Just like the Spanish Flu of 1918, the COVID-19 outbreak will come to an end. Governments across the globe have offered different timelines for a “return to normal,” but rest assured, it will happen. When it does, those landlords and tenants who collectively found a way to work together through the acute times of this crisis will be a step ahead of their respective competitors. Barring a complete paradigm shift, tenant “employers” will need office space for their employees and landlords will need those tenants to satisfy their debt obligations.
Both landlords and tenants should look to a loan from the Small Business Administration (“SBA”) as a first step in maintaining their relationship. The CARES Act allocates nearly $350 billion to the Paycheck Protection Program (“PPP”). The PPP is designed to get cash into the hands of a suffering small business quickly, with less red tape and fewer guardrails than the SBA’s existing loan programs. The PPP specifically designates “rent” and “covered mortgage obligations” as allowable expenses under the program. The business that maintains its work force, and rental space, will be poised to take advantage of the opportunities that lie on the other side of “social distancing.” For a landlord, an SBA loan will allow it to satisfy its covered mortgage obligations and the necessary breathing room to amicably modify or relax a tenant’s rental obligations.
Eligible landlords and tenants should take immediate steps to apply for a PPP loan. Unless a business is flush with limitless capital reserves, an easy to obtain loan with a maximum 4% interest rate and potential forgiveness is a “no brainer.” In fact, the CARES Act even modifies the SBA’s ordinary course requirements by eliminating pledges of collateral, prepayment penalties, personal guarantees, and borrower and lender fees. Perhaps most favorably, the requirement that a borrower certify that it could not secure credit elsewhere is also waived. In most instances, a tenant will avoid the need to relocate its business at all costs and a landlord cannot afford needless vacancies. PPP loans are the first step in maintaining the relationship.