Authors: Saravan Veylan, Tessa Rowland
Prime Minister Justin Trudeau announced the Canada Emergency Commercial Rent Assistance (“CECRA”) program during his April 24 address to the nation. The CECRA provides at least 75% rent forgiveness for small and medium-sized businesses, following hints of an upcoming commercial rent relief throughout the preceding week.
At the time of writing, there is an agreement in principle between the Federal and provincial or territorial governments for CECRA, which will be administered by the Canada Mortgage and Housing Corporation. While commercial rent remains within provincial jurisdiction, all levels of government have recognized the need for a co-ordinated effort leading up to the projected roll-out in mid-May.
Eligible Commercial Tenants
Like many government programs announced during the COVID-19 pandemic, CECRA has been designed with small businesses in mind. Specifically, business, non-profit, and charitable organization tenants paying less than $50,000 per month in rent who have temporarily ceased operations or have experienced at least a 70% reduction in revenue since the pandemic began will qualify for CECRA. It remains unclear whether this reduction is measured against early 2020 or the equivalent calendar month in 2019. Comparatively, the Canada Emergency Wage Subsidy is available to employers who have faced only a 15% reduction in revenue during March 2020 compared to March 2019 and a 30% reduction in revenue during April and May 2020 compared to the same months in 2019.
CECRA will be administered similar to residential rent relief programs currently in place across provinces in that relief funds will flow directly to the landlord. While this may satisfy some critics who are worried tenants may benefit from the program in bad faith, others may be concerned about a potential lack of action by landlords.
According to the federal press release, the program will be administered as follows:
- Forgivable loans will be provided to qualifying mortgaged commercial property landlords to cover 50% of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during April, May and June. These loans will be shared by the Federal and provincial governments and disbursed directly to the mortgage lender.
- The loans will be forgiven if the mortgaged property landlord agrees to reduce the eligible tenant’s rent by at least 75% for the three corresponding months under a rent forgiveness agreement, which will include a term not to evict the tenant while the agreement is in place. The small business tenant would cover the remainder, up to 25% of the rent.
There is understandable concern from the small business community surrounding a rent relief program which won’t be accessible until mid-May yet applies to rent payable in the months of April, May and June. While it would be rare for commercial landlords to hold property without mortgage financing in place, it appears CECRA will not be available unless the property is mortgaged. Additionally, those eligible tenants who were otherwise proactive to request rent deferment agreements from their landlords will have to review the terms of those agreements and approach their landlords to determine if it is possible for both parties to enjoy CECRA’s relief.
As we await further details, it will be interesting to see if CECRA draws a distinction between basic or minimum rent versus additional rent; whether there is any opportunity to extend the reduction beyond June; how the retroactive relief for April and May rent will be handled; if any consideration will be given to urban centres with low vacancy rates yet high rental rates such as Vancouver and Toronto; and if provinces will have any flexibility to broaden the eligible class of tenants.
While MLT Aikins will monitor the roll out of CECRA to update this article as necessary, we remain available to discuss any concerns business owners and landlords alike may have about COVID-19’s impact on their lease and real estate obligations.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.