling cracks in the parking lot before they turn into potholes. Longitudinal cracks between ¼” and 1” can be cleaned and filled with hot rubberized material that will expand and contract as the temperature shifts. The crack sealing material creates a bond with the surface of the asphalt pavement, preventing water from penetrating the asphalt.
Asphalt Repairs: Potholes can be repaired with hot mix asphalt in the fall months. Damaged asphalt is saw cut and removed, then the area is cleaned and prepared for the installation of new asphalt. When hot asphalt is unavailable, EZ Street high performance cold asphalt is a great alternative. This material works in cold temperatures, and can even be applied in water. Neglecting potholes, especially in the colder months, can be very dangerous. As the asphalt continues to break apart and the holes become larger and larger, this creates a safety hazard for both pedestrians and vehicles.
Inlet Repairs: When water seeps into your inlets, the inside structure deteriorates. Salt and ice melt used in the winter months also washes into the storm drains, which further erodes the walls. To avoid a potential sinkhole, make sure your catch basins are structurally sound, the interior walls are parged, and the surrounding asphalt is intact.
For more information on ways to prepare your parking lot for winter, contact:
Let’s look at how cost segregation can increase cash flow for commercial properties. Have you recently built, purchased, expanded or renovated a commercial property? If so, there may be significant untapped tax savings in the property or facilities. A cost segregation study can unlock those savings through greater tax deductions, accelerated depreciation and increased cash flow. Here’s how it works: Portions of a new or existing building are reclassified as “personal property” or “land improvement.” This cost classification can be depreciated over a shorter five, seven or 15 year period as opposed to the standard 39-year depreciable life of a commercial building.
What if you built, renovated, expanded or purchased a building in prior years? Cost segregation is still an option. The IRS allows taxpayers to change prior accounting methods to take advantage of these previously understated depreciation deductions. This can be done without amending tax returns and can generate a relatively large tax deduction in the year of change.
TAX REFORM MAKES COST SEGREGATION MORE VALUABLE THAN EVER
The tax benefits of cost segregation are even greater thanks to tax reform’s enhancement of bonus depreciation.
In general, bonus depreciation is applicable to depreciable business assets with a recovery period of 20 years
or less. Tax reform doubled bonus depreciation from 50 to 100 percent for qualifying property with acquisition
and in-service dates between September 27, 2017 and December 31, 2022. This means that 100 percent of
qualifying costs would be fully depreciated and recognized in year one and only the remaining building cost
would depreciate going forward over 39 years. After 2022, the bonus rate decreases by 20 percent annually,
so the time to act is now.
REAL RESULTS FOR REAL PROPERTIES
RKL performs over 80 studies every year for companies in a variety of industries, including rental real estate, office buildings, hotels/motels, golf courses, auto dealerships, manufacturing facilities, warehouses and more.
Here are two recent examples to demonstrate cost segregation can increase cash flow.
• Construction of a new hotel facility in 2018: Of the total project cost of $13.5 million, RKL identified $5 million as personal property and land improvements. This cost segregation combined with enhanced 100 percent bonus depreciation a present value of the tax savings of $958,000 (using a 37 percent federal tax rate and six percent discount rate), with projected additional depreciation deductions of $4 million for a tax savings of $1.5 million.
• Turn-key construction of a new medical office in 2017: Of the total project cost of $2.4 million, RKL identified $1 million as personal property and land improvements. This cost segregation combined with enhanced 50 percent bonus depreciation produced a present tax savings of $200,400 (using a 42.67 blended tax rate and six percent discount rate), with projected additional depreciation deductions of $695,000 over the next seven years. This will produce tax savings of $296,500 over that seven-year period with $233,200 in the first year alone.
• 2018 look-back study for a previously purchased office/distribution warehouse facility: RKL identified $326,200 of the original $1.375 million building cost as personal property and land improvements. This resulted in a one-time additional depreciation deduction in the current year’s tax return of $170,700. To obtain an analysis of potential cost segregation tax savings, contact RKL today.
FOR MORE INFORMATION CONTACT:
Let’s look at why smart buildings matter to commercial real estate owners. Energy cost savings are top of mind for every commercial building owner, operator, and facility manager, but it’s time to be proactive. On average, a U.S. office building spends nearly 29% of its operating expenses on utilities, and much of this expenditure goes toward HVAC operation.
Researchers at Massachusetts Institute of Technology (MIT) estimate commercial buildings account for 20% of all the energy used in the U.S. and conclude that as much as 30% of that energy is wasted. Wasted energy will only increase over time without intervention. Imagine a solution that prevents waste and saves 15-30% on energy expenses? That’s possible to achieve with smart buildings.
Smart buildings are any facility that have complete automated controls and systems in place that are integrated together to form an intelligent data collection application, usually via a building automation system (BAS).
BAS offers reduced operation and energy consumption, improved building efficiency, preventative maintenance, comfort for workers and building occupants, and better use of resources.
At Pennoni, we offer our Utilities Watch (UW) solution, a combination of best-in-class energy analytics/fault detection software and engineering expertise that optimizes buildings, reduces costs, and minimizes environmental impact.
Through UW, our software continually analyzes data from diverse systems: BAS, energy, water, and other resource metering systems to identify opportunities for cost reduction. The fault detection and diagnostics application within the software drills down into patterns to identify issues, deviations, and opportunities for operational improvements and cost reduction.
Utilities Watch Key Benefits
- Optimize buildings and reduce energy consumption
- Increase control and visibility of energy budget
- Decrease maintenance and capital costs through proactive and predictive maintenance
- Increase lifespan and reliability of HVAC systems
Validation and M&V
- Performance goals
- ECM’s, LEED
- MBCx – automated ongoing commissioning
- Disaster recovery (information supports better identification of issues)
Improve sustainability strategies, goals, and metrics
- Full integration to EnergyStar Portfolio Manager
- Earn additional LEED points for existing buildings
Improve portfolio management
- Benchmark buildings and compare performance
- Performance accountability
Deploying smart buildings software is only half of the equation. Our energy analysts and engineers write custom algorithms to automate analyses that traditionally required constant manual effort. From there, our team of engineers interprets the data to make it meaningful and actionable with custom dashboards and notifications that ensure the facility manager has full visibility and can readily prioritize activities, ensuring much greater efficiency.
For more on smart buildings and Utilities Watch, contact Tony Lepre at (609) 214-5520 or TLepre@Pennoni.com.
Let’s look at architectural design considerations for a post pandemic world. Are you tired of hearing about the “New Normal”? Do you yearn for the “Old Normal”, or fear that life as we knew it has changed forever? These are legitimate thoughts as we navigate through and beyond this pandemic. The good news is that we are natural survivors, with a long history of staring-down adversity and rising above with resolve, courage, and grace. Even in such extraordinary times, we overcome fear, fight through pain and loss, heal ourselves and our world, and eventually move forward as well or better than when the crisis first began.
Another common saying at times like these is “this too shall pass”. We at Jarmel Kizel Architects and Engineers, Inc. agree, however, it is incumbent upon all of us to first deal with the situation in a safe and vigilant manner, and to do what we can to prevent this from happening again. The reality is, we live in a world of expanding population growth, urban swell, suburban sprawl and frequent international travel, all factors that facilitate the spread of a deadly virus such as COVID-19. Like many of our colleagues throughout the architecture, engineering and planning community, the team at Jarmel Kizel Architects and Engineers, Inc. has been considering strategies that protect our health while helping restore and preserve as many characteristics of the “Old Normal” as
possible. The firm recently conducted a round table video call to discuss how we as design professionals can address the behavioral, physical and technological changes needed to keep our society safe, prevent further spread, and help expedite return to “normalcy”. The topics discussed in this paper are the results of our collective thoughts on this matter, and would be delighted to expand upon them in greater and more technical detail based upon our client’s needs.
Jarmel Kizel Architects and Engineers is active in several industry sectors, but the three most prominent are residential, office/commercial interiors, and education/childcare; all indisputably linked to lifestyles of our fellow Americans. We’re engaged daily in designing buildings and spaces where people live, work, shop, and educate their children. In the context of these specific sectors, this article will explore the behavioral or “humanistic” side of how to better plan for and help prevent similar challenges in the future, and explore the physical and technical considerations that could be implemented to fight and defeat this crisis.
Workplace Design Considerations for a Post Pandemic World
Whether you work in an urban high-rise, suburban office suite, or in a retail location, changes will be obvious as soon as we all return. Office tower workers and visitors will endure delays at security/reception checkpoints and can expect lengthy lines waiting for an elevator. All who work in offices will be required to follow safety guidelines such as social distancing, wearing protective face masks, and submitting to health screening upon entering. Employers will be forced to weigh productivity and efficiency factors against employee safety and wellness.
Many companies have already considered (or are implementing already) the following policies and procedures:
• Adding hand wash and disinfecting stations
• Modifying office, conference room, and workstation configurations to assure adequate distance between staff members
• Placing shields and barriers between workstations
• Limiting use of office pantries and kitchens
• Implementing staggered shifts, 4-day work weeks, and permitting/encouraging work-from-home Encouraging remote videoconferencing in lieu of face-to-face meetings
• Limiting business travel to the best extent possible
• Temperature check / overall health assessment screening at entry
These, and many other operational and “behavioral” safeguards have been discussed via news outlets and various blogs and webinars, and are mostly common-sense. Additionally, workers can be safe-guarded by implementation of technology, much of which is already available:
• Hands-free operational entry doors
• Facial recognition technology
• Clear graphic signage for directions, wayfinding, room capacity, etc.
• Occupancy sensors in office and common spaces
• Voice-activated elevator call commands
• Hands free toilet/urinal flush and touchless lavatory faucet control
• Introducing more outdoor air intake for ventilation systems
• Ultraviolet / germicidal lighting for cleaning and disinfecting of surfaces
• Ultraviolet / germicidal devices in HVAC systems and distribution ductwork
• Use of antiviral surfaces and coatings
Overall design standards for offices can and should be altered to create a higher “area-per-workstation” ratio, and work-benching, hoteling, and shared computer spaces should be greatly reduced or eliminated. Office environments in firms such as ours, where collaboration and cooperation among various disciplines is imperative, must utilize more and more the technology that already exists to share information, share documents, share screens, etc.
Residential Design Considerations for a Post Pandemic World
Jarmel Kizel has designed countless multi-family residential projects over its history. We recognize that many reading this paper are more accustomed to single-family home living but certain considerations run consistent regardless of lifestyle. Also, many reading this have some involvement in multi-family residential through business (developers, investors, designers, leasing agents, property managers, etc.). Multi-family residential buildings, whether they be owner-occupied or rental property, share certain inherent concerns with office
buildings, especially high-rise, and the same behavioral, operational physical, and technical precautions should be followed.
Some additional residential design considerations considerations are as follows:
• Building maintenance and cleaning must be ramped-up to provide even more protection against viruses.
• Common areas, lobbies, corridors, shared entertainments spaces and others must be utilized with the same social-distancing standards
as utilized in an office environment.
• Amenity areas (fitness rooms, lounges, business centers, community rooms, swimming pools, shared social/entertainment areas, etc.) must be designed or re-designed to foster social distancing, which may include layouts of more building area
• Information Technology must be upgraded to support more and better connectivity for the influx of those working from home
• Design trends must be studied, evaluated, and implemented for any new residential development. Trends may include increased unit size and physical accommodation of work-at-home areas and/or full home offices
• Package/mail delivery and pick-up must be designed with adequate space for the onslaught of on-line shopping deliveries, and to ensure that multiple residents can safely retrieve packages. (Note: This is not a “new trend”, but likely one that will expand due to COVID-19, but not necessarily change back once the pandemic is behind us)
High-rise and “urban” multi-family residential buildings will likely require more expensive systems and costly retrofit for the same reasons as high-rise office buildings. Primary reasons for this include limited points of entry, security/concierge check-in, and need to utilize elevators within social-distancing guidelines.
Educational Building Design Considerations for a Post Pandemic World
Jarmel Kizel Architects and Engineers is very active in the design of educational facilities, and has designed hundreds of child daycare centers across the country, for many of the known national brands. Although COVID-19 has proven to be less interested in youngsters than their parents and grandparents, protecting these precious boys and girls is an obvious necessity. This industry sector is different than others mentioned because operations are linked not only to building codes, but also to licensing requirements on a state-level. Even as restrictions
have been lifted to a large extent, it is unknown how many students and staff will be permitted in the building at any given time.
Operational and behavioral considerations are fairly obvious, including distancing of the youngsters from each other, vigilantly cleaning and disinfecting surfaces, and “eye-balling” boys and girls for potential symptoms. Some less obvious operational safeguards include the manner by which parents/guardians are permitted to enter buildings for pick-up and drop-off.
Many of the physical and technical considerations are similar to the aforementioned building uses, with a few industry-specific design considerations:
• Designing centers with more bathrooms to allow for less sharing of common facilities
• Addition of spaces dedicated for sanitizing teaching materials and toys
• Use of sterilization machines, where toys, books, pillows, blankets, etc. can be placed and sterilized overnight and when school is not in session
• Automation via voice activation and occupancy sensors, similar to those proposed for offices.
• Use of Ultra-violet and germicidal lighting, as proposed for office spaces.
Behavioral and technological recommendations for Child Daycare and Early Child Development should be consistent in “K-12” grade level school buildings as well.
Americans are outgoing and socially engaging by nature, and our culture has been deeply impacted by the voracity and spread of the COVID-19 virus. Many of us know someone who has suffered from it, or has even died, but we must focus our attention now on protection, prevention, and adaptation to the “post-COVID” way of life. If we continue to adhere to prescribed guidelines and common-sense, and the architectural and engineering community leads the way with innovative approaches to design, the virus AND its aftermath can soon be in our rearview mirrors, and the “New Normal” could become substantially similar to the “Old Normal”. We at Jarmel Kizel wish you and yours the best of health during this crisis, and always.
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Let’s look at what liabilities to consider when reopening a business after the coronavirus shutdown. As the coronavirus (COVID-19) pandemic continues to have an unprecedented effect on daily life, many business owners are looking forward to the future and a return to normalcy. However, even when stay-at-home orders are lifted and nonessential businesses are allowed to resume operations, there’s a lot for organizations to consider before reopening a business after the coronavirus shutdown. What’s more, many of these considerations are workplace-specific and could be more involved depending on the industry you operate in.
To protect their customers and employees alike, it’s important for organizations to do their due diligence before opening their business back up to the public following the COVID-19 pandemic.
WHEN TO START reopening a business after the coronavirus shutdown
While many essential businesses (e.g., hospitals, pharmacies, grocery stores and gas stations) have remained open during the COVID-19 pandemic, other operations deemed nonessential have shut down temporarily or changed the nature of their operations. Not only has this led to significant business disruptions, but, for many, it has critically impacted their bottom line.
However, we may be nearing a time when stay-at-home regulations are scaled back and all businesses are allowed to resume as normal. The question then is: How will business owners know it is acceptable to reopen?
Best Practices When Reopening a Business After the Coronavirus Shutdown
• Review guidance from state and local governments —The COVID-19 pandemic impacts states and regions in different ways. Just because a business is allowed to reopen in one region of the country doesn’t automatically mean your operations will be allowed to resume as well. As such, it’s critical to understand and review all relevant state and local orders to determine if and when your business is allowed to reopen.
• Understand the risks —If and when the government allows all businesses to reopen, that doesn’t necessarily mean COVID-19 is no longer a threat to your operations. What’s more, some businesses may have greater COVID-19 exposures than others, underscoring the importance of performing a thorough risk assessment before reopening. Prior to conducting a risk assessment, it’s important to review guidance from the Occupational Safety and Health Administration (OSHA), state and local agencies, industry associations as well as your local health department. More information on conducting a risk assessment can be found below.
Again, before reopening, it’s critical to seek the expertise of legal, insurance and other professionals.
CONDUCTING A RISK ASSESSMENT
Even after the government allows reopening a business after the coronavirus shutdown, firms still need to determine if it makes sense to resume operations. Safely restarting your business won’t be as simple as unlocking the front door.
Before reopening a business after the coronavirus shutdown. one should perform a risk assessment to determine what steps must be taken. While the complexity of risk assessments will differ from business to business, they typically involve the following steps:
• Identifying the hazards—When it comes to COVID-19, businesses need to think critically about their exposures, particularly if an infected person entered their facilities. When identifying hazards, it’s a good idea to perform a walkthrough of the premises and consider high-risk areas (e.g., breakrooms and other areas where people may congregate). It’s also important to consider what tasks employees are performing and whether or not they are especially exposed to COVID-19 risks when performing their duties.
• Deciding who may be harmed and how—Once you’ve identified hazards to your business, you need to determine what populations of your workforce are exposed to COVID-19 risks. When performing this evaluation, you will need to make note of high-risk individuals (e.g., staff members who meet with customers or individuals with preexisting medical conditions).
• Assessing risks—Once you have identified the risks facing your business, you must analyze them to determine their potential consequences. For each risk facing your business, you’ll want to determine:
• How likely is this particular risk to occur?
• What are the ramifications should this risk occur?
When analyzing your risks, consider potential financial losses, compliance requirements, employee safety, business disruptions, reputational harm and other consequences.
• Controlling risks—With a sense of what the threats to your business are, you can then consider ways to address them. There are a variety of methods businesses can use to manage their risks, including:
• Risk avoidance—Risk avoidance is when a business eliminates certain hazards, activities and exposures from their operations altogether.
• Risk control—Risk control involves preventive action.
• Risk transfer—Risk transfer is when a business transfers their exposures to a third party.
For COVID-19, control measures could include cleaning protocols, work from home orders and mandated personal protective equipment (PPE) usage. Additional workplace considerations can be found below.
• Monitoring the results—Risk management is an evolving, continuous process. Once you’ve implemented a risk management solution, you’ll want to monitor its effectiveness and reassess.
Remember, COVID-19 risks facing your business can change over time.
MAINTAINING WORKPLACE SAFETY USING OSHA AND CDC GUIDANCE
Once you conduct a risk assessment, you will need to act to control COVID-19 risks. Again, risks and the corrective steps that organizations take to address those risks will vary by business and industry. Thankfully, there are a number of OSHA and Center for Disease Control and Prevention (CDC) workplace controls to consider if your risk assessment determines that COVID-19 poses a threat to your employees or customers. For instance, you should:
• Implement administrative controls—Typically, administrative controls are changes in work policies or procedures that reduce or minimize an individual’s exposure to a hazard. An example of an administrative control for COVID-19 is establishing alternating days or extra shifts that reduce the total number of employees in a facility at a given time.
• Utilize Personal Protective Equipment (PPE)— PPE is equipment worn by individuals to reduce exposure to a hazard, in this case, CVOID-19. Businesses should focus on training workers on and proper PPE best practices. Employees should understand how to properly put on, take off and care for PPE. Training material should be easy to understand and must be available in the appropriate language and literacy level for all workers.
• Consider engineering controls—Engineering controls protect workers by removing hazardous conditions or by placing a barrier between the worker and the hazard. For COVID-19, engineering controls can include:
• Installing high-efficiency air filters
• Increasing ventilation rates in the work environment
• Installing physical barriers, such as clear plastic sneeze guards
• Be adaptable — You should be prepared to change your business practices if needed to maintain critical operations. This could involve identifying alternative suppliers, prioritizing existing customers or suspending portions of your operations.
• Create a dialogue with vendors and partners — Talk with business partners about your response plans. Share best practices with other businesses in your communities, and especially those in your supply chain.
• Encourage social distancing — Social distancing is the practice of deliberately increasing the physical space between people to avoid spreading illness. In terms of COVID-19, social distancing best practices for businesses can include:
• Avoiding gatherings of 10 or more people
• Instructing workers to maintain at least 6 feet of distance from other people
• Hosting meetings virtually when possible
• Limiting the number of people on the jobs site to essential personnel only
• Encouraging or requiring staff to work from home when possible
• Discouraging people from shaking hands
• Manage the different risk levels of their employees — It’s important to be aware that some employees may be at higher risk for serious illness, such as older adults and those with chronic medical conditions. Consider minimizing face-to-face contact between these employees or assign work tasks that allow them to maintain a distance of 6 feet from other workers, customers and visitors.
• Separate sick employees — Employees who appear to have symptoms (i.e., fever, cough or shortness of breath) upon arrival at work or who become sick during the day should immediately be separated from other employees, customers and visitors, and sent home. If an employee is confirmed to have COVID-19, employers should inform fellow employees of their possible exposure to COVID-19. The employer should instruct fellow employees about how to proceed based on the CDC Public Health Recommendations for Community-Related Exposure.
• Support respiratory etiquette and hand hygiene — Businesses should encourage good hygiene to prevent the spread of COVD-19. This can involve:
• Providing tissues and no-touch disposal receptacles
• Providing soap and water in the workplace
• Placing hand sanitizers in multiple locations to encourage hand hygiene
• Perform routine environmental cleaning and disinfection — Businesses should regularly sanitize their facility to prevent the spread of COVID-19. Some best practices include:
• Cleaning and disinfecting all frequently touched surfaces in the workplace, such as workstations, keyboards, telephones, handrails and doorknobs.
• Discouraging workers from using other workers’ phones, desks, offices, or other tools and equipment, when possible. If necessary, clean and disinfect them before and after use.
• Providing disposable wipes so that commonly used surfaces can be wiped down by employees before each use.
While resuming operations following the COVID-19 pandemic may seem like a daunting task, businesses don’t have to go it alone. To help with this process, organizations can seek the help of their insurance professionals to determine what actions they need to take to ensure their business reopens smoothly. To learn more about reopening a business after the coronavirus shutdown, contact Hardenbergh Insurance Group today.
Now that you have PPP funds, we at Abo and Company want to point out certain steps you should take over the next eight weeks to ensure maximum forgiveness of your PPP loan.
Use the Funds for Forgivable Purposes. Forgiveness of your PPP loan depends largely on whether you use the money to pay forgivable expenses. These include (1) payroll costs (if you’re self-employed, these costs include the net profit amount from your business, as reported on your 2019 tax return), (2) interest payments on mortgages incurred before 2/15/20, (3) rent payments on leases dated before 2/15/20, and (4) utility payments under service agreements dated before 2/15/20. However, according to the Small Business Administration (SBA), not more than 25% of the forgivable loan amount (the amount of the loan used to pay forgivable expenses) may be attributable to nonpayroll costs. In other words, at least 75% of the loan must be used for payroll costs.
To help you meet this requirement, consider implementing the following best practices:
- Set up a separate bank account for PPP funds, or deposit funds into your business savings account and transfer the money to checking and payroll accounts when needed.
- If you feel that 75% of the loan won’t be used for payroll, consider modifying your payroll periods (from semimonthly to weekly, for example) or paying out bonuses toward the end of the eight-week period.
- Gather and analyze mortgage documents, leases, and utility bills to make sure obligations arose prior to 2/15/20. Each lender will likely want you to provide the documentation in a slightly different format, but it will be much easier to adapt if you’ve already collected your data.
- Track expenses in the general ledger. The general ledger tracking will be a good summary, but you will still need to include the details.
- If expenses are paid with a business credit card, make sure that portion of the credit card bill is paid with PPP funds before the end of the eight-week period.
Use a simple Excel spreadsheet to track your qualifying expenses. This will allow you to see your progress in real-time and project where you will be after 60 days. To substantiate the amounts listed in the spreadsheet, gather and organize your backup documentation. Although not foolproof, the attached excel sheet might help.
Keep Track of Employee Headcount and Salary Levels. We know you already do this, but extra care should be taken to make sure these numbers are accurate. For the next eight weeks, if your average number of full-time equivalent employees per month is less than the average during a base period, your forgivable loan amount will be reduced. The base period is either (1) 2/15/19 through 6/30/19, or (2) 1/1/20 through 2/29/20. Perhaps use the period that produces the best result.
Also, your forgivable loan amount will be reduced if salary levels are cut by more than 25%. For each employee who earns less than $100,000, you compare total salary paid during the next eight weeks with that employee’s salary during the most recent full quarter. If the reduction is greater than 25%, a corresponding reduction must be made to the forgiveness of your PPP loan. Note that this test requires the business to look at every employee individually.
If you have already laid off or furloughed workers, try to restore employee headcount and salary levels by 6/30/20. If you do so, any headcount and salary reductions that occurred between 2/15/20 and 4/26/20 will be ignored. Keep in mind you don’t have to rehire the same employees. Also, rehired workers don’t actually have to perform customary work duties. Before taking action, you should consult with your labor and employment attorney to work out the terms for rehiring workers.
Focus on Recordkeeping. This is crucial to obtaining maximum forgiveness of your PPP loan. At the end of the day, you have to show the bank you used the loan for eligible expenses. That’s why we suggest creating a spreadsheet of all eligible expenses as they’re incurred. We also recommend you maintain a special folder (electronic or otherwise) that contains the following documentation:
Employee headcount calculations. Since so many of our clients (and we) use an outside payroll processing company, it’s a good idea to save payroll reports reflecting gross wages paid for each payroll incurred during the period.
Document other costs under the definition of “payroll costs” in the CARES Act (employer contributions to health, dental, vision, FSA, HRA, and retirement plans). Collect invoices, statements, payment advices, evidence of automatic bank debits, etc., to validate these costs.
- Separate the employees (including owners) who are paid more than $100,000 annually, or $15,385 during the eight-week period, as qualified gross payroll is limited to that amount per employee/owner.
- Payroll tax filings (both federal and state).
- Mortgage documents, leases, and utility bills.
- Cancelled checks and payment receipts.
- Bank statements for the separate account used to pay forgivable expenses. If you didn’t set up a separate bank account, include copies of other bank statements with forgivable expenses highlighted to support any
- Electronic Funds Transfer (EFT) payments.
Get Ready to Apply for forgiveness of your PPP loan.
You may not apply for forgiveness of your PPP loan until at least eight weeks after receiving your PPP loan. When you’re ready, you will need an authorized representative to certify that (1) the documentation presented is true and correct and (2) the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments. Once the bank receives your loan forgiveness application, it has 60 days to review and either approve or deny it.
If, for some reason, only a portion of the loan is forgiven, you will need to fulfill all remaining payment obligations. The unforgiven portion of the loan will be subject to a two-year note with a 1% interest rate. Fortunately, no payments will be due for the first six months (although interest will continue to accrue). In addition, no collateral or personal guarantee is required, and there are no prepayment penalties.
While all the banks are generally allowing drawdowns on the PPP loan without significant documentation, detailed records will be important to support the loan amount to be forgiven. Technical guidance regarding the specific definitions and clarifications around which expenses are allowable will be forthcoming in the next several weeks (yeh, right) and should be monitored closely.
Follow these guidelines to help make the conversations around forgiveness of your PPP loan go smoothly with our new best friend – the banker. Frankly, the PPP process has worked best for us and the clients we counsel when we’ve communicated ahead of time with whichever loan officer we’ve worked with. The same holds true now if you are prepared. Keep the documentation organized electronically in a secure location on your server so you can adapt to your lender’s specific requirements. In June or July, the goal should be to have all the documentation at your fingertips to help make it easier for you to substantiate and maximize your loan forgiveness.
Martin H. Abo, CPA/ABV/CVA/CFF is a principle of Abo and Company, LLC and its affiliate, Abo Cipolla Financial Forensics, LLC, Certified Public Accountants – Litigation and Forensic Accountants. With offices in Mount Laurel, NJ and Morrisville, PA, tips like the above can also be accessed by going to the firm’s website at www.aboandcompany.com.
How our work environments and the use of architectural walls will change due to the COVID‐19 pandemic is changing daily (and sometimes hourly). Since many of you have asked my thoughts on the future of office architectural walls, I thought I would point to eight factors to watch. Much like the world changed after 9/11 and the 2008 recession, I fully expect the world to change after this global pandemic. As the world goes back to work and social distancing morphs into professional distancing, (and assuming the economy comes back quickly compared to 2008), I would offer these trends to watch.
1. Growth in Wall Market:
While the office footprint will shrink (many people have been working from home, and this will carry forward for some), the use of architectural walls in offices will continue to rise. I have already seen an uptick in inquiries around glass partitions, space separators and demountable offices. This should not be a surprise; glass lets natural light in, shows transparency and is a good space divider. As companies balance expensive office real estate, open floor plans and small group interactions, the real growth will be in open space dividers such as Allsteel Beyond Pavilion and Allsteel Viz
2. Room Size Will Shrink:
Conference rooms will morph into smaller huddle and collaboration spaces. Wework is cutting conference rooms in half to keep groups to a manageable and comfortable size. Collaboration will be important…just in smaller groups and with walls that meet the needs.
Video conferencing will continue. Technology will be required in each collaboration space, and it will be important
that camera and audio connectivity are seamless. Architectural walls have an important role to play in this transformation, as demountable partitions have great acoustics, technology integration and correct camera angles.
4. Traffic Patterns:
More thought will be given to how workers move through and in and out of office spaces. Adding an extra door to a conference room might help as “professional distancing” lingers with us for some time to come.
5. Air Quality:
Buildings will move away from minimal standards of fresh and clean air. Wall dealers will need to
partner with clients and designers around diffusor and circulation locations for better, fresher and cleaner air.
6. Healthcare Moves to the Office Environment:
Easily cleanable surfaces will be a focus, so there will be fewer fabric wall panels and wall materials that are difficult to clean. Look for manufacturers to follow some of the creative surfaces that healthcare uses and adapt them to business settings.
7. Fewer Touch points:
COVID-19 has made us keenly aware of how many things we touch every day. One of the most intriguing ways this will manifest itself will be in architectural walls with auto door openers and doors that swing both ways that you can push with your feet.
8. Changing Materials will be in Focus:
While some amazing new inventions are coming out from Hong Kong around self-cleaning door hardware using both photocatalytic and blacklight technology, older metals like copper, brass and bronze will make a strong comeback.
Bob Batley, COFCO
I am sure I will amend and change this list as we move forward, but it is a good way to get the conversation started. So, what did I miss? What do you see coming? I cannot wait to hear what your predictions! Bob Batley is the Vice President of Architectural Products at COFCO, a mid‐Atlantic regional commercial furniture and walls solution provider. With over 35 years of executive leadership in the hospitality, commercial construction, and work environment fields, Bob consults, speaks, and is a thought leader when it comes to the challenges of today’s fierce competitive work environments. Bob can be reached at BBatley@cofcogroup.com or follow him on LinkedIn, Twitter, and Instagram.
THE YEAR STARTED OFF ON A HIGH NOTE IN THE SOUTHERN NEW JERSEY & PHILLY CRE MARKETS, THEN COVID-19 CREATED CHAOS
Predictions for 2020 Had Been Bullish, But are Now a Great Unknown
Commercial real estate brokerage WCRE reported in its analysis of the first quarter of 2020 that the Southern New Jersey and Southeastern Pennsylvania markets continued their years-long strong performance at the outset of the new decade. But by March it was clear that, just as every other area of life would be disrupted by the Covid-19 pandemic, the CRE market would not be immune. The quarterly performance still showed positive news, but the effects of the crisis began taking hold during the last weeks of Q1, so the true impact hadn’t become fully apparent. Vacancy rates across every property type remain low, and, while rent increases have cooled somewhat, growth remained positive for the quarter. Even before the pandemic struck many feared there were signs that the decade-long expansion was nearing its end. But even as growth slowed down, the economy appeared to be moving forward at a fairly solid pace before the crisis.
“Initially the assumption was that the worst of the coronavirus outbreak would directly impact the regions in Asia where it first was identified, and that the impact to the U.S. would come in the form of disruption of supply chains and slower economic growth abroad,”
said Jason Wolf, founder and managing principal of WCRE.
“While those shocks have happened, the rapid spread of the virus within the US and around the world has impacted the global economy, and those effects are still becoming apparent throughout our local and regional CRE markets.”
There were approximately 374,429 square feet of new leases and renewals executed in the three counties surveyed (Burlington, Camden and Gloucester), which was up more than 80 percent over the previous quarter. The sales market stayed active, with about 1.02 million square feet on the market or under agreement. Completed sales were up about ten percent over the previous quarter, at approximately 866,444 square feet trading hands.
New leasing activity accounted for approximately 47 percent of all deals for the three counties surveyed. Overall, gross leasing absorption for Q1 was in the range of 110,000 square feet, up about 25 percent over the fourth quarter.
Other office market highlights from the report:
● Overall vacancy in the market is now approximately 11.2 percent, which is significantly improved from the previous quarter, and still near a 20-year low.
● Average rents for Class A & B product continue to show strong support in the range of $10.00-$15.00/sf NNN or $20.00-$25.00/sf gross for the deals completed during the quarter. These averages have hovered near this range for more than a year.
● Vacancy in Camden County ticked down to 11.6 percent for the quarter, as prospecting activity improved.
● Burlington County’s vacancy dropped to 10.8 percent, more than a full point improvement over Q4.
WCRE has expanded into southeastern Pennsylvania, and the firm’s quarterly reports now include a section on transactions, rates, and news from Philadelphia and the suburbs. Highlights from the first quarter in Pennsylvania include:
● The vacancy rate in Philadelphia’s office market dropped slightly to 8.5 percent. The office vacancy rate is still near a 20-year low, and below that of comparable major cities.
● The industrial sector in Philadelphia remains very strong. Q1 saw vacancy rates at 5.5 percent, only slightly higher than the previous quarter. Net absorption dropped about 20 percent, to 4.3 million SF, which was still strong. Rent growth jumped again, to 5.3 percent. Rent growth for the past few quarters has far exceeded the long-term average of 1.7 percent.
● Retail may be most at risk from the crisis. Rising wages and low unemployment had been fueling retail spending, buoying the CRE market. But with unprecedented job loss and many businesses temporarily shuttered by stay-home orders, retail will bear the brunt. The vacancy rate inched up to 5.0 percent, while net absorption was negative 546,300 square feet over the last twelve months. These figures may well become more dire in Q2, as the true economic effects of the pandemic take hold.
WCRE also reports on the Southern New Jersey retail market. Highlights from the retail section of the report include:
● Retail vacancy in Camden County rose very slightly to 6.2 percent from 6.0 percent in Q4. While average rents rose to the range of $17.27/sf NNN.
● Retail vacancy in Burlington County ticked up a second consecutive quarter to 8.0 percent, with average rents in the range of $12.23/sf NNN.
● Retail vacancy in Gloucester County jumped a full point to 12.7 from 11.7 percent, with average rents in the range of $13.71/sf NNN.
The full report is available upon request.
WCRE is a full-service commercial real estate brokerage and advisory firm specializing in office, retail, medical, industrial and investment properties in Southern New Jersey and the Philadelphia region. We provide a complete range of real estate services to commercial property owners, companies, banks, commercial loan servicers, and investors seeking the highest quality of service, proven expertise, and a total commitment to client-focused relationships. Through our intensive focus on our clients’ business goals, our commitment to the community, and our highly personal approach to client service, WCRE is creating a new culture and a higher standard. We go well beyond helping with property transactions and serve as a strategic partner invested in your long term growth and success.
Learn more about WCRE online at www.wolfcre.com, on Twitter & Instagram @WCRE1, and on Facebook at Wolf Commercial Real Estate, LLC. Visit our blog pages at www.southjerseyofficespace.com, www.southjerseyindustrialspace.com, www.southjerseymedicalspace.com, www.southjerseyretailspace.com, www.phillyofficespace.com, www.phillyindustrialspace.com, www.phillymedicalspace.com and www.phillyretailspace.com.
Let’s explore architectural walls. Architectural walls create spaces that you need for today and tomorrow. The open transparent space attracts high achievers, while the huddle rooms offer privacy for meetings and phone conversations. Suppose your business is at a turning point. Your past success has you eyeing the next step. Growth is right in front of you, if only you could scale to meet the demand.
You know your office work environment needs to morph, change, and grow to help you meet these challenges, but how? Walk around your office and observe your teams working… what do you notice?
- The last couple “A” candidates chose a competitor
- Your café/lunch area is only used for eating
- Your open floorplan has your team taking phone calls in their cars
- Your company works in project teams… with no place to huddle
- You are afraid to make changes because your industry is changing faster than you can predict
- Your large conference room is rarely used
- Your teams want to be sustainable, but you are not quite there
- You want to refresh your space, but you don’t have time for construction.
Architectural walls create spaces that you need for today and tomorrow. The open transparent space attracts high achievers, while the huddle rooms offer privacy for meetings and phone conversations. Demountable wall options make it easy to reconfigure for future needs. Glass walls let light in and are a sustainable way to help meet LEED building parameters. Premanufactured walls are ready to install without the dirt, mess, and disruption of typical construction. Architectural walls can help you achieve the growth you have always dreamed of. Google, Amazon, and most industry leaders use architectural walls to attract and retain top talent and to prepare themselves for the constant rhythm of business change.
Bob Batley is the Vice President of Architectural Products at COFCO, a mid‐Atlantic regional commercial furniture and walls solution provider. With over 35 years of executive leadership in the hospitality, commercial construction, and work environment fields, Bob consults, speaks, and is a thought leader when it comes to the challenges of today’s fierce competitive work environments. Bob can be reached at BBatley@cofcogroup.com or follow him on LinkedIn, Twitter, and Instagram.
In light of COVID-19 and the evolving climate resulting therefrom, Commercial and Residential Landlords are being presented with difficult decisions necessitating quick response. Everyone agrees health and safety is the priority; however, both landlords and tenants are asking what their rights and obligations are as a result of this pandemic. We’ve heard the term force majeure used over the past week as it relates to enforcement of contracts, leaving both landlords and tenants wondering if COVID-19 is a force majeure event that reduces or even eliminates their respective rights and obligations under the lease.
Force majeure clauses are found primarily in non-residential leases and only occasionally in residential leases. Generally speaking, force majeure clauses excuse a party from certain contractual obligations when an unforeseen circumstance or event outside of their control makes performance impossible. Force majeure clauses attempt to provide the parties with certainty if/when an unforeseeable unknown event occurs. Many force majeure clauses specifically define the triggering events while others vaguely refer to unforeseeable events or are silent.
At present, there is uncertainty as to whether COVID-19 is an event if force majeure; however, actions taken by the state and local officials to shut down businesses and encourage or mandate shelter-at-home protocols arguably trigger the effect of typical force majeure clauses, especially if health-related disasters, like disease or pandemic, are called out specifically.
As a first step in determining if COVID-19 is a triggering event, the landlord and tenant must review the express terms of the lease to determine if a force majeure clause appears. Next, the parties must determine the scope and language of the clause — does it specifically include or exclude health-related events or is it silent on that issue? Of course, if there is no such clause at all, a different analysis must be made.
Assume a clause exists and would be triggered by the current pandemic. In its simplest form, the express terms of a force majeure clauses in residential and commercial leases will dictate the parties’ rights and obligations. Further depending upon the circumstances and the level of specificity of the meaning or definition of “force majeure” as used in an express clause within a lease, principles of equity may be invoked. Simply because a force majeure clause appears in the lease which seems applicable does not necessarily mean either party is excused from its lease obligations.
Courts may choose to exercise their equitable powers in determining whether this pandemic implicates a force majeure clause containing or impliedly containing an “act of God” clause which, once invoked, creates an impossibility of performance, a determination that performance is unreasonable, that the contract is voidable
The foregoing information was furnished to us by sources which we deem to be reliable, but no warranty or representation is made as to the accuracy thereof. Subject to correction of errors, due to frustration of purpose, etc. Courts focus on the foreseeability of the event and the connection between the event and the non-performance. An otherwise-defaulting party will have difficulty invoking the force majeure to excuse its contractual obligations. In short, with respect to COVID-19, an interpretation of a force majeure clause must be made to determine whether the party seeking to be excused is simply attempting to use the force majeure to get out of a contract that party no longer wishes to perform.
For leases without force majeure clauses, common law doctrines of impossibility, impracticability and/or frustration of purpose may still apply to excuse contractual obligations. Simple economic struggle will not be a triggering event; however, economic struggle resulting from unforeseeable events may be sufficient.
On March 18, 2020, the Pennsylvania Supreme Court ordered a temporary moratorium on residential nonpayment evictions in the Commonwealth until April 3, 2020. The Order specifies this moratorium was enacted because of the economic impact COVID-19 is having on residents. At present, neither the Court’s Order nor the Landlord-Tenant Act excuses tenants from their rental obligations; however, it is more than likely that this Order will be updated and revised as the pandemic spreads.
Although the Order does not provide for any current rental abatement, if a Landlord is unable to provide tenants with the full intended benefit of the Lease, the monthly Rent should be appropriately adjusted. Congress is also considering relief for the housing providers in addition to renter assistance. Housing providers are experiencing the same health, safety and economic concerns as renters, such as an inability to pay their mortgage, employee payroll and benefits, insurance premiums and tax obligations in the current environment. Congress has been asked to provide much needed relief to both landlords and tenants in the midst of this pandemic; therefore, subsequent updates on this topic are likely.
Force Majeure clauses are typically only enforced as expressly agreed by the parties, but the pandemic may continue to affect this general statement. Since the PA Supreme Court is already entering equitable orders related to residential nonpayment of rent evictions at the beginnings of the pandemic, it is safe to say the Order will be updated and further extended as the pandemic evolves, possibly even affirmatively ordering a rent holiday, partial or full abatement or deferrals.
Many Pennsylvania businesses have been ordered to cease operations as they are not classified as life sustaining; therefore, commercial landlords and tenants are faced with additional concerns. The current list of business deemed to be life-sustaining is listed here.
Commercial leases are controlled by contract law in Pennsylvania; consequently, the express terms of the lease will provide the primary source of guidance. While landlords should retain an open dialogue with tenants, they must also be careful to not promise accommodations they are not able or willing to provide.
We expect landlords to be empathetic during this pandemic, but we do not believe landlords have a unilateral obligation to “foot the bill” for these problems they did not create. Further, if landlords and tenants have any verbal communications regarding rent accommodations, landlords and their agents must be extremely careful to specify that the parties will not be bound by the negotiations and will only be bound when a subsequent agreement is reduced to written form and signed by all parties. Force majeure clauses may be applicable to COVID-19 because of the governmental and court orders forcing closure beyond the control of the landlord or tenant; therefore, landlords must carefully comply with any notice or other procedural requirements set forth in the applicable lease.
Tenants will likely attempt to use a force majeure clause, assuming one to exist in the lease, or seek equitable relief, to excuse their rental obligations; however, most commercial leases preclude the use of force majeure clauses to abate rent and/or terminate the lease even if the tenant is unable to access the leased premises and operate. The terms of each lease and the local jurisdiction’s administrative Orders will affect this. Moreover, if the tenant does not actually vacate the leased premises, Courts will also have to take into account whether it is equitable on either a short-term or long-term basis for the landlord to continue to provide shelter and to incur costs without any compensation, notwithstanding the current prohibition on residential evictions for non-payment.
Mandated closures, like those resulting from Governor Wolf’s recent Order, may require landlords to shut their facilities, which prevents tenants from accessing their premises, making performance impossible whether or not there is a force majeure clause. In cases where the lease does not expressly include a force majeure clause, the concept of impossibility of performance may further provide some protection to landlords as well as tenants.
Force majeure clauses in most commercial leases preclude commercial tenants from withholding rent following an “act of god.” It is inevitable that a commercial tenant will seek rental abatement/deferrals/rent holiday if it is unable to occupy and operate. While the applicable lease may not require the landlord to engage in negotiations, it may be in the commercial landlord’s best interest to get creative and provide short-term relief to struggling tenants rather than suffer the alternative of losing tenants for the long-term and incurring substantial litigation expenses attempting to enforce the lease as written to compel occupancy and/or collect rent. Creative options for negotiations include but are not limited to, temporary rent reductions, payment of percentage rent only (if a retail store remains open; note, however, that the retail stores which do remain open are often grocery stores, which one would expect will be doing substantial business and should not have a problem paying rent), CAM-only monthly payments, application of security deposit to unpaid rent, rent deferrals, temporary rent forgiveness, lengthening the lease term by a time equivalent to the rent deferral period or requiring personal guarantees of future rent payment.
Because nearly everything about COVID-19 remains uncertain and consistently evolving, neither landlords nor tenant should make an assumption that COVID-19 will be declared an event of force majeure. It is of the utmost importance for landlords and tenant to comply with any and all force majeure provisions in the lease, including but not limited to the notice provisions, which may be critical to protecting their respective rights once this pandemic ends. Understanding the rights and obligations of your lease is key to long-term success.
Further, all commercial landlords need to consult their insurance advisors and review the specific terms of their policies, including but not limited to business interruption insurance and rent loss insurance as implicated by this pandemic. Landlords should also recommend that each tenant consult with its insurers regarding the same. Certain states are considering passing legislation expressly prohibiting insurers from denying claims relating to the pandemic, but that hasn’t occurred yet.
We urge all landlords, both nonresidential and residential, to assure that there is a pandemic plan and potentially engage counsel to review all leases for the following purposes: creating an addendum applicable to all tenants in the event of default; review of all force majeure clauses and updating them to include diseases, epidemics, and/or quarantines; review any other applicable contracts with tenants, residents, and suppliers to ensure they understand their rights in the instance of a force majeure.
Many landlords are current experiencing vacant retail centers, malls and buildings. One may think your job gets easier because there are few (or no) tenants in your building, but nothing could be further from the truth. In fact, even if your building is completely vacant for now, there is still plenty of work that needs to be done.
Please make sure that your team considers the following:
• Make sure your HVAC system is running properly.
• It’s ok to reduce regular thermostat settings (perhaps 55 degrees for heating and 80 degrees for cooling), but don’t turn off completely – just don’t turn them off completely!
• Make sure your outside air and exhaust fans are running to keep the air circulating.
• Make sure someone if putting water in the “p-traps” – particularly in sinks and floor drains – to keep sewer gases from backing up into the space.
• Make sure someone from your team is walking every inch of the building every workday.
• He/she should be looking for potential issues – like leaks, unsecured doors, equipment left running, etc.
• Make sure exterior doors and, where operable, exterior windows are locked.
• Work with your tenants to shut off equipment that is not in use. Remember that equipment (like a copier) is still drawing power even when it is in the power-saving mode.
• Water that is sitting still in the plumbing system will develop biofilms – which can cause disease (including Legionella, pseudomonas, and mycobacterium).
• Make sure someone is running the water through the system every day.
• Consider working with an industrial hygienist to test the potable water before letting tenants back into the building. The very last thing you want – after going through COVID19 – is to have an outbreak of Legionella when the tenants return!
• Consider posting a sign with your contact information on exterior doors in case someone needs access to the building.
• If the building is truly vacant, consider posting security guards on-site to deter vandalism and theft. Or, consider installing remote access cameras so you can keep an eye on common areas and the exterior.
• Make sure the roof access is secured – to keep people from accessing the roof and from accessing the building from the roof.
• Consider closing the miniblinds – or at least putting them down and angling them to minimize solar gain (which will reduce energy consumption).
• Review your insurance policy and notify your insurance provider. Even if the closure is only temporary, there might be insurance requirements to consider.
• Make sure building systems (pumps, motors, elevators, etc.) are exercised/run on a schedule. When these pieces of equipment sit idle, they can degrade quickly.
We suggest that you and your teams, colleagues and tenants sign up to receive up-to-the-minute text alerts from the city communications system by texting the word COVIDPHL to 888-777.
Finally, the CDC (Center for Disease Control & Prevention) has provided advice and guidelines for Landlords in the pandemic, specifically that Landlords keep Tenants informed on best practices.
If you have any questions, please contact Kierstin Lange at email@example.com from Zarwin Baum Devito Kaplan Schaer & Toddy PC.