Written by Michael Chow, Craig Garbe, Chris Porter, Samantha Lush, Michelle Yung and Pardeep Brar
Updated May 20, 2020: This blog is a further update to our previous blogs of April 30, 2020 and April 27, 2020.
On April 24, 2020, the Prime Minister announced the federal government reached an agreement in principle with all provinces and territories to implement the Canada Emergency Commercial Rent Assistance (CECRA) for qualifying commercial property owners and small business tenants.
The Prime Minister's Office and the Canada Mortgage and Housing Corporation (CMHC) have released further details on CECRA and established a commencement date for when property owners can apply for the program. Each province may establish additional criteria and conditions for CECRA, which is referenced below.
What is CECRA?
CECRA provides financial assistance to certain commercial property owners which provide rent forgiveness to small business tenants affected by the COVID-19 pandemic. The government will provide unsecured forgivable loans to qualifying commercial property owners who agree with eligible small business tenants to forgive rent by a minimum of 75% per month for the months of April, May and June of 2020. CECRA is a program that is optional and not mandatory for property owners.
Who is eligible to apply for and receive CECRA?
Qualifying commercial property owners may apply for and receive financial assistance from CECRA when the program is launched. Commercial property owners include owners who own property which generates rental revenue from solely commercial tenants or a combination of commercial and residential tenants.
What is the criteria for small business tenants?
For a qualifying commercial property owner to receive financial assistance from CECRA, the small business tenant:
- must be paying no more than $50,000 in monthly gross rent per location pursuant to and as defined by a valid and enforceable lease agreement. Gross rent includes: basic rent (in a net lease) or gross rent (in a gross lease), operating and management costs, utilities, property taxes and percentage rent (if applicable). CMHC has provided a detailed list of inclusions and exclusions for the calculation of gross rent at the CMHC website at the link provided below (updated);
- has temporarily ceased business operations OR has experienced at least a 70% reduction in pre-COVID-19 revenues. Revenue reduction may be calculated based on revenues of April, May and June of 2019 or the average of revenues from January and February of 2020. The tenant may also use forecasts for the month of June, 2020, wherein eligibility will be determined on the average of revenues for April and May and forecasting June revenue (updated); and
- generates no more than $20 million in gross annual revenues on a consolidated basis (at the ultimate parent level). Gross annual revenues are calculated based on the tenant’s 2019 financial revenues (using the 12 month period used to calculate the tenant's financials). If the tenant or its ultimate owner produces consolidated statements, then the tenant would use revenues reported for the group level of companies. If the tenant does not produce consolidated statements, then it is the specific revenue of the tenant that applies for the $20 million gross revenue test (updated).
Small business tenants also include not for profit and charitable organizations. Ground lessors and ground lessees also appear to be eligible. Small business tenants who are in sub-tenancy arrangements are also eligible provided the other program requirements are satisfied. Assuming the property owner is required to apply for the loan (and not the sublandlord), it is not clear how this will reconcile with an application for a loan for the tenant in a sub-tenancy and whether both the tenancy and sub-tenancy under the same lease would be eligible for the loan. (updated).
What are the other CECRA terms and conditions?
- The loans would be forgiven if the owner agrees to: (i) forgive the tenant's rent by a minimum of 75% for the months of April, May and June of 2020; and (ii) not evict the Tenant during the months in which the rent forgiveness applies.
- Owners would be eligible to receive forgivable loans from the government to cover up to 50% of 3 months' rent (April, May and June of 2020) of the applicable tenant.
- The owner's property does not need to be mortgaged by a lender. Property owners with or without a mortgage on the applicable property may apply for CECRA provided the other programs requirements are satisfied (updated).
- The owner must have declared rental income on its tax return for the 2018 and/or 2019 tax years.
- If gross rent has already been collected from the tenant for the qualifying months, a credit to the tenant for a future month’s rent must be agreed upon between the owner and the tenant.
- For CECRA loans to remain forgivable, owners are prohibited from seeking recovery for rent abatement amounts to tenants after CECRA program expires.
- The owner and the tenant must submit the following documents to CMHC to apply for the CECRA loan (updated):
- Rent Reduction Agreement (owner and tenant).
- Attestation (owner and tenant (and/or subtenant, if applicable)).
- Forgivable Loan Agreement (owner and CMHC).
CMHC has provided sample forms of the above documents and should be reviewed by all owners and tenants prior to execution and submission. These forms can be viewed at the CMHC website at the link below.
- Other information required (updated):
- Property - property address, property type, property tax statement, latest rent roll for each property and the number of commercial units.
- Owner - banking information (including bank statement), property owner contact information, co-ownership information and contact details for co-owners, if applicable.
- Tenant - tenant contact information, registered business name, lease area and the monthly gross rent for the period of April, May and June 2020.
When will CECRA be available?
Property owners who qualify can register for CECRA starting on May 25, 2020 on a staggered basis depending on the province in which the property owner is located and how many tenants such property owner has which are eligible for the program (updated).
Property owners who are located in Atlantic Canada, BC, Alberta and Quebec, with up to 10 tenants who are eligible for the program
Property owners who are located in Manitoba, Saskatchewan, Ontario and the Territories, with up to 10 tenants who are eligible for the program
All other property owners in Manitoba, Saskatchewan, Ontario and the Territories
All other property owners in Atlantic Canada, BC, Alberta and Quebec
Once a property owner has registered for the program, the CMHC portal will be available for applicants to input the required data and upload necessary documents to satisfy the requirements of the program.
The deadline to apply for CECRA is August 31, 2020.
Who will administer CECRA?
CECRA will be a collaboration between the federal, provincial and territorial governments and will be administered by CMHC. CMHC has engaged MCAP and First Canadian Title (FCT) to deliver CECRA to the eligible owners and small business tenants. Owners and tenants may be contacted by either MCAP or FCT throughout the applicant validation and funding processes. More information on CECRA can be found here: https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business (updated)
Provinces and territories are likely introducing additional or supplemental terms. For example, the Province of Ontario has announced the Ontario-Canada Emergency Commercial Rent Assistance Program (OCECRA), which will be administered by CMHC. The terms are substantially similar, although OCECRA appears to exclude certain small businesses not otherwise excluded by CECRA and be available for application until September 30, 2020. More information on OCECRA can be found here: https://news.ontario.ca/opo/en/2020/04/ontario-canada-emergency-commercial-rent-assistance-program.html. We will provide further updates on provincial rules once further details are released by each province.
Who will fund CECRA?
The federal government and applicable provinces or territories will fund 50% of the monthly rent for the applicable 3 months. Commercial property owners will be responsible for 25% and the tenants will be responsible for the remaining 25% unless otherwise agreed to between the owner and the tenant.
What is next?
As indicated above, formal registration for CECRA will be available starting on May 25, 2020 on a staggered basis.
An additional rent forgiveness program for large business tenants which presumably pay more than $50,000 per month in gross rent is also expected to be announced soon (updated).
Assistance / Questions?
Please contact any of the authors by email or phone should you or any of your clients have any questions regarding CECRA or require any assistance in registering or applying for CECRA.