Many property managers and their coop, condo and HOA boards have been asking about the federal government’s Paycheck Protection Program (“PPP”) and whether those types of entities are eligible. The advice they have been given so far is to apply and see what happens. The PPP is a first come, first serve program and when the money runs out, it’s over.
The PPP authorizes up to $349 billion toward job retention and certain other expenses. Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.
In the literature by the SBA and Treasury Department so far, it does not appear that coops, condos and HOA’s will qualify for the program because they are not for profit entities and even though it seems that some not for profits may be qualified, the literature so far limits the not for profits to 501(c)(3) types of entities, not housing companies or associations. That said, its not at all clear at this point and property managers and boards are taking a “you’ve got to be in it to win it” position and applying in any event.
Concerns to Consider
If your community association wants to apply for the PPP, it ought to first review its governing documents to make sure that the board has authority to borrow on behalf of the entity without obtaining shareholder or owner approval. Many condominium’s have limitations in their bylaws which provide that the board needs a super majority of owners to agree to borrowing for a certain amount or for any amount. If your entity requires approval before borrowing, your board ought to take steps to obtain such approval before or in tandem with applying for a loan under the PPP. This can take time and may be difficult with shelter in place orders in place. Call a special meeting and obtaining the requisite votes may be challenging.
The lending institutions may ask for the governing documents and a certification that the entity has authority to borrow. So making sure the authority exists without shareholder or owner approval is important.
The other concern is who is applying for the PPP loan. If a property management company is applying, it should make sure that a board decision is memorialize in minutes authorizing the property management company to file the application on behalf of the entity. Applications have to be signed, so you should make sure that the signor is authorized to sign on behalf of the entity. If a property manager is an Assistant Secretary, then make sure the person was appointed the Assistant Secretary since the last board election and this is memorialized in minutes. The lending institution may ask for this information. The easiest and perhaps safest approach is to have a board member who is authorized to sign for the entity under the bylaws, sign for the entity.
The last concern to consider is that the government has made clear that it may claw back money that is loaned if it was loaned to ineligible borrowers or the money that was loaned was not used for purposes covered by the PPP program. So, if coops, condos and HOA’s apply and are granted loans in the PPP, the risk is that the government reviews eligibility after the fact and raises issues after the money is already loaned and used. We’d hope that the lending institutions which will be handling applications would vet whether community associations are properly eligible, but the risk exists that loans could be granted and questioned in hind site. The risk is low but should be considered by boards before jumping in.
Information from the Government on the PPP
Click here for information on the PPP from the Treasury Department. Also, the Treasury Department issued an interim final rule on the PPP which is accessible here.
Loan proceeds can be used for:
- Payroll costs**, including benefits;
- Interest on mortgage obligations, incurred before Feb. 15, 2020;
- Rent, under lease agreements in force before Feb. 15, 2020; and
- Utilities, for which service began before Feb. 15, 2020.
**Payroll costs include:
- Salary, wages, commissions or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including costs for vacation, parental, family, medical or sick leave; allowance for separation or dismissal; payments required for the provision of group health care benefits including insurance premiums; and payment of any retirement benefit; and
- State and local taxes assessed on compensation.
If your associations decide to give it a try, you will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click here for the application.
