The End of An Area: Planning Now for Potential Loss of HUBZone Status

PilieroMazza PLLC
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PilieroMazza PLLC

2021 is an important year for the many HUBZone firms located in redesignated areas that will lose HUBZone status after 12/31/21. For these firms, the time is now to plan for maintaining HUBZone status in 2022 and beyond. Here’s what you need to know.

If you are located in a redesignated area that loses HUBZone eligibility after this year, you could make plans this year to move your office to a new location that will still be HUBZone eligible after the end of the year. Before going that route, however, you should evaluate whether you can qualify your current principal office location to remain HUBZone eligible for at least 10 years under a new rule SBA implemented about one year ago. According to this rule, if a firm owns its office or enters into a long-term lease (i.e., of at least 10 years) for its office in an area that qualifies as HUBZone at the time of the firm’s initial certification or an annual recertification, SBA will deem the firm’s principal office to be located in a HUBZone for at least 10 years from the date of the certification, as long as the firm maintains the long-term lease or continues to own the property.

Notably, the new 10-year rule can apply retroactively if you bought your office or entered into a long-term lease prior to an earlier HUBZone certification. Therefore, even though the rule has only been around for about one year, it is possible that you may be able to take advantage of the new 10-year rule based on the circumstances that may have existed at the time of one of your prior recertifications or your initial HUBZone certification.

According to SBA’s rules, you cannot take advantage of the new 10-year rule if you buy or make a long-term investment in your office at a time when the area is in redesignated status. At first blush, this would seem to present a problem for firms located in a redesignated area that might want to use the new rule at some point in 2021 before their area loses HUBZone status at the end of the year. However, if your redesignated area is considered a qualified disaster area (QDA), this will allow you to use the 10-year rule if you own your office or make a long-term investment this year. Many redesignated HUBZone areas qualify as QDAs because of COVID or a natural disaster. If you want to go this route, you will need to buy your office or enter into a long-term lease in the QDA before your 2021 HUBZone recertification.

PilieroMazza is working with HUBZone firms to help them determine their options for addressing loss of HUBZone status for their redesignated area at the end of 2021. If you are currently in a redesignated area that will lose HUBZone status at the end of 2021, before you decide if you need to move your principal office, we recommend exploring if you can take advantage of the new 10-year rule. Please reach out to Jon Williams and Anna Wright, members of PilieroMazza’s Government Contracts Group, if you need help determining how to take advantage of this new principal office rule, whether you are located in a QDA, and any other HUBZone compliance questions you may have.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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