Overdue Rent and Mortgage Problems for Restaurant Owners


Second to labor, restaurant owners’ next biggest expense is their rent or mortgage payment. Since COVID-19 lockdowns began in March, many restaurant owners have furloughed their employees which accomplished the dual benefit of limiting the owners’ expenses while allowing their employees to collect unemployment benefits. Rent and mortgage bills, however, have continued accruing every month.

According to a poll conducted by the Associated Press and the University of Chicago between May 14-18, 15% of Americans say that “because of the coronavirus outbreak” they “have been unable to make a rent or mortgage payment.” The poll is representative of the American population within a margin of error of 4.2% at 95% confidence.

Despite a looming delinquency rate of 15%, both state and federal governments have hesitated to institute any policies to waive rent or mortgage payments. Most simply provide general guidance, such as “tenants are not relieved of their obligation to pay rent” and “discuss with your landlord or management agent how and when you will be able to pay all your rent.”

When Congress approved its $2.2 trillion tranche of CARES Act in March, it included a provision to allow homeowners with government-backed mortgages to defer payments for up to a year. The CARES Act explicitly limits the deferral to homeowners as “protections for renters in federally-supported housing by putting in place a moratorium on evictions for up to 120 days beginning on March 27, 2020.”

Notably, that provision excludes renters as well as commercial mortgage borrowers (e.g. restaurant owners) from forbearance. Some state legislators have passed laws in a piecemeal fashion that protect some aspects of the problem. Several states have passed a “moratorium” on commercial evictions — most for 90 days — but are providing no funds for rent nor mortgage relief. In Connecticut for example, it is illegal to evict a tenant until July, but there are no laws waiving rent nor mortgage obligations.

One of the largest portions of the multi-trillion dollar fiscal stimulus packages was the Paycheck Protection Program (PPP), a forgivable loan from the Small Business Administration that converts to cash that borrowers do not have to repay so long as they comply with certain terms. Most importantly, 75% of the PPP loan must be expended on staff payroll, and borrowers must maintain at least 75% of their pre-coronavirus headcount.

Restaurateurs have lobbied for changes to these terms, but have not yet convinced U.S. Treasury Secretary Steven Mnuchin to modify the PPP. 

Last week, lobbyists were successful in convincing Congressman Chip Roy to introduce the PPP Flexibility Act, which will eliminate these 75% thresholds if the Flexibility Act passes both chambers and is signed into law by President Trump. “For many businesses, payroll simply does not represent 75% of their monthly expenses and 25% does not leave enough to cover mortgage, rent, and utilities. Retaining employees is not possible if a business cannot retain their physical location.” House Speaker Nancy Pelosi said that she would be willing to allow voting on the Flexibility Act as early as next week.

Mnuchin started calling for loan repayment or forgiveness applications from borrowers on May 15. Senators questioned him about the PPP for several hours during a full committee Senate Hearing on May 19. That same day, the National Restaurant Association CEO Marvin Irby and Board Chair Melvin Rodrigue attended an in-person with Mnuchin and President Trump. The following day, Congressman Earl Blumenauer announced The Real Economic Support That Acknowledges Unique Restaurant Assistance Needed to Survive (R.E.S.T.A.U.R.A.N.T.S.) Act of 2020, calling for an additional $120 billion restaurant grant program.

The Small Business Administration has approved over 4.4 million PPP loans worth more than $537 billion since the program launched on April 3. The loans must be repaid within eight weeks of receipt, unless the Small Business Administration approves the borrower’s Loan Forgiveness Application.

Photo by Precondo CA on Unsplash

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