Important Covid-19 Considerations for Opportunity Zone Transactions

Client Alert
April 9, 2020

Many of our clients have asked how COVID-19 and, in particular, government-mandated closures due to COVID-19, affect their opportunity zone projects as well as their respective contractual obligations to their lenders, tenants, JV partners and investors. We can tell you from actual experience that projects are moving forward in these challenging times. Accordingly, developers should be aware of two Treasury Regulations that seemingly provide additional time to take advantage of working capital safe harbors and to reinvest sale proceeds. Any grant of extra time to satisfy performance metrics would be welcomed. But some caution is warranted as the statutory language itself is not crystal clear. Certain protocols should be implemented to put your project, Qualified Opportunity Fund ("QOF") or Qualified Opportunity Zone Business ("QOZB"), on the best footing to make use of such additional time.

While we are certain that pandemics were not the focus of the Treasury Department, the Final Regulations did contemplate that stakeholders with opportunity zone properties or businesses situated in a federally declared disaster area[1] should receive additional time to comply with certain timing / testing periods. Specifically, (1) a qualified opportunity zone business may receive up to an extra 24 months to consume its capital on top of the 31 month working capital safe harbor before the QOF would be subject to the 90% test; and (2) a QOF may receive up to an additional 12 months (24 months total) to reinvest the proceeds from the sale of a property in order to preserve its treatment under the OZ Act.

But, while Treasury Regulations addressed additional time (see Treasury Regulations §1.1400Z2(d)-1(d)(3)(v)(D) and §1.1400Z2(f)-1(b)(2)), the specific words Treasury used leave room for interpretation and should cause careful practitioners to be thoughtful in their application. Both above-cited regulations contain the words "may receive" and "up to" in the context of such additional time, and those words do not provide the clarity and the certainty that lawyers aspire to (although we note generally that several sections of the Final Regulations are drafted in similar fashion allowing creative arguments to be made). One might ask rhetorically whether "may receive" means an automatic extension or, alternatively, is there a need to obtain someone’s permission/approval, and if the latter, from whom and on what basis? Similarly, does "up to" mean there is a “decider” who determines the length of an allowable/authorized extension which might be fewer months than the number stated? 

For the immediate future, and prior to receiving any definitive guidance from Treasury, Sullivan’s Opportunity Zone Group recommends that QOFs and QOZBs create a detailed written record of how their respective activities have been negatively impacted and/or delayed. Keep in mind, a good argument exists that the benefit of such additional time is probably only available to entities that are in existence as of the date a federal disaster was declared and which were either in the process of spending monies subject to the working capital safe harbor pursuant to a written plan or had an existing plan to reinvest proceeds from a sale/disposition of qualified opportunity zone property. 

The Sullivan & Worcester Opportunity Zone Working Group is part of a national thought leadership initiative working with Treasury to adapt and modify the Opportunity Zone law and Regulations in light of the national pandemic. All of our members are available to assist you with any of your questions. 

[1] President Trump declared a national disaster for the entire country on March 13, 2020.

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Sullivan has developed a rapid response team of attorneys to help our clients and our communities cope with the impact of the COVID-19 pandemic and understand the implications of the CARES Act and other actions taken by state governments and the federal government. Please refer to Sullivan’s resource center at for more information and for access to Sullivan’s library of related advisories.

Please know that Sullivan is focusing substantial efforts to provide assistance to businesses and individuals affected by COVID-19 and benefited by the CARES Act. If you have questions about how to move forward and navigate the novel legal issues raised by COVID-19 and/or the CARES Act, please contact your primary Sullivan attorney or send a message to

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