Commercial Real Estate Impacts From COVID-19 May Warrant a Tax Assessment Challenge

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COVID-19 Impact May Warrant a Tax Assessment Challenge

Each year New York provides an opportunity to challenge your tax assessment if you believe it is unfair. This year the deadline to file a tax assessment grievance was May 26, 2020, but the deadline has been extended per Executive Order 202.22.

With business income down, and income properties losing rent, 2020 may present a particularly good year to consider challenging your commercial property tax assessment.

Nolan Heller Kauffman LLP has successfully obtained tax reductions for a wide range of property owners in the Capital Region, Warren County, Clinton County and Essex County. Property types have included:

  • Shopping centers and plazas
  • Professional office buildings
  • Hotel and motel properties
  • Recreational property
  • Multi-tenant mixed use properties
  • Manufacturing and warehouse
  • Multi-family rental and income properties

Why Challenge Your Assessment?

With many landlords having to defer or forfeit rent, many income properties are at the beginning of a period of financial stress. Additionally, growing reliance in online purchasing during the COVID-19 pandemic risks an acceleration of the trend away from brick and mortar stores. This massive shift presents a long-term change to the economic model for some traditional retail income properties.

Tourist-related businesses also confront unprecedented vacancy levels, with considerable uncertainly in the short and medium-term. With a loss of traditional sources of customers, such as large sporting attractions, seasonal tourism, and college-related customers, and drastic reductions in travel generally, many year-round hotel, motel and restaurant properties are now closed, and seasonal properties face uncertainty as to when they may be able to open.

Impacts are also being felt by other income properties, as non-essential offices are closed. The immediate implementation of work at home policies has resulted in many businesses developing a reduced demand for physical commercial office space, as technology and corporate culture changes have created a capacity to effectively conduct business from home.

Due to the abruptness of the COVID-19 impacts, municipal tax assessors simply do not have the capacity to adjust assessments to reconcile values to the new economic reality.

Experienced and ready, Nolan Heller Kauffman is ready to assist its existing and new clients during these uncertain times. Our expert legal team is happy to provide an initial consultation, without fee, to evaluate whether you may have a good case for a property assessment reduction. If you feel you have an assessment that is seriously out of line with market values, please contact John Hartzell at (518) 432-3106, or jhartzell@nhkllp.com.

Nolan Heller Kauffman Attorneys Can Help Albany Area Businesses Evaluate and Navigate the Bankruptcy Process In These Uncertain Economic Times

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Effects from the unprecedented closure of all non-essential businesses as a result of Governor Cuomo’s executive orders, intended to slow the spread of COVID-19, are being experienced by businesses throughout the Albany area and Upstate New York.  Real estate development, manufacturing, construction, hospitality, restaurants, and a host of other retail and wholesale businesses have been shut down and business owners are feeling the impact on cash flow, with many struggling to maintain payments to creditors while attempting to provide income to affected employees.  These effects will likely continue for many businesses even as they begin to reopen after the restrictions are eventually eased.

Many lenders are working with their customers to extend payment terms during this initial period of disruption while business loan programs provided for or enhanced under the federal CARES Act (Coronavirus Aid, Relief, and Economic Security Act) are rolled out to borrowers.  While some borrowers will be able to resume operating when the economy reopens or will find the necessary relief in government-backed loan programs, others will be more challenged because of financial issues that pre-dated the pandemic or because of lingering effects of the shut-down of the economy on their particular businesses. For these businesses, it may be advisable to consider bankruptcy options.

Recent bankruptcy legislation, along with several bankruptcy-specific provisions of the recently enacted CARES Act, may help businesses in Upstate New York and elsewhere recover from this period of economic and financial uncertainty.

Chapter 11 for Small Businesses

The Small Business Reorganization Act (the “SBRA”) took effect on February 19, 2020, adding Subchapter V to the Chapter 11 provisions of the Bankruptcy Code, with the intent to provide a more streamlined process for small businesses to reorganize their debts.  Prior to enactment of the SBRA, businesses facing financial difficulties and attempting to reorganize under Chapter 11 had to contend with rules and processes often more suited to larger business concerns, such that a company with only one or a few shareholders or members and a small number of employees had to contend with the same statutory requirements as American Airlines or General Motors.  While several amendments to the Bankruptcy Code over the years attempted to address this disparity, none were as far-reaching as the SBRA.

Specifically, for certain debtors with less than $2,725,625.00 in debt, the statute eliminated certain burdensome documents previously required to be prepared and filed with the Bankruptcy Court to propose a plan for payment to creditors and shortened the time period to file that plan with the Court.  Similarly, small business debtors will not face the prospect of having a committee of unsecured creditors appointed in their cases and are not obligated to pay quarterly fees to the Office of the United States Trustee.  These changes were intended to reduce the cost of reorganization to qualifying small business debtors and streamline the process to approve a plan for payment to creditors.

The elimination of rules requiring the consent of at least one class of creditors to a payment plan and prohibiting the company’s owners from retaining ownership unless they invested new money make Chapter 11 a more viable and attractive option for many business owners.  Small business plans can propose repayment of a portion of debts over a period of three to five years, with debtors receiving a discharge of amounts unpaid either at the time the plan is approved or at the conclusion of the payment plan term.

Business owners who borrowed against the equity in their homes to finance their businesses can modify the terms of those mortgages, including reducing the interest rate, extending the maturity date or reducing the amount due based on the equity in the property securing the loan.  The statute also provides for the appointment of a Subchapter V trustee to assist with negotiations between a debtor and its creditors to attempt to reach agreement on a payment plan for creditors.

Amendments to the SBRA under the CARES Act

The CARES Act was enacted on March 27, 2020 in response to the outbreak of the COVID-19 virus and accompanying pandemic.  While the CARES Act enhanced or created a number of government-backed loans for small businesses, it also made several beneficial changes to Subchapter V of Chapter 11.  In particular, it increased the debt limit for eligible businesses to $7.5 million, which greatly expanded the pool of potential businesses eligible to utilize the streamlined and less costly procedures under Subchapter V.  At this point, the debt threshold reverts to the roughly $2.7 million limit one year from the enactment of the CARES Act.  Congress could make further adjustments to the debt limit,  but at this point that is not definite so businesses should not delay seeking advice on the efficacy of this relief on the assumption that the increase will be extended or made permanent.

Business owners who guaranteed some or all of a company’s debts and need to consider a personal bankruptcy filing also see some expanded relief under the CARES Act.  Funds received from governmental programs to replace lost income are not included in the calculation to determine eligibility for filing for relief under Chapter 7 or Chapter 13, or for calculating disposable monthly income to determine the amount of monthly Chapter 13 plan payments.

For business owners already in Chapter 13 and whose plans were confirmed prior to March 27, 2020 and who are experiencing material financial hardship directly or indirectly as a result of the COVID-19 pandemic, the CARES Act allows those plans to be modified to provide for payment terms of up to seven years from the date the first payment under the confirmed plan was due.  As with the increased debt limit under Subchapter V, these provisions revert to the pre-amendment terms of the statute one year after enactment of the CARES Act.

Conclusion

The wide-spread impact of the current economic shutdown will have long-term ramifications on businesses, even after restrictions on operating are eased or lifted.  Supply chains and consumer economic activity will likely be slow in returning to pre-COVID-19 levels for some time.  In turn, businesses throughout the Albany area and Upstate New York and across virtually all industries will experience the combined effects of extended interruption in business operations and reduced consumer demand.  The attorneys at Nolan Heller Kauffman have decades of experience assisting businesses in restructuring their operations and debt, including utilizing bankruptcy and non-bankruptcy options, and are available to discuss these alternatives and help guide you through these unprecedented economic times.  Please feel free to contact Justin A. Heller, Esq. by e-mail (jheller@nhkllp.com) or phone (518.432.3118) or Francis J. Brennan, Esq. by e-mail (fbrennan@nhkllp.com) or phone (518.432.3159) to learn more and discuss these options.

HAS YOUR RESTAURANT OR BAR BEEN IMPACTED BY COVID-19? THE ATTORNEYS AT NOLAN HELLER KAUFFMAN CAN HELP YOU EXPLORE OPTIONS TO KEEP YOUR BUSINESS OPERATIONAL AND IN COMPLIANCE WITH YOUR LIQUOR LICENSE

We know that many businesses, including those in the hospitality industry, have been negatively impacted by the COVID-19 crisis, and we are here to help you navigate both the financial and regulatory compliance aspects of keeping your business operational during this difficult time.

 

Navigating the New SLA COVID-19 Guidance:

 

On March 16, 2020, in response to the COVID-19 crisis, Governor Cuomo issued a statewide mandate that restaurants operate only for takeout and delivery, causing many of those businesses to experience huge losses of revenue.  In order to help those impacted businesses, the New York State Liquor Authority (the “SLA”) issued a series of directives aimed to ease the restrictions on operations and financial obligations of businesses licensed to serve alcohol.

 

Normally, on-premises licensees (restaurants, bars, taverns, clubs, arenas, catering establishments, etc.) are only permitted to sell alcohol for consumption on their licensed premises, with the exception of takeout beer. In order to boost revenues, the SLA is temporarily allowing on-premises licensees to sell wine and spirits- in addition to beer- by the bottle for takeout and delivery in conjunction with a food sale. The sale of mixed drinks for takeout or delivery in conjunction with a food sale is also permitted so long they are in closed containers consistent with any open container ordinance. Licensees do not need to obtain any waiver or permission from the SLA in order to make such sales.

 

The SLA has also acknowledged that retailers may have a larger inventory on hand than needed to meet their more limited current demand. Accordingly, on March 24, 2020, the SLA issued an Advisory allowing wholesalers and manufacturers to accept returns of certain products from retailers who no longer need them; a practice which under normal circumstances would not be permitted. Products purchased by a retailer from a wholesaler or manufacturer on or after March 1, 2020 may be returned to such wholesaler or manufacturer. Products purchased from a manufacturer on or before March 17, 2020 may be returned by the retailer to the manufacturer. While wholesalers and manufacturers are not required to accept returns, if they opt to do so, they must do so from all retailers who purchased product from them, without regard to the amount of product the retailer wishes to return.

 

The Advisory also aims to ease requirements for licensees by immediately waiving the normal requirement that a licensee place their license in safekeeping during a temporary closure. This will make it much easier for restaurants to quickly resume their operations without having to retrieve their license from the SLA.

 

On March 26, 2020, the SLA issued three subsequent Advisories. The first two address renewal of liquor license applications and allow licensees to submit Renewal applications for any licenses expiring on March 31, 2020 or April 30, 2020 without payment of the required renewal fees. If the renewal application is otherwise timely and complete, the licensee will be placed on State Administrative Procedure Act, or “SAPA” status and allowed to continue operating under such status until May 31, 2020, or until payment is made, whichever comes first. Additionally, the normal requirement that 30-Day Notice forms for Renewal applications (which are required within New York City) be submitted via mail is waived, and service can be made by email provided that the municipality (usually a Community Board) will accept service of the notice by emails, and the applicant receives a response from the municipality acknowledging that it has received the notice. Computer generated delivered or received messages are not sufficient.

The third Advisory pertains to penalties, and provides that beginning on March 24, 2020, the SLA Secretary’s Office will delay issuing “Notices of Disposition” which include demand for payment for any matter where the Full Board imposed a civil penalty. This will effectively give licensees who would otherwise be required to pay fines based on license violations an extension of time before the payment is demanded and due. The Advisory also states that the SLA will not impose the alternate penalty in any matter where the licensee has failed to submit timely payment of the civil penalty. Often, if a licensee fails to timely pay a fine, the alternate penalty is a bond claim and/or cancellation of the license. By this Advisory, the SLA is allowing businesses which have already had fines assessed against them a further extension of time to pay without incurring a more serious penalty.

 

Each of these Advisories and temporary procedures are subject to further changes and/or extensions as the SLA continues to evaluate the scope and status of the COVID-19 crisis and its impact on licensed businesses.

 

The SLA is continuing to process and review applications during this time, though Full Board Meetings are not open to the public. Any presentation in support or opposition of licensing and miscellaneous matters must be submitted via email by the date set forth in the notice (as is the current practice) and no other submissions and no appearances will be permitted. All licensing applicants can request to have their application held in abeyance until normal Full Board Meetings resume.

 

COVID-19 Relief Loan Programs:

 

There are a number of loan programs available to assist existing businesses, including but not limited to restaurants and bars, which have been impacted by COVID-19. The Small Business Administration (the “SBA”) is offering two different kinds of COVID-19 relief loans: the SBA Economic Injury Disaster Loans (“EIDL”) and the Paycheck Protection Program (“PPP”) under the CARES Act. Your business may qualify for one or both of these loans. Below is a brief summary of some of the key terms of each of these programs, which you can use to determine how each might be applicable to your business.

SBA EIDL Program:

Program parameters and use of funds:

  • Eligibility: Small businesses with 500 or fewer employers
  • Amount: Up to $2 million, including affiliate loans. Amount determined by SBA’s assessment of your business’s losses due to the COVID-19 crisis.
  • Interest rate: 3.75% fixed for small businesses and 2.75% for non-profit organizations
  • Term: 30 years
  • Use of funds: EIDL loans can only be used to alleviate economic injury as a result of the COVID-19 crisis. You can use the funds to pay fixed debts, payroll, accounts payable and other bills that you would have typically been able to pay had your business not been impacted. The funds from these loans cannot be used to replace lost sales, refinance long-term debt or to expand.
  • Notes: There is no prepayment penalty and there is a one-year deferment on the loan (interest will still accrue during this period.

Eligibility and requirements:

  • Open to wide variety of impacted businesses, including hotels, recreational facilities, manufacturers, restaurants, retailers and more.
  • Loans available to small businesses (and most non-profits) directly impacted by COVID-19, as well as those that offer services directly related to impacted businesses. Also, businesses likely to be harmed by general losses in their community are eligible.
  • Your business must be suffering economic losses due to COVID-19, and COVID-19 only.
  • Your personal credit history must be acceptable to SBA.
  • You must be able to demonstrate an ability to repay the loan.
  • Collateral is required for all loans over $25,000. If real estate is available, it must be pledged as collateral. If you do not have collateral to pledge, you will not be declined, however, you are required to pledge what collateral you do have available.
  • There is no cost to apply.
  • You do not have to take the loan if you are approved, so it is better to apply early, get approved, and then decide whether or not you need/want to take the loan.
  • You can request up to $10,000 in advance.
  • At this time, there is no loan forgiveness for an EIDL loan. If you received an EIDL loan, you could apply for a PPP loan, then refinance the EIDL loan into a PPP loan and apply for loan forgiveness.

Program parameters and use of funds:

  • Eligibility: Small businesses that were in operation on February 15, 2020 with 500 or less employees, as well as individuals who are either a sole proprietorship or an independent contractor.
  • Amount: Up to 250% of your business’s average monthly payroll costs (calculated as an average of payroll over the last twelve months), with a maximum of $10 million.
  • Interest rate: Fixed rate at 0.5%.
  • Fees: None.
  • Term: 2 years; full deferment of principal and interest for six months.
  • Loan forgiveness: All or a portion of the loan may be forgiven if the business complies with rules regarding usage of the funds.
  • Collateral: No collateral or personal guaranty requirements.
  • Use of funds:
    • Salaries, wages, payroll, independent contractors (1099), benefits, etc.;
    • Up to 25% of the money can be used for non-payroll related expenses (rent, utilities, etc.) and even that 25% may qualify for forgiveness;
    • Interest on mortgages and other loans; and
    • Refinance of an SBA EIDL loan made after January 1, 2020.

Eligibility and requirements:

  • Business must have been operational on February 15, 2020.
  • Business must have employees which are paid salaries and payroll taxes or paid independent contractors as reported on Form 1099.
  • For-profit and non-profit small businesses are eligible.
  • Sole proprietorships, independent contractors, and other self-employed individuals are eligible.

The attorneys at Nolan Heller Kauffman would be happy to assist you with determining whether either or both of these programs are available to your licensed business, and to help you continue to navigate SLA compliance in light of these new guidelines. If you have questions regarding the operation of your existing licensed business, and/or are contemplating applying for a new license, please contact Alexandra B. Becker, Esq. by e-mail (abecker@nhkllp.com) or phone (518.432.3188).

 

 

THINKING OF APPLYING FOR A LIQUOR LICENSE? NOLAN HELLER KAUFFMAN’S LIQUOR LICENSING ATTORNEYS BELIEVE NOW MAY BE A GREAT TIME TO DO SO

LIQUOR STORES, BEER STORES, ALCOHOL MANUFACTURERS AND WHOLESALERS HAVE BEEN DEEMED “ESSENTIAL BUSINESSES” IN NEW YORK

As part of Governor Cuomo’s “New York State on PAUSE” executive order, all businesses involved in the manufacture, processing or retail of food and/or beverages were deemed essential, including grocery stores, pharmacies, convenience stores, farmer’s markets, gas stations and restaurants/bars (only for take-out/delivery). While not specifically listed in the order, all retail liquor, wine and beer stores, as well as alcohol manufacturers (distilleries, wineries, cideries, breweries) and wholesalers are also considered essential businesses, and are permitted to keep operating during the stay-at-home order and are not obligated to reduce their workforce.

The New York State Liquor Authority (the “SLA”) is continuing to process and review new applications and has put temporary measures in place to ensure that the agency can safely and effectively operate during this time.

Nolan Heller Kauffman would be happy to help you navigate the licensing process, from entity formation, corporate compliance, lease negotiation or property purchase through the SLA’s application procedure. If you have questions regarding the operation of your existing licensed business, and/or are contemplating applying for a new license, please contact Alexandra B. Becker, Esq. by e-mail (abecker@nhkllp.com) or phone (518.432.3188).