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February 2021

Some Co-ops Eligible for PPP Loans

Some Co-ops Eligible for PPP Loans 793 529 Matthew Adam Properties

You may have heard that co-ops can now obtain loans under the federal government’s Paycheck Protection Program (PPP) as a result of their being included in the new Stimulus Bill. The rules governing the inclusion have finally been released by the US Small Business Administration.

First, the window for co-ops to seek a loan under the PPP is now open. In that regard, the Consolidated Appropriations Act, 2021 (the Act), signed into law on December 27, 2020 included a second round of PPP funding for those businesses that already got a PPP Loan (now known as a ‘First Draw’ loan) and also permits a First Draw Loan for any business (which now includes co-ops – but not condominiums or homeowners associations) which did not get a First Draw loan originally.

Under the program, First Draw loans can presently be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

You should note, however, the application form for a First Draw PPP Loan will require an officer of the co-op to swear and attest to the following representations:

  1. The applicant was in operation on February 15, 2020, has not permanently closed, and had employees for whom it paid salaries and payroll taxes;
  2. Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant, and;
  3. The funds will be used to retain workers and maintain payroll; or make payments for mortgage interest, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the PPP Rules.

You should not take this certification lightly, as any board member certifying the need for a PPP loan will be doing so in a fiduciary capacity, and therefore could possibly be held personally liable if certifying false information or representations. In that regard, the application form also requires the officer of the co-op who executes the application form to agree to the following statement:

“I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 U.S.C. 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 U.S.C. 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 U.S.C. 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.”

Based on the above, it is extremely important for co-ops – and the officers who may execute PPP loan application forms – to make absolutely certain that an application for a PPP loan is accurate, honest, and submitted in good faith. In that regard, if your co-op has experienced a drop in maintenance revenue, rent revenue from commercial tenants, and/or unexpected costs due to damage or the need for supplies, it would seem reasonable to apply. However, if you are not sure whether your co-op is suffering financially from COVID-related circumstances, or if you expect those circumstances to change, you should think carefully and consult with your co-op’s attorney and accountant before proceeding with a PPP First Draw Loan application.

It should be noted that just like last the first round of PPP loans last year, new First Draw PPP Loans will be forgiven – if during the 8- to 24-week period following loan disbursement, the following are true:

  •  Employee and compensation levels are maintained
  •  The loan proceeds are spent on payroll costs and other eligible expenses
  •  At least 60 percent of the proceeds are spent on payroll costs

If you believe your co-op qualifies, there is another important consideration.: If your co-op has an underlying mortgage (which nearly all co-ops do), the mortgage documents for that loan most likely contain a restriction on additional borrowing without your bank’s prior approval. This matters, because while a PPP Loan will likely be forgiven and not need to be repaid (provided the co-op follows all the rules and regulations regarding the use of the loan funds), a PPP loan is still technically a loan, and therefore constitutes additional debt – which will likely trigger a requirement to obtain your mortgage lender’s approval. For this reason, we believe it makes sense to contact the bank who holds your co-op’s underlying mortgage when applying for a PPP Loan.

You can usually process the PPP Loan application through that lender – which will enable you to address the aforementioned consent issue at the same time. If you decide to process your PPP Loan application through another lender (such as the bank where you have your operating or reserve accounts), you will likely need to obtain approval from your mortgage lender – again, depending on what your loan documents provide. You should also check your governing documents to make sure there are no other limitations or conditions on obtaining a loan.

Since the funds available for PPP loans are limited and given on a first-come-first-served basis, time will be of the essence to apply for and obtain your PPP loan. In that regard, borrowers can apply for a First Draw PPP Loan until March 31, 2021. As indicated above, unfortunately, this stimulus bill did not include condos and HOAs, who currently remain ineligible for PPP money.

Marc H. Schneider is a partner at the New York-based law firm of Schneider Buchel, LLP, specializing in the legal concerns of co-op, condo, and HOA communities.

Deadline Extended for New Gas Lines Inspection Law

Deadline Extended for New Gas Lines Inspection Law 2000 1065 Matthew Adam Properties

By Ira Meister President and CEO – Matthew Adam Properties, Inc.

The New York City Council has extended by six months the filing date for Phase 1 of compliance with the new gas lines inspection law. Reasons cited for the delay include Covid-19, uncertainty about requirements and lack of outreach by the Department of Buildings.

With the extension, buildings in community board districts 1, 3 and 10 in all five boroughs have until June 30, 2021 to file inspection reports. The previous deadline was Dec. 31, 2020.

The new law, Local Law 152, establishes a timetable for inspection of gas lines and a requirement to notify residents on procedures when a gas leak is suspected.  Inspection of gas lines is required every five years for all multiple dwelling residential buildings in the city. For new buildings, the initial inspection would take place in the tenth year. 

A master plumber must conduct the inspection and is required to submit an inspection report and certification to the building owner within 30 days. Certification from the plumber must be filed with the Department of Buildings and an inspection report must be submitted to the utility company within 90 days. The law requires the inspection of all exposed gas lines from the entry point of gas piping into the building to individual resident units.  Inspections in public spaces, hallways and mechanical and boiler rooms should be conducted with a portable combustible gas detector. Only public spaces that have gas piping or gas utilization equipment are subject to scrutiny.

Failure to comply with the reporting requirements is a major violation and may lead to penalties and civil fines up to $10,000.

Unsafe conditions, gas leaks, non-code compliant installations or illegal connections must be identified in the inspection report.  Regardless of submission timetables, all unsafe or hazardous conditions must be reported immediately to the building’s owner, the utility and the Department of Buildings and be corrected. 

Local Law 152 was passed in the aftermath of a tragic explosion in the East Village several years ago caused by an illegal gas-line connection and focusing public attention on the lack of inspection requirements for these lines. While the city requires periodic inspections of many building systems, including boilers, elevators, water tanks, sprinklers, gas lines were exempt.

Co-op and condo boards should carefully vet companies to perform the inspections. I am concerned that companies have sprung up without the proper experience. This type of contractor abuse surfaced in the first round of inspections for Local Law 10. Many of us who had been through that sequence of events can work with clients to better understand the law and hire qualified companies.  It is important to seek out experienced, licensed companies and not firms born with the new law. 

The new law also requires building owners or boards to provide residents with information describing procedures to take when a gas leak is suspected.  This notice must accompany a lease or lease renewal, be in English and Spanish and be posted in a prominent place in a common area. 

The notice advices residents to quickly open nearby doors and windows and leave the building immediately. They should not attempt to locate the leak, turn on or off any electrical appliances, smoke, light matches or use a house-phone or cellphone within the building.  Residents should call 911 to report the suspected gas leak only after leaving the building and from a safe distance. They are then advised to call the gas service provider, such as Con Ed, whose name and phone number is listed at the bottom of the information form.

The city has established a cycle for the inspections based on community board districts.  The dates are Jan. 1 to Dec. 31 as follows: 2021, Districts 2,5,7,13 and 18; 2022, Districts 4,6,8, 9 and 16; and 2023, Districts 12, 12, 14 15 1st 17. The due dates for the ongoing inspections will be the five-year anniversary of the previous inspection.

Buildings without gas piping systems are required to file a certification stating this. The reporting timetable follows that of the borough dates and must be resubmitted every five years.