May 20, 2020
UPDATED – Canada Emergency Commercial Rent Assistance (CECRA) Program
Travis D. McKay Hillenbrand Kozicki LLP
CECRA Update – Application Timelines Announced
In early April the Federal Government of Canada announced the Canada Emergency Commercial Rent Assistance (CECRA) program. The basics of the program were that if a small business qualified the federal government would pay half of the business rent for April, May and June, the small business tenant (the “Tenant”) would pay up to 25% of the rent and the final 25% of the rent would be forgiven by the landlord (the “Landlord”).
Today, the Federal government provided a detailed update on the CERCRA program, including how Landlords can apply, what is required to apply, and when the applications will be open.
Previous Information
Eligibility:
Businesses who are tenants paying rent are eligible where:
- The Business is a non-essential business;
- The Business show a 70% drop in revenue when comparing April, May or June of 2020 to April, May and June of 2019 or when comparing to average revenue for January and February of 2020;
- The business generates less than $20 million in gross annual revenue- new; and
- The tenant pays less than $50,000 in gross monthly rent per location.
The program is also available to non-profits and charitable organizations
How It Works:
- The Federal and Provincial Governments will provide qualifying, forgivable loans to qualifying property owners (Landlords) equal to 50% of the total fixed rent for qualifying tenants for April, May and June of 2020
- The Tenant is expected to pay 25% of the total rent for April, May and June;
- The Landlord absorbs the other 25% of the rent, receiving 25% less rent then it would have under normal renting circumstances;
- Small Business’ can apply after the fact for any of the months of April, May or June
The Deadline to apply is August 31, 2020
The interest free loans will be forgiven if the Landlord signs an agreement agreeing to reduce the qualifying business’ rent by at least 75% for the months of April, May and June and to not evict the tenant for during those qualifying months.
This interest free loan will be forgiven on December 31, 2020. To ensure loan forgiveness, the Landlord must follow the terms and conditions of the loan, including:
- complying with the Rent Reduction Agreement;
- ensuring that the Landlord’s attestation and application (including supporting documentation) is accurate and truthful.
Loan Administration
- The loans will be administered thru the Canadian Mortgage and Housing Corporation (CMHC);
- CMHC has engaged MCAP and First Canadian Title (FCT) to deliver CECRA for small businesses.
- In the case of mortgage properties, the forgivable loans, equal to 50% of the total rent will be released directly to the mortgage lender.
Landlord Consent Required:
The CECRA requires the consent of the Landlord, the tenant cannot force the program on the Landlord unilaterally. Individual businesses will be at the mercy of their Landlords and Landlords can choose to apply for the program on a tenant by tenant basis.
Practically, Landlords will have to choose between attempting to recover 100% of the rent under the lease, including the costs of eviction and enforcement, or the 75% rent recovery assured under the CERCA program. Landlords may be more likely to reject the program for tenants that have deeper pockets, or which have invested a significant amount into tenant improvements on a property and thus are more likely to pay the entire rent owing to keep the lease in good standing.
THE UPDATE
Application Timelines:
The Federal Government and CMHC have now provided details on the application process and when the “application portal” will be taking applications.
The Application portal will be open on Monday May 25, 2020
The CMHC has provided a schedule for when applicants can apply based on their location and number of tenants for the property in question:
|
Date: |
Who should apply |
|
Monday May 25 |
Property owners who are located in Atlantic Canada, BC, Alberta and Quebec, with up to 10 tenants who are eligible for the program |
|
Tuesday May 26 |
Property owners who are located in Manitoba, Saskatchewan, Ontario and the Territories, with up to 10 tenants who are eligible for the program |
|
Wednesday May 27 |
All other property owners in Manitoba, Saskatchewan, Ontario and the Territories |
|
Thursday May 28 |
All other property owners in Atlantic Canada, BC, Alberta and Quebec |
|
Friday May 29 |
All |
Notes: You may be contacted by either MCAP or FCT throughout the applicant validation and funding processes.
The Application
What Is Needed to Apply – Landlord
- • A Rent Reduction Agreement- between the Tenant and the Landlord; that complies with the requirements of the CECRA Program;
- • A Small Business Owner Forgivable Loan Agreement – between the Landlord and CMCH;
- • An executed Property Owner’s Attestation – in the form drafted by CMHC;
The following information will be required for the application from the Property Owner:
- • Property information: property address, property type, property tax statement, latest rent roll for each property and the number of commercial units
- • Applicant information includes: banking information (including bank statement), property owner contact information, co-ownership information and contact details for co-owners
What Is Needed to Apply – Tenant
- • A Rent Reduction Agreement- between the Tenant and the Landlord; that complies with the requirements of the CECRA Program;
- • An executed Tenant’s Attestation – in the form drafted by CMHC;
The following information will be required for the application from the Tenant:
- • tenant contact information, registered business name, lease area and the monthly gross rent for the period of April, May and June 2020.
Conclusion:
Ultimately it is up to the Property Owner/Landlord to apply for the CECRA Program with the Tenant providing the required documentation on its end. Any Tenant who meets the qualifications for CECRA should be contacting its Landlord to see if the Landlord is willing to apply for the program.
Should you have any further questions about the CECRA Program or are looking for assistance in drafting a Rent Abatement Agreement we at Hillenbrand Kozicki LLP would be happy to discuss these matters further with you.