In our previous bulletins "Federal Government Announces Joint Initiative with Provinces and Territories to Implement Canada Emergency Commercial Rent Assistance Program" (the "CECRA"), and "CMHC Releases Additional Information on CECRA", we discussed the preliminary details of the CECRA and the proposed program administration by the Canada Mortgage and Housing Corporation (the "CMHC").
On Thursday May 14, 2020 and Tuesday, May 19, 2020, the CMHC released the following updates:
1. No Mortgage Requirement: The CECRA will now be available to Impacted Tenants in properties where Eligible Property Owners do not hold a mortgage.
2. Eligible Property Owner: To qualify for the CECRA, the owner of the property (the "Eligible Property Owner") must (i) own or, (ii) be the landlord of the "commercial real property" which is occupied by one or more Impacted Tenants.
(a) "commercial real property" means any commercial property with Impacted Tenants and would include mixed-use commercial properties with a residential component or multi-unit residential component.
3. Small Business Subtenants Are Eligible: Eligible small business tenants who are in sub-tenancy arrangements are also eligible for the CECRA as Impacted Tenants, provided such subleases meet the program criteria.
4. Non-Eligibility for the CECRA:
(a) The CECRA will not apply to any federal, provincial or municipal-owned properties unless such properties contain long-term commercial leases operated by third parties. These include, but are not limited to, airports, post-secondary institutions, hospitals, pension funds, First Nations and similar indigenous organizations and governments and Crown corporations with limited appropriations.
(b) Small businesses that opened on or after March 1, 2020 are not eligible for the CECRA.
5. Application Process:
(a) The application portal will open on May 25, 2020 at 8:00 am EST. To manage what is expected to be a large volume of applicants, Eligible Property Owners will be limited to applying on the following days in connection with where they are located:
(i) Monday: Eligible Property Owners who are located in Atlantic Canada, BC, Alberta and Quebec, with up to 10 Impacted Tenants who are eligible for the program;
(ii) Tuesday: Eligible Property Owners who are located in Manitoba, Saskatchewan, Ontario and the territories, with up to 10 Impacted Tenants who are eligible for the program;
(iii) Wednesday: All other Eligible Property Owners in Manitoba, Saskatchewan, Ontario and the territories;
(iv) Thursday: All other Eligible Property Owners in Atlantic Canada, BC, Alberta and Quebec; and
(v) Friday: All.
(b) The Eligible Property Owner can apply for all Impacted Tenants at its location at once.
6. Application Form Information:
(a) Eligible Property Owners will need to provide the following information:
(i) Property: The property address, property type, property tax statement, latest rent roll for each property and the number of commercial units;
(ii) Loan Application: Banking information (including bank statement), Eligible Property Owner contact information, co-ownership information and contact details for co-owners.
(b) Impacted Tenants will need to provide their contact information, registered business name, lease area and the monthly gross rent for the period of April, May and June 2020.
(a) During the application process, Eligible Property Owners will need to provide a declaration/attestation for each small business tenant that requests financial assistance, and Tenants will need to also provide their own declaration/attestation to confirm their eligibility with the CECRA requirements.
(b) CMHC has provided a sample "Attestation for Eligible Property Owners" and a sample "Attestation for Tenants or Sub-tenants".
8. Post-CECRA Significant Rent Increases Prohibited:
(a) The CECRA loans will be forgiven on December 31, 2020 provided the Eligible Property Owner complies with all applicable program terms and conditions. These terms include the requirement for Eligible Property Owners to not recover the abated gross rent amounts after the program is completed. Collection through significant or disproportionate rent increases is also expressly prohibited within the Rent Reduction Agreement.
(b) CMHC has provided a sample "Rent Reduction Agreement", and a sample "Forgivable Loan Agreement".
(c) If the Eligible Property Owner files for bankruptcy or restructures, reorganizes or dissolves its business, it will be required to repay the CECRA loan. In the event of a default by the Eligible Property Owner, the CMHC has full recourse to recover the CECRA funding from the Eligible Property Owner.
9. Impacted Tenants Operating in Multiple Locations with Different Eligible Property Owners: Applications for the CECRA must be made for each leased location. The Impacted Tenant will need to work with the Eligible Property Owners for each location to apply for the CECRA.
10. Non-Arm's Length Tenancies: Where an Eligible Property Owner has an Impacted Tenant that is not at arm's length, such arrangement will be included for the purposes of the CECRA so long as there was a valid and enforceable lease agreement in place prior to April 1, 2020, on no greater than market terms.
11. Calculation of the 70% Revenue Reduction:
(a) Impacted Tenant: The gross revenue reduction calculation must consist of revenue earned from ordinary activities in Canada, using the Impacted Tenant's normal accounting method and excluding gross revenues from extraordinary items.
(b) Registered Charities and Non-Profit Organizations: The gross revenue reduction calculation would include most forms of revenue, excluding revenues from non-arm's length persons. These organizations may choose to include revenue from government sources as part of the calculation.
12. Calculation of Monthly Gross Rent:" Monthly gross rent is defined as the "total gross rent amount payable by the small business tenant as set out under a valid and enforceable lease agreement". The following inclusions and exclusions have been provided to assist in calculating monthly gross rent.
(a) Included in Gross Rent:
(i) Net rent / minimum rent / base rent (in a net lease);
(ii) Regular monthly installments of operating costs (in a net lease);
(iii) Regular monthly installments of property taxes payable to the landlord (in a net lease);
(iv) Regular monthly installments of other additional rent amounts payable to the landlord, such as maintenance costs, repairs, utilities, management fees, etc. (in a net lease);
(v) Gross rent (in a gross lease); and
(vi) Percentage of sales rent paid (if included in the lease arrangement).
(b) Excluded from Gross Rent:
(ii) Indemnity payments;
(iii) Payments arising due to tenant default / landlord enforcement;
(iv) Payments arising due to landlord exercise of self-help remedies;
(v) Interest and penalties on unpaid amounts;
(vi) Fees payable for discrete items or special services, such as fees to landlord for reviewing plans, supervising work, considering requests for consent, performing exceptional tasks at tenant's request;
(vii) Reconciliation adjustment payments;
(viii) Amounts required under the lease agreement to be paid separately by the tenant to 3rd parties, such as property taxes, utilities, insurers;
(ix) Costs of non-monetary obligations (e.g., repairs and maintenance); and
(x) Insurance proceeds or proceeds from other rent subsidy programs
(c) Applying for insurance coverage does not remove Eligible Property Owners from being eligible for the CECRA, but it may adjust the amounts received if the Eligible Property Owner successfully receives payments from insurance claims or other programs to cover rent.
Using the CECRA Funds
13. Use of Funds: In order of priority, Eligible Property Owners can use the funds for:
(a) reimbursing Impacted Tenants for any rent paid above 25% during the eligible period unless the Impacted Tenant chooses to apply the previously paid rent as a credit against future rent, and
(b) any costs and expenses relating directly to the property, including any financing held by the Eligible Property Owner and operation maintenance and repair obligations (such as costs of common area maintenance expenses, property taxes, insurance and utilities).
Please contact our national leasing team for any questions you may have regarding the CECRA or in preparing the applications noted in this bulletin.