Categories > Covid-19

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.

April 8, 2020

Travis D. McKay
Hillenbrand Kozicki LLP

COVID-19  – Small Business Owners – CERB Benefit 

Recently the Government of Canada announced the CEWS which offers a wage subsidy of 75% per employee up to $873 per week for any employer who has seen a drop in revenue of 30% or more due to the COVID-19 pandemic. To read more about the CEWS Benefit see our blog here:
https://www.hklaw.ca/small-business-financial-assistance-for-covid-19

The CEWS was a concern for many Small Business Owners that are incorporated. and pay themselves via dividends instead of salary, because their own compensation would not be eligible for the CEWS Subsidy. Thus, many Small Business Owners were looking at no income for themselves while their businesses were shut down due to COVID-19

Today, the CRA announced that individuals who receive non-eligible dividends (the type of dividends generally paid out by corporations entitled to pay the small business corporate tax rate) are eligible to claim these amounts in order to qualify for the Canadian Emergency Response Benefit (CERB). The CERB Benefit pays $2,000 per 4-week period for those not working due to COVID-19.

So, a small business owner who received at least $5,000 in dividends from a Canadian Controlled Private Corporation (“CCPC”) in 2019 is likely entitled to apply for CERB. CERB provides a payment of $2,000 every 4-weeks for a maximum of 16 weeks. To qualify for CERB an individual must:

• Expect to be without employment or self-employment income for at least 14 consecutive days in the initial four-week period. For subsequent benefit periods, they expect to have no employment or self-employment income.
• Be over 15 years of age;
• Have had income of at least $5,000 in 2019 or the previous 12 months;
• Have been forced to stop working because of COVID-19, this includes work stoppage due to;
  • contracting COVID-19;
  • self-isolation;
  • having to take care of children who lost child care;
  • having to take care of a family member; or
  • employer termination, layoff or hours reduced to zero.

Note: A Small Business Owner with REDUCED income does not qualify for CERB, the INDIVIDUAL must have or anticipate ZERO income to the Individual. 

Applications for CERB are open at the Canadian Revenue Website under the “My Account” tab starting today. To speed up the process for receiving the CERB benefits individuals should ensure they have registered for direct deposit under their CRA Account.

The Government has staggered the application dates based on the month of birth of the Applicant as follows:

Conclusion: Any small business owner that paid herself at least $5,000 in dividends in 2019 or the last 12 months and who is no longer working due to COVID-19 is likely eligible to apply for the CERB. Applications can be filed via the CRA website under the “My Account Tab.”