CANADA EMERGENCY COMMERCIAL RENT ASSISTANCE (“CECRA”)
What is CECRA?
On April 24, 2020, the Government of Canada, in partnership with the provinces and territories, announced a new initiative – CECRA – to provide relief for eligible small business tenants and commercial landlords experiencing financial difficulties as a direct result of the COVID-19 pandemic.
The application process for CECRA opened in the spring and is administered by Canada Mortgage and Housing Corporation (or “CMHC”).
How Does CECRA Work?
CRA provides unsecured loans that do not need to be repaid to qualifying commercial property owners. This loan will cover up to 50% of gross rent for the months of April, May and June (retroactively). This was extended to include July 2020 and, most recently, August 2020.
This program lowers monthly rent payments by 75% for small businesses that are affected by COVID-19. The tenant, being the small business owner(s), would cover 25%, the property owner, being the commercial landlord, would cover 25%, and the Federal and Provincial Government would share in the remaining 50%.
The loan is “forgiven” if the commercial landlords agrees to reduce the eligible small business tenant’s rent by at least 75% for the months of April to June 2020 under a rent forgiveness agreement, and further agrees not to evict the small business tenant. This encourages both parties to work together to minimize revenue loss.
The loan is disbursed directly to the mortgage lender for the property in question, however, also extends to commercial landlords who do not hold a mortgage so long as they comply with the program’s terms and conditions.
A. Commercial Landlord
CMHC states the commercial landlord must meet the following criteria:
i) Own the commercial real property in question, occupied by one or more small business tenants;
ii) Declares rental income on its personal or corporate tax returns for 2018 and/or 2019. This excludes new builds and recent acquisitions that were leased to an eligible tenant on or before April 1, 2020; and,
iii) Entered, or will enter, into a rent reduction agreement for April, May and June to reduce their tenants’ rent by at least 75%. This agreement must include:
- a moratorium on eviction during that period; and,
- a declaration of rental income in the tenant’s attestation.
CECRA does extend to mixed-build buildings, however, excludes properties owned by all levels of government, with a few noted exceptions.
The commercial landlord may not attempt to recover rent payments for April to July 2020 from small business tenants after the program is over. If rent has been collected in full between the months of April to July, the commercial landlord must issue a refund in the amount paid by the small business tenant that is in excess of their 25% portion. This refund can be applied to future rent owing, if the small business tenant agrees.
B. Small business tenant
According to CMHC, the small business tenant:
i) Owns a business, non-profit or charitable organization;
ii) Should pay no more than $50,000.00 in gross rent each month, per location;
iii) Must be experiencing a 70% drop in pre-COVID-19 revenues, with respect to April, May and June 2020 versus:
- The same period in 2019 (if operating); or,
- The average of January and February 2020 (if not operating during April to July 2019);
iv) Must generate $20M or less in gross annual revenues, calculated on a consolidated basis (NOTE: this revenue would mean at ultimate parent level if the small business tenant is a subsidiary).
Small businesses opened on or after March 1, 2020 will not qualify.
How do I apply?
The application portal for CECRA has to be completed by the property owner, and is a two-step process:
Step 1: Registration – Property owners register and create an account
Step 2: Application – Property owners complete the application process and upload the required forms.
To apply, commercial landlords must:
- Provide attestations from yourself, as the property owner, and your small business tenant or subtenant;
- Provide specific property information, applicant information and small business tenant information; and,
- Provide the rent reduction agreement and forgivable loan agreement executed by yourself and your small business tenants.
We encourage you to contact your lawyer for assistance with these documents.
The application deadline is August 31, 2020, and commercial property owners are able to apply with respect to all eligible tenants at the same time.
If you wish to learn more about whether you qualify and how to apply, contact our office today for your free initial consultation.
We look forward to hearing from you.
Disclaimer: This article is for informational purposes only and does not provide legal advice, nor does it create a solicitor-client relationship with you or any other reader.