By Michael Iannuzzi and Nicholas P. Melillo of Baker Hostetler LLP
Published April 10, 2020
On Tuesday, April 7, we issued an alert in connection with New York Governor Andrew M. Cuomo’s Executive Order No. 202.6 – Continuing Temporary Suspension and Modification of Laws Relating to the Disaster Emergency (EO 202.6), which, among other things, promulgated limitations on nonessential businesses and not-for-profit entities located in the state. Yesterday, April 9, the New York State Department of Economic Development d/b/a Empire State Development (ESD) issued updated guidance to assist businesses in determining whether they are an essential business. This guidance included clarification on construction activities and certain real estate services.
The construction guidelines were updated as follows:
All nonessential construction must safely shut down, except emergency construction (e.g., a project necessary to protect the health and safety of the occupants, or to continue a project if it would be unsafe to allow it to remain undone, but only to the point that it is safe to suspend work).
Essential construction may proceed, to the extent that:
- The construction is for, or your business supports, roads, bridges, transit facilities, utilities, hospitals or healthcare facilities, homeless shelters, or public or private schools.
- The construction is for affordable housing, as defined as construction work where either (i) a minimum of 20% of the residential units are or will be deemed affordable and are or will be subject to a regulatory agreement and/or a declaration from a local, state or federal government agency, or (ii) where the project is being undertaken by, or on behalf of, a public housing authority.
- The construction is necessary to protect the health and safety of occupants of a structure.
- The construction is necessary to continue a project if allowing the project to remain undone would be unsafe, provided that the construction must be shut down when it is safe to do so.
- The construction is for projects in the energy industry in accordance with Question No. 14 in the FAQ found here.
- The construction is for existing (i.e., currently underway) projects of an essential business.
- The construction work is being completed by a single worker who is the sole employee/worker on the job site.
At every site, it is required that the personnel working on the site maintain an appropriate social distance, including for purposes of elevators/meals/entry and exit. Sites that cannot maintain appropriate social distancing, as well as cleaning/disinfecting protocols, must close. Enforcement will be conducted by state and local governments, including fines up to $10,000 per violation.
Construction may continue solely with respect to those employees who must be present at the business location/construction site in support of essential business activities. No other employees/personnel shall be permitted to work in person at the business location/construction site. Any other business activities being completed that are not essential are still subject to the restrictions provided by Executive Order 202.
As noted above, local governments, including municipalities and school districts, are allowed to continue construction projects at this time as government entities are exempt from these essential business restrictions. However, to the greatest extent possible, local governments should postpone any nonessential projects and only proceed with essential projects when they can implement appropriate social distancing and cleaning/disinfecting protocols. Essential projects should be considered those that have a nexus to health and safety of the building occupants or to support the broader essential services that are required to fulfill the critical operations of government or the emergency response to the COVID-19 public health crisis.1
Note that the affordable housing definition set forth on the second bullet point above was revised from prior guidance to include properties subject to city, state and federal declaration. We believe that this change could reasonably be interpreted to include units that are subject to rent stabilization laws and declarations.
With respect to real estate services, Section 14 of the updated guidance provides:
Real estate services shall be conducted remotely for all transactions, including but not limited to title searches, appraisals, permitting, inspections, and the recordation, legal, financial and other services necessary to complete a transfer of real property; provided, however, that any services and parts therein may be conducted in-person only to the extent legally necessary and in accordance with appropriate social distancing and cleaning/disinfecting protocols; and nothing within this provision should be construed to allow brokerage and branch offices to remain open to the general public (i.e., not clients).2
We believe that further guidance is necessary to clarify the proviso that real estate services may be conducted in person “to the extent legally necessary.” A number of real estate services that are necessary to complete a transfer of real property in a prudent and commercially reasonable manner (such as surveys, physical inspections and site visits that are required to prepare and/or obtain appraisals and title, property condition, zoning and environmental reports, to name a few) may technically not be legally necessary (i.e., a transfer of real property can be accomplished without them), but are required by sound and prudent business practices and are standard and customary diligence exercises for almost all real estate transactions. We have reached out to ESD for further guidance on this issue. Until we have clarification on this point, we reiterate that all such service providers should consider a conservative approach and continue to apply for designation as an essential business for purposes of EO 202.6. Applications may be completed on the ESD’s website, available here.
The updated guidance discussed in this alert is available here.
We will continue to monitor ESD’s guidance on what aspects of the real estate industry are considered essential and will continue to provide updates on this issue as more information becomes available.
Note: This is an update to our initial alert titled Empire State Development’s Guidance to New York Governor’s Executive Order No. 202.6 as It Relates to the Real Estate Industry: What Real Estate Services Are Considered Essential Businesses? and originally published on April 7, available here.
[1] Guidance for Determining Whether a Business Enterprise Is Subject to a Workforce Reduction Under Recent Executive Orders, issued by the New York State Department of Economic Development, d/b/a Empire State Development, on April 9, 2020, at 8 a.m.
[2] Id.
Michael Iannuzzi is Counsel in the New York office of Baker Hostetler LLP. He focuses his practice on real estate finance, general real estate and commercial contract matters. He represents financial institutions, private lenders, investors, developers and other entities in a wide range of transactions. He can be reached at miannuzzi@bakerlaw.com or 212.589.4651.
Nicholas P. Melillo is Partner, Head of New York Real Estate at Baker Hostetler LLP. He focuses his practice on the representation of institutional and private lenders, owners, developers, and investors in all aspects of commercial real estate transactions and other business and financial matters. He can be reached at nmelillo@bakerlaw.com or 212.589.4633.