The Potential for Community Associations to Exercise “Emergency Powers” as a Result of COVID-19

The Potential for Community Associations to Exercise “Emergency Powers” as a Result of COVID-19

Florida Statute Sections 718.1265 and 720.316 provide condominium associations and homeowners’ associations, respectively, the right to exercise certain emergency powers “in response to damage caused by an event for which a state of emergency is declared pursuant to s. 252.36 in …

the locale in which the condominium is located [for a condominium association]”.

the area encompassed by the association [for a homeowner’s association]”.

The range of emergency powers includes, but is not limited to:

  1. The right to conduct board or membership meetings by means other than in person gatherings;
  2. The right to determine that portions of the association’s property would be unavailable for entry or occupancy;
  3. The right to levy special assessments without a vote of the owners; and
  4. The right to borrow money and pledge association’s assets as collateral.

Clearly, these emergency powers would apply in the event of physical damage to association properties caused by an event that results in a state of emergency being declared within the State of Florida.  However, could these emergency powers be used when the “damage” to the association may be economic in nature (such as the loss of expected assessment revenue) or in the form of possible future personal injury or death to others (caused by the permitted use of the association’s property by infected individuals) and when the damage is caused by the consequences of a pandemic, such as COVID-19?

On March 27, 2020, the Florida Department of Business and Professional Regulation issued its emergency order 2020-04.  That order recognized that there were certain emergency powers that were available to associations, enumerated in both the condominium statute (in Section 718.1265) and the HOA statute (in Section 720.316), that could be used as a result of COVID-19.  Those powers expressly recognized by emergency order 2020-04 included the right to conduct board or membership meetings by means other than in person gatherings and the right to determine that portions of the association’s property would be unavailable for entry or occupancy.  However, the powers expressly recognized by emergency order 2020-04 did not include the right to levy special assessments without a vote of the owners or the right to borrow money and pledge association’s assets as collateral.

On May 20, 2020, the DBPR issued a new order, emergency order 2020-06.  The new order terminates most of the provisions in the original order, effective June 1, 2020.

The fact that the DBPR has issued this new order does not mean that the emergency powers of associations that were referenced in the earlier order cannot be used.  However, it means that, in the event a purported emergency power is used by an association which is subsequently challenged by an owner in the community, a court would need to decide whether that emergency power could be used.  The DBPR is no longer providing associations with a possible “safe harbor” to use in arguing that an association’s emergency powers can be used.

It should also be noted that the impact of the original DBPR emergency order, and the impact of the subsequent DBPR emergency order that terminates the original order, is subject to debate.  Many attorneys have questioned whether the DBPR had the requisite constitutional authority to issue a pronouncement that the needed  “emergency” that was required to trigger these “emergency powers” was in existence.  For those attorneys holding such a belief, the issuance of the original order was viewed as an ineffective act, as only the Florida legislature could have modified the provisions of these statutes to clarify whether the “emergency powers” could be triggered by a pandemic, and only a Florida court could have made a binding interpretation of whether the existing provisions of these statutes would allow for an association’s use of these “emergency powers” in the event of a pandemic.  These attorneys also believe neither of these DBPR emergency orders would have impacted the issue of whether community associations could utilize “emergency powers” due to the pandemic.

Any community association seeking to invoke emergency powers should seek assistance of its counsel before doing so.

For the latest news on COVID-19’s effects on community associations, contact our association law team for more information.

Update to CARES Act – SBA Issues New Guidance on PPP Loan Forgiveness

Update to CARES Act – SBA Issues New Guidance on PPP Loan Forgiveness

On May 15, 2020, the U.S. Small Business Administration (“SBA”) released its long-awaited guidance on the forgiveness of Paycheck Protection Program (“PPP”) Loans, in the form of the Paycheck Protection Program Loan Forgiveness Application (the “Application”). The Application contains four components – 1) the PPP Loan Forgiveness Calculation Form, 2) the PPP Schedule A, 3) the PPP Schedule A Worksheet, and 4) the PPP Borrower Demographic Information Form. In order to qualify for forgiveness, a Borrower must provide its Lender with a complete PPP Loan Forgiveness Calculation Form and the PPP Schedule A. The PPP Schedule A Worksheet, on which the Borrower must identify each employee employed during the covered period and allocate payroll costs incurred by each such employee (amongst other things), must be completed and maintained within the Borrower’s records for six years after forgiveness, but is not required to be submitted to the Lender at the time of application for forgiveness. The PPP Borrower Demographic Information Form is completely optional. Accompanying the Application are a set of very detailed instructions which highlight several new developments in the manner in which the forgiveness program will be interpreted and administered. The following are a few of those developments:

  1. Expansion of “Covered Period” –The CARES Act provides that forgiveness will apply to certain costs incurred and payments made (more on this later) during the “Covered Period”, which is defined as the 8-week period beginning on the date of the origination of the PPP Loan (i.e. the date the loan is disbursed to Borrower). The Application clarifies that Borrowers now have the option of designating an “Alternative Payroll Covered Period,” which will begin on the first day of the Borrower’s first pay period following the date of disbursement. This Alternative Payroll Covered Period may be used instead of the “Covered Period” for calculations related to payroll costs and forgiveness reductions, but not for the calculations related to non-payroll costs eligible for forgiveness, such as interest on mortgage debt, rent, and utilities.
  2. Loans greater than $2 million, affiliates included – The Application contains a check-box which must be checked off by Borrowers who, together with their affiliates, have received PPP loans in excess of $2 million. The FAQ for Lenders and Borrowers (the “FAQ”) published and periodically updated by the SBA, in questions 39 and 46, had already made clear that such Borrowers would be subject to a review of their loan file by the SBA and Department of Treasury, so it should be no mystery why this check-box is included in the Application. However, the significance of this inclusion is that Borrowers must now actively confirm whether their loan amount combined with their affiliate’s loan amount(s) exceeds the $2 million threshold in order to provide the accurate information on the Application. This will require such Borrowers to interpret the affiliation rules contained in the regulations concerning the Small Business Act and the prior regulations released regarding the CARES Act in order to accurately check the box.
  3. Payroll Costs incurred but not paid may be forgiven– According to the instructions for the PPP Loan Forgiveness Calculation Form, payroll costs fall within the Covered Period or Alternative Covered Period, and are therefore eligible for forgiveness, when they are either 1) paid, meaning a paycheck has been distributed or an ACH credit transaction has been originated, or 2) not paid, but incurred during the last pay period of the Covered Period or Alternative Payroll Covered Period, as applicable, and paid on or before the next regular payroll date. This clarifies the meaning of the phrase “costs incurred and payments made during the covered period,” as used in the CARES Act with respect to payroll costs eligible for forgiveness.
  4. Payroll costs forgiveness capped at $15,385.00 per employee – the CARES Act has always specified that “payroll costs” do not include “the compensation of an employee in excess of an annual salary of $100,000.00, as prorated for the covered period.” Now, that exclusion has been condensed to a specific number – $15,385.00. In the PPP Schedule A Worksheet, Borrowers must not allocate more than this amount to any single employee.
  5. FTE calculation revealed – Under the CARES Act, a Borrower’s forgiveness amount will be reduced by a factor based on a reduction in the average “full-time equivalent employees” (“FTE”) during the covered period. After much speculation as to whether FTE’s would be calculated in accordance with I.R.S. standards or otherwise, the Application has revealed two ways in which FTE’s may be calculated for purposes of determining the reduction factor – 1) for each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth, capped at 1.0 or 2) employees who work 40 hours or more per week are assigned 1.0 FTE, and all other employees are assigned a .50 FTE (the “simplified” method).  Under the first method, for example, if an employee Is paid an average of 35 hours per week, he or she will count as .9 FTE (.875 rounded to the nearest tenth).
  6. New exceptions to reductions in forgiveness – Now, the reductions in the forgiveness amount due to reduction in FTE will not apply 1) for any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or Alternative Covered Period which the employee rejects, and 2) for any employees who were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours, during the Covered Period or Alternative Covered Period. The exception will not apply to either if these categories if a new employee is hired to replace the one lost. One thing to note is that these exceptions are limited to events occurring in the 8-week Covered Period or Alternative Covered Period. This may be significant since some of these events may have occurred outside the 8-week period but may nonetheless factor into the reduction calculation. For example, if any employees voluntarily resigned after February 15, 2020 (the date which a Borrowers FTE numbers during the Covered Period or Alternative Covered Period are compared against) but before the Covered Period or Alternative Covered Period begins, then they will presumably factor into the reduction in FTE’s per the calculation in the Act, even though they were not terminated by the Borrower.

Here is a link to the Application, in its entirety – https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf

For the latest updates on PPP Loan Forgiveness Guidance, contact our corporate law or banking and finance teams for more information. To see other legal updates that are occurring from COVID-19, visit our resources page HERE.

Attorney Dillon L. McColgan Joins ShuffieldLowman

ORLANDO, FLORIDA – ShuffieldLowman recently announced that attorney Dillon L. McColgan has joined the firm’s Orlando office, practicing in the areas of fiduciary litigation, commercial and civil litigation and employment law.  McColgan brings solid experience from years of practicing law at one of Southwest Florida’s largest law firms.

McColgan is admitted to practice law in Florida and the U.S. District Courts for the Middle and Southern Districts of Florida.  He is a member of the Florida Defense Lawyers Association, Defense Research Institute, and the American Bar Association’s Young Lawyers Division.

He holds his B.A. in Political Science from the University of Central Florida and his J.D., cum laude, from the University of Miami School of Law, where he earned a prestigious merit scholarship.  During law school, he served as a judicial intern for the Honorable Judge Ivan Fernandez of the Florida Third District Court of Appeal.

He has been an active volunteer with the United Way, and enjoys serving on behalf of food banks and other organizations that provide for those with food insecurity.

ShuffieldLowman’s four offices are located in Orlando, Tavares, DeLand and Port Orange. The firm is a 45 attorney, full service, business law firm, practicing in the areas of corporate law, estate planning, real estate and litigation. Specific areas include tax law, securities, mergers and acquisitions, intellectual property, estate planning and probate, planning for families with closely held businesses, guardianship and elder law, tax controversy – Federal and State, non-profit organization law, banking and finance, land use and government law, commercial and civil litigation, fiduciary litigation, construction law, association law, bankruptcy and creditors’ rights, labor and employment, and mediation.