On April 24, 2020, Prime Minister Justin Trudeau announced that, in light of the COVID-19 pandemic, the Federal Government of Canada has reached an agreement in principle with all provinces and territories to implement the Canada Emergency Commercial Rent Assistance (the “CECRA”) program.
Some preliminary details of the CECRA are provided below:
- Reduction in Rent: The CECRA will lower rent by 75% for small businesses that have been affected by COVID-19.
- Eligibility: Eligible small business tenants are businesses that: (1) pay less than $50,000 per month in rent; and (2) have (i) temporarily ceased operations, and/or (ii) experienced at least a 70% drop in pre-COVID-19 revenues.
- Administration of the CECRA: The Canada Mortgage and Housing Corporation (“CMHC”) will administer and deliver the CECRA.
- Contribution by Provinces and Territories: The provinces and territories have agreed to cost-share up to 25% of total costs and to facilitate implementation of the CECRA.
- Forgivable Loan Structure: The CECRA will provide forgivable loans to qualifying commercial property owners to cover 50% of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during the months of April, May, and June 2020 (the “Relief Months”).
- Rent Forgiveness Agreement: The loans will be forgiven only if the mortgaged property owner agrees to reduce the eligible small business tenants’ rent by at least 75% for the Relief Months under a rent forgiveness agreement (the “RFA”), which will include a term not to evict the tenant while the RFA is in place. As currently constructed, the small business tenant and the owner would each be responsible for 25% of the rent. The federal government, provinces and territories would share in the remaining 50% of the rent owed during the Relief Months. The forgivable loans would be disbursed directly to mortgage lenders.
- Non-Profits Can Apply: The CECRA will also be available to non-profit and charitable organizations.
- Date of Operation: The CECRA is expected to be operational by mid-May 2020.
Further details on the CECRA will be shared in the near future once final terms and conditions are available. At this time, there are a number of questions that will need to be addressed, including:
- What is meant by “rent”? Is this basic rent only or does it include additional rent for net leases?
- What constitutes the $50,000 threshold? Each property leased by an eligible small business tenant or the aggregate of all properties leased by such eligible small business tenants?
- What financial information will be required for such eligible small business tenants to indicate the 70% decrease in pre-COVID-19 revenues?
- What is meant by “financial hardship” in light of the forgivable loan structure? Is this the same as the criteria for the eligible small business tenants?
- What constitutes a “qualifying commercial property owner”?
- Why does the federal government refer to “mortgaged property owner” rather than “commercial property owner” when discussing the 75% reduction? Does this mean that only owners of leveraged commercial properties will be able to apply for the forgivable loans or will they apply to all commercial property owners (including those whose commercial properties are not subject to a mortgage)?
- Will the CECRA be applicable to subleased and licensed properties (including co-work spaces)?