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New Paycheck Protection Program (PPP) Offers Relief to Co-ops What We Know So Far

As the economic disruptions from the COVID-19 pandemic grind on, Congress has provided additional relief for small businesses to help them hang on until nationwide vaccination efforts are able to turn the tide of the crisis. The good news for co-ops is that it appears they are now eligible to seek assistance in the face of falling revenues through the Paycheck Protection Program (PPP).

The PPP was designed and launched in the spring of 2020 to provide gap financing to employers who have experienced a severe drop in revenue due to mandatory restrictions and shutdowns imposed on business activities due to the pandemic. It’s easy to understand how a restaurant might suffer such a devastating decline in revenue - but what about a co-op building?

Revenue Decline

Cooperative corporations are not-for-profit organizations. Basically, co-op shareholders pay in their proportional maintenance fee every month to cover the expenses associated with running their building. These fees are calculated and set to do exactly that, with some reserve cushion - not to make a profit. So what then could cause a co-op to experience a reduction in revenue that leads to it being unable to pay bills like staff salaries, underlying mortgage payments, and real estate taxes?

From a practical point of view there are two likely possibilities: arrearages from shareholders being unable to make their monthly maintenance payments, and even more likely, arrearages from commercial tenants who can no longer pay their rents.

Co-ops with commercial tenants calculate their annual budget to include those tenants’ rent; that income offsets the amount necessary to meet obligations that’s then proportionally divided between shareholders in the form of their monthly maintenance charges. If that commercial income suddenly disappears, what choices do board and management have to meet their community’s financial obligations?  

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