Authors: Tessa Rowland, Saravan Veylan
This blog was originally published on May 21, 2020.
Following Prime Minister Justin Trudeau’s announcement regarding the Canada Emergency Commercial Rent Assistance (“CECRA”) program in April, the Canada Mortgage and Housing Corporation (“CMHC”) has now released further details surrounding the program on its website.
The application portal for CECRA opens on May 25, 2020 at 8:00 a.m. EST and eligible commercial property owners have until the August 31, 2020 deadline to apply. Eligible commercial property owners will receive unsecured, interest-free, forgivable loans for the sole purposes of reducing monthly rent by 75% at minimum owed by impacted small business tenants and to assist in the payment of operating expenses incurred by the owner. All loans granted pursuant to CECRA will be forgiven on December 31, 2020 so long as property owners comply with the program’s requirements.
On June 1, 2020, the B.C. government issued Ministerial Order No. M179 pursuant to the Emergency Program Act (British Columbia) to address concerns raised by impacted small businesses. Under the order, commercial property owners with impacted small business tenants who decline to apply for CECRA, will not be able to evict said tenants or distrain their property for failure to pay rent owed. The order shall remain in effect until the earlier of (a) the end of the B.C. state of emergency first declared on March 18, 2020, and (b) the day following the last date covered by CECRA’s assistance.
Update: On June 30, 2020, the government of Canada announced an extension of CECRA for one month to help eligible small businesses pay rent for the month of July.
On July 31, 2020, the government of Canada announced an extension of CECRA for one month to help eligible small businesses pay rent for the month of August.
To apply, you must log into the CECRA portal and opt-in for your impacted tenants by September 14, 2020.
Like many government programs announced during the COVID-19 pandemic, CECRA has been designed with small businesses in mind. In order to qualify for CECRA, commercial property owners must own commercial or mixed-use property occupied by at least one impacted small business tenant or subtenant. Impacted small business tenants are business, non-profit, or charitable organization tenants paying up to $50,000 per location, per month in gross rent who have experienced at least a 70% reduction in revenue in comparison to either (a) April, May, June of 2019 or (b) an average of January and February 2020, both methods using forecasted revenues for June if an application is submitted prior to June 30, 2020. Additionally, in order to be considered an impacted small business tenant, the tenant must have been in operation prior to March 1, 2020 and must not generate more than $20 million in gross annual revenue when calculated on a consolidated basis, based on 2019 financial revenue.
Once a commercial property owner has established their tenant is an impacted small business tenant, the owner must enter, or already have entered, into a binding rent reduction agreement with its impacted small business tenant to reduce the tenant’s monthly gross rent by at least 75% for April – June 2020. The rent reduction agreement must include prohibitions on delivering default notices and effecting an eviction during the reduction period where the basis for such default or eviction arose because the tenant was prevented from performing the obligation(s) in default due to the pandemic.
While the initial details of CECRA were unclear, CMHC has confirmed that CECRA funding will be available to commercial property owners regardless of whether their property is mortgaged. On the other hand, CECRA will not be available to commercial property owners who hold, or are controlled by someone who holds, municipal, provincial or federal political office, subject to the following exceptions:
- if the owner is a First Nation or an Indigenous organization or government which is the lessee of the property pursuant to a ground lease or similar long-term lease from such government to administer the property;
- if the owner is the lessee of the property pursuant to a ground lease or similar long-term lease from such government to operate the property (such as a lease to an airport);
- if the owner is a crown corporation with limited appropriations designated as eligible for the CECRA Program by CMHC; and
- if the owner is a post-secondary institution, hospital or pension fund.
CECRA Administration and Application
Loans granted pursuant to CECRA will be in an amount equal to 50% of an impacted small business tenant’s gross monthly rent. The loans will be forgiven if the landlord agrees to reduce rent by at least 75% for April-June 2020 under a rent reduction agreement, requiring the impacted small business tenant to a maximum of 25% of monthly rent. After CECRA covers 50% of the rent and the impacted small business tenant pays 25% of the rent, the remaining 25% of rent will be forgiven by the landlord. CECRA will be administered by CMHC and will be similar in practice to residential rent relief programs currently in place across provinces where relief funds 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.
Beginning Monday May 25, 2020, qualifying commercial property owners may access the application portal on the following days based on their province of residence:
|Monday, May 25||Property owners located in Atlantic Canada, B.C., Alberta and Quebec, with up to 10 impacted small business tenants|
|Tuesday, May 26||Property owners who are located in Manitoba, Saskatchewan, Ontario and the Territories, with up to 10 impacted small business tenants|
|Wednesday, May 27||All other property owners in Manitoba, Saskatchewan, Ontario and the Territories|
|Thursday, May 28||All other property owners in Atlantic Canada, B.C., Alberta and Quebec|
|Friday, May 29||All|
As CMHC anticipates an extremely high volume of applicants accessing the system, interested parties should register in the portal on the applicable day above. Once registered, applicants will gain 24/7 access to complete their applications and may apply until the August 31, 2020 deadline as CECRA funding can be applied retroactively. In the event a landlord approved by CECRA has collected rent during April-June 2020, the impacted small business tenant must elect to either be refunded any amounts in excess of 25% or receive a credit towards future rent in the amount paid in excess of 25%. In order to maintain compliance with CECRA, landlords are prohibited from recovering any rent forgiven due to CECRA funding at any point. It’s important to note that landlords with multiple impacted small business tenants must complete an application for each tenant.
Commercial property owners require the following documentation and information to complete their application:
- Commercial property owner information: property address and type, property tax statement, rent roll and number of commercial units, the owner’s banking information, the owner’s contact information, and co-ownership information if applicable;
- Tenant information: contact information, registered or legal business name, area of leased premises, and monthly gross rent for April-June 2020;
- Tenant Attestation, confirming the impacted small business tenant’s information and eligibility, to be signed by the impacted small business tenant;
- Commercial Property Owner Attestation, confirming the commercial property owner’s information and eligibility, to be signed by the commercial property owner;
- Rent Reduction Agreement between the commercial property owner and impacted small business tenant; and
- The commercial property owner must confirm their acceptance of the terms and conditions of the forgivable loan.
The CMHC website has published samples of both attestations, the rent reduction agreement, and the forgivable loan’s terms and conditions, which can be found here. The official versions of each document will be available once the portal opens on May 25, 2020.
Commercial property owners should be aware of the following events of default that, if committed by the commercial property owner, grants CMHC the ability to call the loan and exercise any rights at law, including without limitation assigning the loan to the Canada Revenue Agency:
- Breach of the CECRA terms and conditions or a rent reduction agreement;
- Misrepresentations or fraud; and
- Bankruptcy, restructuring, winding-up, dissolution, liquidation or a receiver, interim receiver, or trustee is appointed regarding the commercial property owner or its property.
If a commercial property owner commits an event of default and the loan becomes repayable, it will bear interest at 5% per annum, accruing monthly.
Our real estate professionals at MLT Aikins LLP are available to discuss CECRA and any other real estate matters businesses may have.