Coronavirus–Is Your Business Essential?
It seems like my son’s orchestra can’t win with European tours. This year’s tour was canceled due to coronavirus (“COVID-19”). Last year, the orchestra’s tour was canceled because they didn’t have student musicians playing all the necessary instruments for an orchestra.
The orchestra manager didn’t say what instruments were missing, but I can guess. Some instruments are essential to an orchestra. Others either aren’t used in every musical composition, or other instruments can play their parts.
For instance, it would be impossible to have a string orchestra without violins and cellos. However, violas frequently are scarce. The conductor can select music where the viola part is mostly in the range a violin can play. Then, the viola part can be written so that violins can play most of it with little impact on the result.
In recent weeks, the government, like the orchestra manager, has been forced to consider what is an essential business and what is not. Several governors, including Maryland’s Governor Hogan, have issued orders closing “non-essential businesses.”
It’s evident that some businesses, such as health care, is essential. But it’s not as clear about other businesses. Real estate owners and related businesses may wonder which of their operations are allowed–and which are not.
This article is part of a series discussing COVID-19 and real estate law. Previous articles are available in my Bach to Business blog. This article discusses what businesses are essential and how to determine whether a real estate business is essential.
Who Decides What Businesses Are Essential?
The Cybersecurity and Infrastructure Security Agency (“CISA”) of the Department of Homeland Security has created official guidance. Although CISA indicates that the list is “advisory,” and does not carry the force of law, it may help businesses to determine if they are “essential,” at least as far as federal law is concerned.
However, when the state has ordered the closure of “non-essential businesses,” the state will determine what is essential. So far, state orders have come from the executive branch (governors), rather than the legislature. Therefore, the executive branch, typically the governor’s office, provides guidance on what businesses are and are not essential.
State lists of essential businesses may differ from CISA’s list due to different evaluation criteria. CISA’s focus is on identifying “essential critical infrastructure workers.” Therefore, CISA’s focus could be on maintaining a necessary infrastructure. States may additionally be concerned about maintaining the strongest economy possible, given the circumstances.
What Businesses are Essential?
Initially, Maryland’s Governor Hogan deferred to CISA’s list to determine what businesses are “essential.” Maryland’s Office of Legal Counsel (“OLC”) later provided Interpretive Guidance regarding essential businesses, which later was further updated. Although more comprehensive than CISA’s list, Maryland’s list can be viewed as explaining CISA’s list, rather than expanding upon it.
California, Illinois, Louisiana, New Jersey, and New York, and other states have also issued restrictions, along with guidance on what is an essential business.
Under both the Maryland and CISA guidelines, “financial services” are essential businesses. Although both Maryland and CISA say their lists aren’t exhaustive, Maryland’s list more clearly includes commercial real estate on its “essential list.”
Both CISA and Maryland have a category for supporting services for essential businesses. Supporting services include payroll and employee benefits management, for instance.
There are no specific guidelines, but supporting services probably include services not explicitly named. For instance, title companies, attorneys, and accountants aren’t specifically mentioned under the CISA standards. Yet, when those professionals assist with banks, lenders, or capital markets activities, they may be essential. Whether a particular business is essential may depend on the specific facts and circumstances.
Applying These Standards to Commercial Real Estate Businesses
The commercial real estate industry includes several businesses, including those required for the operation and maintenance of real estate assets and those involved in real estate transactions.
Real Estate Property Maintenance
Real estate maintenance can be divided into three categories: health and safety, asset preservation, and revenue enhancement. It’s clear under CISA’s guidelines that the correction of issues that pose a danger to the health and safety of others is an essential business, so maintenance definitely should continue.
It’s less clear whether asset preservation and revenue enhancement maintenance and repairs may continue. Asset preservation repairs include work characterized as “routine maintenance.” However, asset preservation also includes repairing damage that could, over time, result in a health or safety issue. Asset preservation also is critical to the long-term “continuity of business operations.” Therefore, owners should be safe in making asset preservation repairs.
Revenue enhancement repairs include things expected to improve revenue but aren’t essential to asset preservation. Revenue enhancement repairs can include additional amenities, such as sports courts, playground equipment, or outdoor grills, or an Amazon Hub. Revenue enhancement also can include expense reduction repairs, such as installing a vending area, solar panels, low-flow toilets, or LED lighting fixtures. It also may involve installing gates and payment equipment to change from free parking to a fee parking model or turning an apartment complex into a gated community.
In Maryland, all construction work is considered essential. It’s crucial to the economic infrastructure that as many people as possible remain employed, provided they safely can work in conditions that aren’t likely to spread COVID-19. However, in other jurisdictions, owners will need to carefully review the state guidelines to determine whether they are comfortable pursuing asset preservation and revenue enhancement work.
Real Estate Property Operations
Whether real estate property operations are generally essential may depend upon who is using the property. Multifamily and senior housing communities house people, which is essential under any standard.
Office building operations may be essential if they house essential businesses. Under this analysis, a building that houses many physicians’ offices or banking operations would be essential even if otherwise it might not be so.
Similar to office buildings, whether hotel operations are essential may depend upon how the real estate is being used. CISA’s guidelines would have hotels be essential only if they are used for COVID-19 mitigation or containing. Maryland provides all lodging is essential, which presumably, would include hotel operations for a hotel used to house people temporarily.
Real Estate Transactions
By including title companies on the list of essential business Maryland clarified that real estate transactions are essential. Maryland recognizes that continuing real estate transactions and syndications helps maintain the critical real estate sector despite the recent economic downturn.
Real estate transactions support the financial services sector by initiating lending and moving cash through the system. New real estate owners frequently make upgrades, which benefits the construction industry.
Other states could issue guidelines that slow or stop real estate transactions. Even where that doesn’t happen, closure of government recording offices without an online recording option might make it impossible to complete a real estate transaction. And if professionals, such as surveyors and title companies aren’t open, transactions cannot move forward.
Other Considerations for Essential Businesses
Just because a business is essential doesn’t mean it should continue business as usual. Every business needs to protect both its employees and customers during the pandemic.
Although it’s beyond the scope of this article, businesses also should consider OSHA requirements and the health and safety of employees, contractors, and customers when deciding what business to continue—and how to continue it. Some businesses may need to obtain online new services or adjust operations to facilitate telecommuting or virtual meetings. Others may need to develop new social distancing policies.
Business social responsibility isn’t a new idea, but it’s especially important now. It’s crucial to keep as many people employed as possible, but only if they can work safely. Therefore, even essential businesses should continuously evaluate whether and under what circumstances they should continue operations.
© 2020 by Elizabeth A. Whitman
Any references clients and their legal situations have been modified to protect client confidentiality
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