COVID-19: Canada Emergency Commercial Rent Assistance update
Of the many government relief programs implemented over the past two months to deliver aid to businesses and individuals financially impacted by the COVID-19 crisis, none have sowed more confusion and frustration than the Canada Emergency Commercial Rent Assistance benefit.
Business groups have called out the CMHC-administered program’s complexity and reliance on the goodwill of commercial landlords, who are responsible for applying for the relief funding on behalf of their tenants. We’ve heard countless anecdotes from business owners who have simply foregone applying for the program due to its logistical challenges.
As we noted in a previous blog, the Canada Emergency Commercial Rent Assistance measure reduces rent for qualifying small businesses by 75 per cent, while providing loans to commercial property owners covering 50 per cent “… of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during April, May, and June.” Eligible small businesses must have experienced at least a 70 per cent reduction in pre-COVID-19 revenue, and pay less than $50,000 per month in rent.
If a participating landlord—who will be required to sign a rent reduction agreement as part of the program—reduces an impacted small business tenant’s rent by at least 75 per cent for the three corresponding months, the loans will be forgiven. The small business tenant would be required to cover the remaining 25 per cent of rent owing, while the property owner (who would also cover 25 per cent of the outstanding rent) would promise to not evict the tenant while the agreement was in place. That reduces an eligible tenant’s rent to 25 per cent of what they would otherwise have to pay for the three-month period impacted by COVID-19.
The federal government yesterday announced a series of updates to the policy intended to clarify eligibility rules and application procedures. The changes will do little to assuage an anxious business community.
Here’s a summary of the most significant changes and updates:
- Landlords are not required to have a mortgage on their commercial property to qualify
- The benefit does not apply to any federal, provincial or municipal owned properties
- CMHC will transfer funds directly to the property owner’s financial institution
- When applying, property owners will need to provide information to prove eligibility, including proof of an existing rent reduction agreement, a moratorium on eviction, and an attestation regarding a decline in revenue on the part of the impacted small business tenant—further details are still to come on the latter requirement
- The program will apply for net advantage to leasing (NAL) situations, but must have a valid and enforceable lease agreement in place prior to April 1, 2020, with market terms
- Small businesses no longer need to have ceased operations to qualify, but instead must only be able to demonstrate a 70% decline in revenue The process for calculating revenue decline largely aligns with the methodology to qualify for the Canada Emergency Wage Subsidy. Affected small businesses can calculate their revenue losses by comparing their gross revenues from April, May and June of 2020 to those of the corresponding months in 2019, or make a comparison to their average gross revenue for January and February, 2020
Despite these clarifications, the program is still unnecessarily burdensome on business owners. Few are bothering with the measure due to its limited reach, while others are struggling to determine whether they even qualify. It’s safe to say that CECRA will not be remembered as one of the more successful federal COVID-19 relief measures.
For more information on this federal government program and others designed to assist businesses struggling in the face of COVID-19, please contact a member of our team at any time.
Armando Iannuzzi, Co-Managing Partner