Sales/Acquisitions of Real Property: Buyers may raise and sellers should consider how to assess/respond to the following items, some of which are related to transactions that are under contract and others that address negotiating contracts of sale:
Renegotiated purchase prices
Extended diligence periods (to assess the impact of COVID-19)
Financing contingencies/extended periods of time between contract signing and closing (in light of the potential difficulties in obtaining financing)
Representations regarding tenants/occupants being quarantined due to COVID-19
Condemnation provisions that include temporary takeover by local governments to house COVID-19 victims
Delays in closing or termination of contracts based on force majeure, condemnation and/or failure of tenants to deliver required estoppels due to the impact on tenants’ businesses; buyers, when facing a time-of-the-essence closing where a closing condition cannot be satisfied as a result of COVID-19, may request open-ended or lengthy extension rights to be able to extend until conditions can be satisfied rather than being required to terminate the contract
Closing Considerations: Title companies may not be able or willing to issue title policies if governmental offices required for title searches and/or the recorder’s office are closed.
Real Estate Financings — Borrowers:
Borrowers should commence the refinancing process early in light of the fact that it may be more difficult to obtain financing (particularly for asset classes such as gaming, co-living/co-working and hospitality) despite historically low interest rates or to refinance on favorable terms (e.g., nonrecourse).
With respect to existing real estate loans, borrowers concerned about satisfying one or more loan covenants should review their loan documents to assess whether force majeure or similar provisions might be applicable and otherwise should reach out to their lenders to discuss temporary relief prior to such issue becoming a default.
Real Estate Financings — Lenders:
Lenders should consider adding representations and covenants in their loan documents addressing quarantining of tenants/occupants, local governments taking over properties to house virus victims and reduction of borrowers’ net operating income due to increased operating costs and reduced cash flow from tenants whose businesses have been affected by COVID-19.
Lenders concerned that borrowers might breach their covenants or make force majeure or similar claims should review their loan documents to assess and prepare for such scenarios.
Leases: Tenants may raise or cause and/or landlords should consider how to assess and respond to the following items:
Tenants’ requests for rent relief
Increase in tenant bankruptcies
The extent of insurance coverage for business interruption due to the COVID-19 pandemic
Pandemics as force majeure excusing/allowing delay in performance under leases
Amendments to leases for operational changes such as increased janitorial services
Concerns over certain types of tenants (e.g., those providing co-working space)
Leases with percentage rent and the effect of significant declines in business
Termination rights for failure of a retail tenant to meet an applicable financial test
Note that many significant Real Estate Board of New York landlords have agreed to halt evictions for the next 90 days (though CHIP has separately raised concerns about any such moratorium).
Condominium/Coop Matters:
Subject to the discussion above regarding real estate contracts of sale generally, it is expected that new purchase contracts for condominium units and co-op apartments will continue to be signed and all cash closings will continue so long as government offices and title companies are open for business. However, there is some concern that individual unit lenders and their counsel have not yet readily adapted to escrow closings through title companies. We understand that banks are beginning the process of exploring ways to facilitate such escrow closings.
With regard to registrations of public offerings with the New York State Attorney General’s office, as of now, the AG’s office is working on a staggered schedule and may soon be working largely remotely. The AG’s office is reviewing options for emergency regulatory relief to minimize nonessential pro forma offering plan and amendment submissions and to suspend certain hard-copy signature and filing requirements.
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