Denise Tucker – Project Development/Infrastructure/P3

March 27, 2020September 8, 2026 by Denise Tucker

Construction Activity in the Covid-19 Era: Essential Activity or Non-Essential Activity?

As more and more states and localities shut down entire industries and order workers and citizens to stay home and shelter in place, many companies are asking “How does this affect my operations?” In this post, we focus on the Construction Industry and how it fits into the Federal, state and municipal mosaic of what is being defined as “essential”.

In many of the states and localities that have ordered “nonessential” industries to cease physical location, in-office or in-facility work, the orders or guidance categorize construction as essential infrastructure. Some of this is on their own volition, other States have relied or been guided by Federal Guidance that has been published by Homeland Security – Cyber and Infrastructure (“CISA”) – Essential Critical Infrastructure Workers During COVID-19 Division. This publication is commonly referred to as CISA. https://www.cisa.gov/news/2020/03/19/cisa-releases-guidance-essential-critical-infrastructure-workers-during-covid-19.

Under CISA many construction activities have been deemed to be “essential” This means that, for that States that are following CISA, in general, construction and construction supply companies may continue operations.

However, not all Executive Orders are created equal. Governors and mayors have created a patchwork of mandates to attempt to flatten the corona virus curve, and not all sectors of the construction industry have a green light to stay open and running. It is vital to carefully review Orders and associated guidance to determine how it applies to the construction industry as a whole, and specific subsections of the construction industry. Moreover, these Orders are subject to change as we saw this morning in New York state. As such, please make sure you are looking at the latest guidance that has been issued or feel free to give us a call or email to discuss your questions.

Below is a list of how California, Nevada, Delaware, Florida, Georgia, Washington, DC, Pennsylvania, Texas, Massachusetts and New Jersey are treating construction in the context of non-essential business physical closure Orders and how some specific jurisdictions such as Philadelphia, Miami, Las Vegas, Atlanta San Francisco, Los Angeles and San Diego have responded all of which directly affects construction industry operations.

*This List has been updated as of March 27, 2020, (3:15 pm EST)

Jurisdictions Direct Impact on Construction Companies and Projects

California: California ordered that all workers must stay home, except workers deemed “Essential Critical Infrastructure Workers.”

Generally, construction workers are “essential” to critical infrastructure. See Guidance. Therefore, construction companies may continue to operate and construction workers may go to work.

Specifically designated as essential are:

• Workers who support the operation, inspection, and maintenance of essential public works facilities and operations, including bridges, water and sewer main breaks, fleet maintenance personnel, construction of critical or strategic infrastructure, construction material suppliers, traffic signal maintenance, emergency location services for buried utilities, maintenance of digital systems infrastructure supporting public works operations, and other emergent issues;

• Engineers, technicians and associated personnel responsible for infrastructure construction and restoration, including contractors for construction and engineering of fiber optic cables;

• Construction Workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction);

• Workers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, construction material sources, and essential operation of construction sites and construction projects (including those that support such projects to ensure the availability of needed facilities, transportation, energy and communications; and support to ensure the effective removal, storage, and disposal of solid waste and hazardous waste).

Los Angeles, San Francisco, and San Diego:

These cities in California have each taken separate positions – some view construction as essential (e.g., San Francisco) and as such permit construction to remain operational which is at odds with the State position on construction (other than as noted above) being deemed to be NON-essential. Care should be taken in these cities to evaluate the State Executive Order in the context of City Orders, noting that in most cases the more restrictive interpretation is likely to rule the day.

Delaware: Delaware ordered the closure of all nonessential businesses.

Construction, however has been deemed to be an “essential” category. See List. Therefore, construction companies may continue to operate and construction workers may go to work.

Specifically designated in the Order as essential are:

• Workers who support the operation, inspection, and maintenance of essential public works facilities and operations, including bridges, water and sewer main breaks, fleet maintenance personnel, construction of critical or strategic infrastructure, traffic signal maintenance, emergency location services for buried utilities, maintenance of digital systems infrastructure supporting public works operations, and other emergent issues;

• Engineers, technicians and associated personnel responsible for infrastructure construction and restoration, including contractors for construction and engineering of fiber optic cables.

• Workers who are engaged in the construction of residential, nonresidential structures, or infrastructure, and any workers who provide critical maintenance to residential or non-residential structures;

• Businesses that supply materials and hardware to those engaged in the construction of residential or non-residential structures;
• Workers involved in activities related to the design and apportionment of residential and non-residential structures.

Washington DC: Washington D.C. ordered the closure of all nonessential businesses except for “Minimum Basic Operations.”

“Construction and Building Trades” are, however, classified as “Essential Businesses” per the Order. Therefore, construction companies may continue to operate.

The Order specifically includes the following as essential under that category: plumbers, pipefitters, steamfitters, electricians, boilermakers, exterminators, roofers, carpenters, bricklayers, welders, elevator mechanics, businesses that sell supplies and materials for maintenance of commercial and residential buildings and homes, including ‘big box’ supply stores, plumbing distributors, electrical distributors, HVAC distributors, and other businesses that provide services that are necessary to maintaining the safety, sanitation, and operations of residences and Essential Businesses.

Florida: Florida has closed only bars and nightclubs at the moment (note, however, given the growth of cases in the last 48 hours, this may change). See March 23 Order. Therefore, construction companies may continue to operate.

Miami:

Miami has ordered that all nonessential retail and commercial establishments close.

The following, among other industries, have been deemed essential:

• Open construction sites, irrespective of the type of building;

• Architectural, engineering, or land surveying services;

• Contractors and other tradesmen … who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences and other structures.

Generally, construction appears to be an essential business, but not all types of construction. Though open construction sites may remain open, the Order does not specifically include construction that has not yet commenced, except for specific purposes. Therefore, construction businesses should evaluate projects on a case-by-case basis.

Georgia: Georgia has closed only bars and nightclubs. See March 23 Order. Therefore, construction companies may continue to operate.

Atlanta:

Atlanta has ordered that all nonessential businesses close and that residents of Atlanta stay at home unless engaging in essential activities.

One exception is for residents to leave to “work for essential businesses.”

Construction is essential infrastructure per the Order. Specifically, “individuals may leave their residence to provide any services or perform any work necessary to the operations and maintenance of ‘Essential Infrastructure,’ including, but not limited to public works, construction, airport operations, utility, water, sewer, gas, electrical, oil refining, roads and highways, railroads, public transportation … provided that they carry out those services or that work in compliance with Social Distancing Requirements as defined herein, to the extent possible.”

Therefore, construction companies may continue to operate in Atlanta.

Illinois: Illinois ordered the closure of all nonessential businesses. Illinois has also ordered that all residents stay home unless leaving to perform an “essential function.”

The Order categorizes construction as essential infrastructure. Therefore, construction companies may continue to operate and construction workers may go to work.

It specifically includes, but is not limited to: construction required in response to this public health emergency, hospital construction, construction of long-term care facilities, public works construction, and housing construction.

Chicago:

Chicago joined in the announcement of the statewide order, which is more expansive and preempts its local orders.

Maryland: Maryland ordered the closure of all nonessential businesses that are not part of the critical infrastructure sectors identified by the Cybersecurity and Infrastructure Security Agency (“CISA”). See CISA Guidance.

As CISA guidance has been used in other states to justify construction related activities as “essential” it is likely that construction related activities will be permitted to continue in Maryland.

The Governor has ordered that all nonessential businesses close. The order defines “nonessential” as anything not part of the critical infrastructure sectors identified in the Cybersecurity and Infrastructure Security Agency’s (CISA) guidance. See attached; https://www.cisa.gov/identifying-critical-infrastructure-during-covid-19 Construction is not a specific category under CISA, but is mentioned in relation to the other categories.

The Maryland Office of Legal Counsel (OLC) published interpretive guidance. The interpretive guidance includes “commercial and residential construction companies” in the list of businesses that are not required to close under the category of Commercial Facilities.

Note: Maryland has 2x updated its list of businesses that are “essential” during the week – which list now includes title companies, engineers, architects, and nurseries. Please make sure to check these updates for your specific business.

Massachusetts: Massachusetts ordered the closure of all nonessential businesses.

Generally, construction is “essential” to critical infrastructure. See Guidance. Therefore, construction companies may continue to operate.

Specifically designated as essential are:

• Construction workers who support the construction, operation, inspection, and maintenance of construction sites and construction projects (including housing construction);

• Workers who support the operation, inspection, and maintenance of essential public works facilities and operations, including roads and bridges, water and sewer main breaks, fleet maintenance personnel, construction of critical or strategic infrastructure, traffic signal maintenance, emergency location services for buried utilities, maintenance of digital systems infrastructure supporting public works operations, and other emergent issues;

• Workers – including contracted vendors – involved in the construction of critical or strategic infrastructure including public works construction, airport operations, water, sewer, gas, electrical, nuclear, oil refining and other critical energy services, roads and highways, public transportation, solid waste collection and removal, and internet, and telecommunications systems (including the provision of essential global, national, and local infrastructure for computing services);

• Workers such as plumbers, electricians, exterminators, inspectors and other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences, construction sites and projects, and needed facilities;

• Engineers, technicians and associated personnel responsible for infrastructure construction and restoration, including contractors for construction and engineering of fiber optic cables.

Boston:

Boston suspended all regular activity at construction sites.

Boston provided the following guidance:

• Employers should maintain the necessary crews to keep their sites safe and secure, keep any materials from blowing away, and prevent trespassing.

• After sites have been secured, skeleton crews will be permitted for the remainder of this suspension to ensure safety.

• The only work that will be permitted moving forward will be emergency work, which will need to be approved by the City of Boston’s Inspectional Services Department.

That essential work includes:

• emergency utility, road or building work, such as gas leaks, water leaks and sinkholes
• new utility connections to occupied buildings
• mandated building or utility work
• work at public health facilities, healthcare facilities, shelters, including temporary shelters and other facilities that support vulnerable populations
• work which ensures the reliability of the transportation network, and
• other work necessary to render occupied residential buildings fully habitable.

Boston has a process to review requests for exceptions to the temporary construction moratorium. These may be granted by the Commissioner of Inspectional Services for building-related work or the Commissioner of Public Works for street-related work. These will be granted if they support increased public health and safety. Notwithstanding this helpful process, the Commonwealth’s Executive Order specifically overrides any municipal order to the contrary, and, as such the Governor’s Executive Order provides the critical guidance on this issue (see above – construction is generally essential).

Nevada: Nevada ordered the closure of “nonessential” businesses that either “promote recreational gatherings” or “promote extended periods of public interaction where risk of transmission is high.”

The Order specifically permits the construction labor force to continue operating, though it must adopt social distancing measures. Therefore, construction companies may continue to operate.

Las Vegas:

Las Vegas listed construction as an essential business, per the Governor’s Order.

New Jersey: New Jersey ordered the closure of all brick-and-mortar premises of non-essential retail businesses, as well as recreational and entertainment businesses and restaurants and bars.

New Jersey’s order does not apply to the construction industry. The state further clarified that “heavy construction” and “other commercial operations” may continue to operate, but should limit onsite staff to essential operations. Therefore, construction companies may continue to operate.

New York : New York ordered the closure of all nonessential businesses.

In general, construction is an essential industry. See Guidance. The guidance INITIALLY and specifically includes:

• Skilled trades such as electricians, plumbers;
• Other related construction firms and professionals for essential infrastructure or for emergency repair and safety purposes.

That initial guidance was modified today, March 27th : https://esd.ny.gov/guidance-executive-order-2026.
Under the revised guidance:

…9. Construction

• All non-essential construction must shut down except emergency construction, (e.g. a project necessary to protect health and safety of the occupants, or to continue a project if it would be unsafe to allow to remain undone until it is safe to shut the site).

• Essential construction may continue and includes roads, bridges, transit facilities, utilities, hospitals or health care facilities, affordable housing, and homeless shelters. At every site, if essential or emergency non-essential construction, this includes maintaining social distance, including for purposes of elevators/meals/entry and exit. Sites that cannot maintain distance and safety best practices must close and enforcement will be provided by the state in coordination with the city/local governments. This will include fines of up to $10,000 per violation.

• For purposes of this section construction work does not include a single worker, who is the sole employee/worker on a job site.

Therefore, construction companies may continue to operate but only if they fall into the above specific exempt categories.

New York City:

The city has adopted the Governor’s Order. The New York City Department of Buildings issued further guidance to owners and contractors regarding enforcement of Essential vs. Nonessential construction in accordance with the Governor’s Order.

Per the guidance, only the following projects will be permitted by the New York City Department of Buildings until further notice:

1. Emergency construction:

a. Project necessary to protect the health and safety of the occupants:

i. Emergency work ordered by the New York City Department of Buildings;

ii. Restoration of essential services – heat, hot water, cold water, gas, electricity, or other utility services; or

iii. Work necessary to address any condition requiring immediate corrective action that severely affects life, health, safety, property, or significant number of persons.

b. Project required to continue to the extent it would be unsafe to allow work to remain undone. Such project may continue only until it is safe to shut the site.

2. Essential construction:

a. Utilities;

b. Hospitals or health care facilities;

c. Transitional and/ or Homeless shelters;

d. Affordable housing: Construction work on public housing, or a private or multiple dwelling or real property that is a new building (NB) or that is 100% vacant; or is work on unoccupied public housing units for the designation as housing for specific populations (i.e. shelter set aside, domestic violence referrals), or work on the exterior to address emergency conditions requiring immediate corrective action, set forth in Section 1(a)(iii) or within public housing, correction of critical systems for seasonal preparedness for the 2020-2021 heating season of an existing public housing building. Construction work on a private or multiple dwelling or real property that is a new building (NB) or that is 100% vacant that is now used or will be converted to such use: (i) For the provision of affordable inclusionary housing or mandatory inclusionary housing pursuant to the New York city zoning resolution; or (ii) Where no less than 30% of the residential units are subject to a regulatory agreement, restrictive declaration, or similar instrument with a local, state, or federal governmental entity or a local housing authority in a city with a population of one million or more.

e. Other essential construction as approved by the New York City Department of Buildings.

3. Work that is limited to a single worker, who is the sole employee/worker on a job site.

Pennsylvania: Pennsylvania has ordered the closure of all non-life-sustaining businesses.

Construction, as a general category, is not “life-sustaining” per Pennsylvania’s published list of industry types. See Guidance.

The state is permitting construction BUT only for emergency repairs and to construction of health care facilities. Therefore, construction companies may not operate unless they fall under an exception or obtain a waiver from the state.

Philadelphia:

Philadelphia ordered that certain businesses close and initially permitted construction through March 27th. Furthermore, Philadelphia is currently under a state-ordered stay-at-home order, but there is an exception for workers traveling to and working for life-sustaining businesses.

Texas: Texas has closed only bars, dining, and gyms. See March 19 Order. Therefore, construction companies may continue to operate.

Various localities in Texas have enacted expansive business restrictions. As with all states, it is important to analyze local law to determine if there are restrictions for business operations.

Virginia: Virginia has only ordered the closure of specific types of recreational and entertainment businesses. See March 23 Order. Therefore, construction companies may continue to operate.

If you have any questions or concerns, please do not hesitate to contact us via email and we will call you back to discuss your concerns.

We can be reached at any of the following email addresses and will direct your inquiry to the appropriate person within our COVID Taskforce – Elizabeth Mincer – emincer@duanemorris.com; Sharon Caffrey – slcaffrey@duanemorris.com; or Dominica Anderson – dcanderson@duanemorris.com.

Be safe.

March 25, 2020September 8, 2026 by Denise Tucker

COVID-19 – White House, Senators Strike Deal on $2T Massive Stimulus Package – 3-25-2020

Early in the morning on 3-25-2020, the Trump administration struck a deal with Senate Democrats and Republicans on an historic rescue package that tees up more than $2 trillion in spending and tax breaks to bolster the hobbled U.S. economy and fund a nationwide effort to stem the coronavirus.

“At last we have a deal,” Senate Majority Leader Mitch McConnell said early Wednesday on the chamber’s floor. “I’m thrilled that we’re finally going to deliver to the country.” Senate Democratic leader Chuck Schumer called it an “outstanding agreement.”

The legislation was still being drafted but McConnell said the Senate would vote on it Wednesday. It would still have to pass in the House before it gets to President Donald Trump’s desk. House Speaker Nancy Pelosi had consulted with Schumer throughout his negotiations with Treasury Secretary Steven Mnuchin.

The plan includes about $500 billion that can be used to back loans and assistance to companies, including $50 billion for loans to U.S. airlines, as well as state and local governments. It also has more than $350 billion to aid small businesses. Then there is $150 billion for hospitals and other health-care providers for equipment and supplies.

Direct Payments:

For individuals the package provides direct payments to lower- and middle-income Americans of $1,200 for each adult, as well as $500 for each child. Unemployment insurance would be extended to four months, the benefits would be bolstered by $600 weekly, and eligibility would be expanded to cover more workers.

Democrats demanded and won a series of restraints on corporations that would benefit from loans or investments from the Treasury Department, as well as an oversight mechanism for who gets money.

Any company receiving a government loan would be subject to a ban on stock buybacks through the term of the loan plus one additional year. They also would have to limit executive bonuses and take steps to protect workers. The Treasury Department would have to disclose the terms of loans or other aid to companies and a new Treasury inspector general would oversee the lending program.

Notably, Democrats won language that would bar any business owned by Trump or his family from getting loans from Treasury. Businesses owned by members of Congress, heads of executive departments and Vice President Mike Pence also would be blocked.

In a letter to his fellow Democrats, Schumer highlighted a series of transparency measures that would prevent keeping loans secret and create a new inspector general to oversee the program.

Schumer also said that hundreds of billions would be spent on Democratic priorities, including the expansion of unemployment benefits, money for hospitals, as well as more funding for cities and transportation.

Democrats also rejected the $3 billion sought by the Trump administration to buy oil to fill the Strategic Petroleum Reserve.

Pelosi said on Tuesday that the House could quickly approve a Senate-passed coronavirus stimulus with a voice vote that does not require members to travel to Washington — as long as the bill does not have any “poison pills” Democrats object to.

That would also require the unanimous consent of all House Republicans. The second-ranking House Republican, Representative Steve Scalise of Louisiana, told his vote-counting team during a conference call Tuesday night that the best option is to accept a Senate-passed economic stimulus bill, according to Scalise spokesperson Lauren Fine.

Eric Ueland, the White House legislative affairs director, said after the agreement was reached that the “the president and his team look forward to swift action for urgently needed assistance to the American people and powerful aid to the nation’s economy as we work through this crisis.”

The size of the stimulus package is unprecedented, dwarfing the approximately $800 billion Obama stimulus that passed five months after the 2008 financial crash.
Together with Fed intervention, the proposed legislation amounted to a $6 trillion stimulus, according to White House economic adviser Larry Kudlow, or about 30% of annual GDP.

The package will likely more than double a U.S budget deficit that was already set to hit $1 trillion this year before the outbreak. It also may not be the last infusion of government spending in response to the spread of the virus.

Lawmakers universally expressed a sense of urgency as the nation’s economy deteriorates and the health outlook grows more dire. The World Health Organization said the U.S. has the potential to become the new epicenter of the global pandemic as the number of known infections soars.

The proposal is the third — and biggest — plan by Congress to confront the coronavirus crisis as the disease spreads.

An initial $8 billion plan passed by Congress March 5th is funding emergency health care needs stemming from the coronavirus, and a second plan enacted last week will provide many Americans with paid sick leave, food assistance, and free coronavirus testing. It also will send tens of billions in fresh aid to states.

The Senate meets at noon and will resume consideration of the motion to proceed to H.R. 748, the shell bill for the coronavirus response package. The Senate will look for agreement to pass the bill today.

Our Legislative Group will continue to track and monitor developments as they progress, If you have any questions do not hesitate to reach out to us and we can connect you with Patty Mackavage and Eric Martins of Duane Morris Governmental Affairs.

Stay safe.

March 23, 2020September 8, 2026 by Denise Tucker

Delaware’s Governor Issues Closure Order for Non-Essential Businesses effective 8 AM on March 24, 2020

Governor John Carney issued his Forth Modification of the Declaration of a State of Emergency for the State of Delaware Due to a Public Health Threat, pursuant to which he has ordered the closure of non-essential business and commercial establishments in the state of Delaware (the “Non-Essential Business Closure Order”).

The order takes effect on Tuesday, March 24, 2002, at 8:00 a.m. and remains in effect “until after May 15, 2020, or the public health threat of COVID-19 has been eliminated . . . .” Violations of the Non-Essential Business Closure Order constitute a criminal offense.

While “Essential Businesses”—as defined in the Governor’s Order and highlighted below—may continue to operate, such businesses must continue to comply with certain health-protecting guidelines and measures promulgated by the Centers for Disease Control and Prevention (“CDC”) or the Delaware Department of Health and Social Services’ Division of Public Health (“DPH”).

Among the measures Essential Businesses are required to observe while they remain open for employees and customers are the following: (a) implementing flexible and non-punitive sick-leave policies; (b) excluding employees who are actively exhibiting signs of illness or have had close contact with persons diagnosed with, or suspected of having COVID-19; and (c) the adoption and encouragement of certain personal hygiene and property sanitizing practices.

The Non-Essential Business Closure Order, appears to be fairly liberal in adopting Delaware’s definition of what businesses or industries are considered Essential Businesses. To that end, businesses that employ or utilize workers in the following general areas are considered “Essential Businesses” and may remain operational to provide functions critical to the day-to-day needs of Delaware’s citizens:

• Healthcare/Public Health: Not surprisingly, the list of workers related to the Healthcare/Public Health industry is quite broad and not only includes those persons directly responsible for providing healthcare services, but also workers and businesses that are critical to the support of such healthcare functions.

• Law Enforcement, Public Safety, First Responders

• Food and Agriculture: Here, too, the list of essential functions broadly captures a wide swath of the food and agriculture segment to ensure that this critical industry remains functional. Thus, the directive generally declares as essential workers and businesses critical to the production of, distribution of, and the sale of food and beverage products not only for human consumption, but also for pets and livestock.

• Energy: This industrial category is broken down into the following sub-categories: (a) Electricity Industry; (b) Petroleum Industry (including transport, storage, refining, distribution, and sales); and (c) Natural Gas and Propane.

• Water and Wastewater

• Transportation and Logistics: This category broadly covers persons and businesses needed to move goods and services, as well as to maintain the assets used in transportation and logistics activities.

• Public Works

• Communications and Information Technology

• Other Community-Based Government Operations and Essential Functions: This category covers workers such as: (a) election personnel; (b) weather forecasters; (c) educators; and (d) hotel workers, among others.

• Manufacturing: This category broadly encompasses: “Workers necessary for the manufacturing of materials, goods, products, or similar distribution.”

• Hazardous Materials

• Financial Services and Insurance

• Chemical

• Defense Industrial Base

• Construction: This category includes both the persons engaging in the construction and repair of residential and non-residential structures and the businesses that supply materials and hardware to those trades.

• Necessary Products Retailers: This category lists a number of “Necessary Products” that include: (a) medical and hygiene supplies, (b) dry goods; (c) agricultural supplies; (d) pet and animal food supplies; (e) hardware; (f) products and equipment needed to work from home; (g) alcohol, beer and wine; and (h) “any other household consumer products or other products necessary to maintain the safety, sanitation, and essential operations of residences.”

• Necessary Retail and Service Establishments: This category lists twenty-six types of Necessary Retail and Service Establishments that include: (a) businesses that sell to or supply such businesses; (b) plumbers, electricians, exterminators, etc.; (c) lawn and garden retail facilities; (d) marinas; (e) childcare facilities; (f) professional services such a legal and accounting; (g) hotels and taxis; and (h) pet sitters.

• Open Air Recreation Facilities

The Non-Essential Business Closure Order also contains a list of types of businesses that are considered “Non-Essential Businesses,” which includes places such as casinos, racetracks, sporting facilities, theaters and concert halls, among others. This list appears to cover a number of facilities in which large numbers of people might ordinarily gather together.

To determine the specific status of a specific type of business or worker, the State of Delaware has published an industry status list, in which the industries named above are broken down into their 4-digit North American Industry Classification System (NAICS) code. The industry classification list states—by code number—which types of businesses may or may not operate (or operate with certain listed restrictions) during the time the order is in force. Moreover, in a set of FAQ published by the State, it is noted that if a business has more than one NAICS code, “[y]ou may follow the instructions for the least restrictive NAICS code your business is classified under.”

CONCLUSION

Delaware’s Non-Essential Business Closure Order appears to broadly define Essential Businesses in a manner that will allow many aspects of Delaware’s manufacturing, commercial and business or landscape to continue to operate, and therefore, to afford Delaware’s citizens the most normal day-to-day life possible in these challenging circumstances and secure in their knowledge that essential aspects of daily lives will not be unnecessarily restricted.

If you have questions regarding how the Non-Essential Business Closure Order might affect your business, the lawyers of Duane Morris, LLP, have had in place a COVID-19 rapid response team for several weeks now and are ready to assist with your legal needs. Information about Duane Morris’ capabilities may be found at www.duanemorris.com.

Feel free to email us as well if easier – slcaffrey@duanemorris.com; dcanderson@duanemorris.com; jsegal@duanemorris.com and we will direct your inquiry accordingly.

Be Safe.

April 17, 2019September 8, 2026 by Denise Tucker

Opportunity Knocks – 2nd Set of Of Opportunity Zone Regulations Issued by Treasury – Duane Morris, LLP

On April 17th the Department of Treasury released a second set of proposed regulations for the Opportunity Zone legislation (the first set of regulations was released in October, 2018) which is intended to encourage economic growth and investment in designated distressed communities (qualified opportunity zones) by providing Federal income tax benefits to taxpayers who invest new capital in businesses located within qualified opportunity zones through a Qualified Opportunity Fund.

The 169 pages of proposed new regulations provide much needed guidance to encourage the future use of the opportunity zone tax benefit and specifically provide guidance for opportunity zone businesses. The following are the highlights of the proposed regulations:

1. Reinvestment of Proceeds from a sale or disposition. A qualified opportunity fund (“QOF”) has 12 months from the time of the sale or disposition of qualified opportunity zone property or the return of capital from investments in qualified opportunity zone stock or qualified opportunity zone partnership interests to reinvest the proceeds in other qualified opportunity zone property before the proceeds would not be considered qualified opportunity zone property with regards to the 90-percent asset test.

2. Real Property straddling an Opportunity Zone and a Non-Opportunity Zone. A business that purchases real property straddling multiple census tracts, where not all of the tracts are designated as a qualified opportunity zones may satisfy the opportunity zone business requirements if the unadjusted cost of the real property inside a qualified opportunity zone is greater than the unadjusted cost of real property outside of the qualified opportunity zone.

3. Safe Harbors for the Fifty Percent (50%) Income Test for Qualified Opportunity Zone Businesses (“QOZBs”).

The proposed regulations provide three safe harbors and a facts and circumstances test for determining whether sufficient income is derived from a trade or business in a qualified opportunity zone for purposes of the 50-percent test.

a. The first safe harbor requires that at least fifty percent (50%) of the services performed (based on hours) for such business by its employees and independent contractors (and employees of independent contractors) are performed within the qualified opportunity zone.

b. The second safe harbor provides that if at least fifty percent (50%) of the services performed for the business by its employees and independent contractors (and employees of independent contractors) are performed in the qualified opportunity zone, based on amounts paid for the services performed, the business meets the fifty percent (50%) gross income test.

c. The third safe harbor provides that a trade or business may satisfy the fifty percent (50%) gross income requirement if: (1) the tangible property of the business that is in a qualified opportunity zone and (2) the management or operational functions performed for the business in the qualified opportunity zone are each necessary to generate fifty percent (50%) of the gross income of the trade or business.

d. Finally, taxpayers not meeting any of the other safe harbor tests may meet the fifty percent (50%) requirement based on a facts and circumstances test if, based on all the facts and circumstances, at least fifty percent (50%) of the gross income of a trade or business is derived from the active conduct of a trade or business in the qualified opportunity zone.

Note that the seventy percent (70%) tangible property test that requires that seventy percent (70%) of the tangible property of the QOZB be located within the Opportunity Zone continues to be operative for QOZBs.

4. Working Capital Plans – the 31 Month Test. The following two changes were made to the safe harbor for working capital.

a. First, the written designation for planned use of working capital now includes the development of a trade or business in the qualified opportunity zone as well as acquisition, construction, and/or substantial improvement of tangible property.

b. Second, exceeding the 31-month period does not violate the safe harbor if the delay is attributable to waiting for government action the application for which is completed during the 31-month period.

5. Measurement Periods. To help startup businesses the proposed regulations allow a qualified opportunity fund to satisfy the ninety percent (90%) without taking into account any investments received in the preceding 6 months provided those new assets being held in cash, cash equivalents, or debt instruments with term 18 months or less. This flexibility is intended to alleviate concerns with a QOF receiving additional capital gain funds right before a testing period and not being able to deploy the funds prior to the testing period.

6. Exclusion Elections. A taxpayer that is the holder of a direct qualified opportunity fund partnership interest or qualifying qualified stock of a qualified opportunity fund S corporation may make an election to exclude from gross income some or all of the capital gain from the disposition of qualified opportunity zone property reported on Schedule K-1 of such entity, provided the disposition occurs after the taxpayer’s 10-year holding period.

7. Continued OZ treatment after Death. Neither a transfer of the qualifying opportunity fund investment to the deceased owner’s estate nor the distribution by the estate to the decedent’s legatee or heir would result in the loss of the opportunity fund investment benefit.

8. Vacant Property. Where a building or other structure has been vacant for at least five (5) years prior to being purchased by a qualified opportunity zone business or qualified opportunity zone business, the purchased building or structure will satisfy the original use requirement.

9. Leased Property – QOZBs; Original Use; Related Party Permissions; Anti-Abuse Rules. Leased property may be treated a qualified opportunity zone business property if the following two general criteria are satisfied.

a. First, leased tangible property must be acquired under a lease entered into after December 31, 2017.

b. Second, substantially all of the use of the leased tangible property must be in a qualified opportunity zone during substantially all of the period for which the business leases the property.

The proposed regulations, however, do not impose an original use requirement with respect to leased tangible property and do not require leased tangible property to be acquired from a lessor that is unrelated. However, the proposed regulations provide one limitation as an alternative to imposing a related person rule or a substantial improvement rule and two further limitations that apply when the lessor and lessee are related.

a. First, the proposed regulations require in all cases, that the lease under which a qualified opportunity fund or qualified opportunity zone business acquires rights with respect to any leased tangible property must be a “market rate lease.”

b. Second, if the lessor and lessee are related, a qualified opportunity fund or qualified opportunity zone business at any time make not make a prepayment to the lessor relating to a period of use of the leased tangible property that exceeds 12 months.

c. Third, the proposed regulations do not permit leased tangible personal property to be treated as qualified opportunity zone business property unless the lessee becomes the owner of tangible property that is qualified opportunity zone business property and that has a value not less than the value of the leased personal property. This acquisition of this property must occur during a period that begins on the date that the lessee receives possession of the property under the lease and ends on the earlier of the last day of the lease or the end of the 30-month period beginning on the date that the lessee receives possession of the property under the lease.

d. Finally, the proposed regulations include an anti-abuse rule to prevent the use of leases to circumvent the substantial improvement requirement for purchases of real property (other than unimproved land). In the case of real property (other than unimproved land) that is leased by a qualified opportunity fund, if, at the time the lease is entered into, there was a plan, intent, or expectation for the real property to be purchased by the QOF for an amount of consideration other than the fair market value.

It is also worth noting that improvements made by a lessee to leased property satisfy the original use requirement and are considered purchased property. Thus, a tenant in a building can also satisfy the QOZB tests noted under the OZ Act.

10. Intangible Assets. For purposes of determining whether a substantial portion of intangible property of a qualified opportunity zone is used in the active conduct of a trade or business, the term “substantial portion” means at least 40 percent.

11. Unimproved Land. Unimproved land that is within a qualified opportunity zone and acquired by purchase is not required to be substantially improved if it is used in a trade or business of the QOF or the QOZB.

12. Investments Held by Funds. Funds have been provided with additional flexibility to hold more than one investment within a fund if they are structured appropriately.

13. Inventory. Inventory in transit to a QOZB within an OZ will be treated as tangible property that counts for purposes of the seventy percent (70%) test for QOZBs even if it is not within the OZ so long as it is on the way.

14. Debt Financed Distributions. Guidance has been provided under the new regulations regarding refinancing and distributions to partners/members which would permit appreciated portions of the property that have been refinanced to be distributed to the partners or members of the QOF on a tax free basis so long as the distribution is not in excess of the investors basis.
We will continue to review the new regulations and intend to issue additional commentary on it. In the interim, feel free to contact us to discuss any questions you have or transactions you are considering in this space.

Art Momjian, Co-Head, The Opportunity Zone Team – Duane Morris LLP