Posted onMay 1, 2020 by HK Law
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.
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.
- 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.
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.