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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:

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.

April 8, 2020 Travis D. McKay Hillenbrand Kozicki LLP 

Canada Emergency Commercial Rent Assistance (“CECRA”) 

What It Is: 

A rental assistance program initiated by the Federal Government of Canada in coordination with the Provincial governments to reduce the amount of rent small businesses pay to 25% of normal rent for the months of April, May (retroactively) and June 2020.

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; 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. 

The 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. 

• The loans will be administered thru the Canadian Mortgage and Housing Corporation (CMHC) 
• In the case of mortgage properties, the forgivable loans, equal to 50% of the total rent will be released directly to the mortgage lender. 
• Details have not been released on what happens in the case the property is not mortgaged. 

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. 

Application Timeline: 

• The program is not yet operational but the Federal Government has stated it hopes to have the program operational by mid-May. 

If a tenant qualifies under the economic conditions listed above (70% drop in revenue) it should be reaching out to its Landlord immediately to discuss this program and to inquire if the Landlord would consider same. 

Conclusion 

The CERCA program is available to small businesses who have seen a 70% or more drop in revenue due to Covid-19. If the Landlord agrees to the program the Government will pay 50% of rent, the small business 25% and the Landlord will absorb the final 25% and agree not to evict the small business owner during the term of April-June of 2020. 

Applications are not yet available but tenants can still be reaching out to their landlords to discuss the program. Reaching an agreement in principle with a Landlord that the parties will apply for the CERCA program can provide small businesses some much needed financial relief as well as owners and managers some peace of mind. 

If you have any questions regarding the CERCA program or any other Business Law related matters during the Covid-19 pandemic please do not hesitate to contact us at Hillenbrand Kozicki LLP.

TO: ALL EMPLOYERS

FROM: TRAVIS D. MCKAY
Hillenbrand Kozicki

DATE: April 2, 2020

RE: Newest Employer Subsidy Program

Here is the latest information from the federal government regarding the wage subsidy that was announced last week with some more details that are key.

Canadian Emergency Wage Subsidy (“CEWS”)

The subsidy is a wage subsidy that pays 75% of employee wages up to a maximum subsidy of $873 per week per employee (achieved by an employee making $58,700 annually or $1,129 weekly). There is no limit on the number of employees who are eligible to receive the subsidy.

Eligibility Requirements

To be eligible an employer must have seen a 30% drop in revenue from the same month in 2019.

There are 3 pay periods, an employer must qualify with a 30% revenue drop in each reference period to be eligible for the subsidy in the corresponding pay period.

For example: an employer that saw a revenue drop of 30% from March 2019 to March 2020 would be eligible to receive the subsidy for employee wages paid from March 15 to April 11.

The government has said there will be exceptions for new employers who are growing rapidly and/or did not have revenue in February 2019. The government has stated in those cases the revenue drop will be compared against a “reasonable benchmark”. 

There are additional rules for non-arm’s length employees. i.e. Employees who are also shareholders or related to shareholders of the corporation. For those employees the subsidy is still available but limited to wages equal to what the employee was paid before the COVID-19 crisis began.

The subsidy is also available for new employees who are hired during the COVID-19 crisis so long as the revenue requirements are still met by the employer. 

The subsidy pays 75% of each employees’ salary up to a maximum subsidy of $873 per week. This means the subsidy is maximized for employees making $58,700 a year or $1,129 per week. 

How to Apply

Applying for the subsidy is done through the Canadian Revenue Agency website https://www.canada.ca/en/revenue-agency.html through the “My Business” portal.

Timelines

The government has announced employers can start applying “soon”; the exact date is not known but expected to be no later than April 6th. From there the government expects to start making subsidy payments in 3-6 weeks with 6 weeks being a “worst case scenario”. 

To maximize the speed in which employers receive the subsidy they should apply as soon as they can and sign up for direct deposit of subsidy funds. 

Records to Keep

It is important that all employers keep records establishing that its revenue dropped by at least 30% between the relevant reference periods as well as records of employees pay for the pay periods in which the subsidy applies. Further, records of employee wages paid to each employee must be kept.

The details on enforcement are not clear yet but the government has issued several warnings that those employers who attempt to abuse the subsidy system will be audited and could face steep penalties.

Canadian Emergency Response Benefit 

Finally, note that an employer cannot claim the wage subsidy for wages paid to an employee in a week that falls within a 4-week period in which the employee claimed the CERB amount of $2,000 available to individuals. Employers should ensure that any employees they are claiming under the 75% subsidy program are not personally claiming the CERB benefit. 

Temporary Wage Subsidy
(The 10% Subsidy)

The initial 10% subsidy that was announced two weeks ago is still available to employers who are eligible. If an employer becomes eligible for the 75% subsidy it will lose access to the 10% subsidy. 

Employers who are not eligible for the 75% subsidy (because they did not see a 30% revenue drop) will maintain eligibility for the 10% subsidy. 

Canadian Emergency Business Account Loans
($40,000 Loans)

The details

Loans will be offered of up to $40,000 to Companies whose payroll for 2019 was:

• More than $50,000 
• Less than $1 million

**These numbers must be T4 employment income, not dividends.**

In order to apply you will need your T4 Summary of Remunerations Paid Statement for 2019. If you do not have this yet you can contact CRA for another copy.

You can apply at any financial institution where you have a bank account. However applying at more than one institution will result in prosecution by the federal government.

Loan Terms

• The Loan is a Line of Credit to Borrow up to $40,000, multiple draws permitted. 
• Interest free until December 31, 2022;
• 25% of the loan (up to $10,000) is eligible for forgiveness if the loan is completely repaid before December 31, 2022;
• After December 31, 2022 the loan is convertible to a 3-year term loan charging interest at a rate of 5% per year.
• Borrowers can start repaying the loan at anytime but no payments are required until December 31, 2025.

From a review of the terms above it seems like many businesses that meets the payroll requirements of between $50,000 and $ 1 million will want to consider applying for this loan. 

The Applications will be available online from the various banks starting April 6, 2020.

In the interim, now would be the time to be gathering the following for employers considering applying:

• 2019 Statement of Remunerations Paid
• Confirming your T-4 payroll was between $50,000 and $1 million
• Contacting your current bank to ensure they are going to have applications ready early next week.

Conclusion

All employers should be reviewing the qualifying requirements for:

• The 75% Wage Subsidy (CEWS);
• The 10% Wage Subsidy (TWS); and
• The Emergency Loan (CEBA) programs

Many employers will likely want to apply for same. The ability to apply should be available shortly. In the interim all employers should be reviewing and preparing the following:

• Reviewing revenue totals for March 2019 and March 2020 to determine if the employer experienced at least a 30% drop.
  • Ensuring that supporting documentation for revenue numbers is available and kept in a secure location should it need to be referenced. 
• Reviewing revenue totals from April and May 2019 in anticipation of applying for these reference periods as well.
• Preparing a list of all employees who were paid from March 15 thru April 11 and an anticipated calculation of pay per employee and subsidy available per employee.
• Ensuring the employer’s CRA Account is setup for online access.
  • Ensuring that the employer is set up with direct deposit to speed up the eventual payment of subsidy funds.

As always this is a rapidly evolving situation. Let me know if you have any specific questions.