The Canada Emergency Commercial Rent Assistance Program: An Overview

May 21, 2020

This post was originally published May 8, 2020 and was updated on May 21, 2020.

On April 24, 2020, the Government of Canada announced that, in partnership with the provinces and territories, it will be providing relief to landlords who agree to reduce eligible commercial tenants’ rent obligations by at least 75% during the months of April, May and June 2020. Under the program, known as CECRA, the federal and provincial/territorial governments will partner to pay 50% of the gross rent in the form of a forgivable loan to landlords. The program is administered by the Canada Mortgage and Housing Corporation (CMHC) through an application portal that will be available starting at 8:00 a.m. (Eastern Time) on Monday, May 25, 2020.

Originally published on May 8, 2020 this post has been updated to reflect additional information released by CMHC on May 14th, 19th and 20th, 2020, most significantly with respect to the application process, which has now been clarified with the release of sample agreements and forms of attestation (as described below), as well as an update on timing.

Overview

The Canada Emergency Commercial Rent Assistance (CECRA) program is a voluntary program to be administered by CMHC in partnership with the provinces and territories. CECRA is intended to help encourage commercial property owners and their tenants to work together to enter into a rent reduction agreement, in order to help minimize revenue loss to each party during the COVID-19 pandemic.

The fundamentals of the CECRA program were set out by CMHC in a document released on April 29, 2020 and are outlined below:

  • A commercial property owner that is eligible to participate in the CECRA program will be guaranteed to receive no less than 50% of its gross rent from eligible tenants for April, May and June 2020;
  • In order to obtain this benefit, the landlord and tenant must first enter into an agreement to reduce the tenant’s gross rent obligation by at least 75% during the applicable period;
  • To make up for the abatement (in part), the federal and provincial governments will provide a forgivable loan to the landlord covering 50% of the gross rent, leaving the landlord and tenant to cover the remaining 50% (however where a landlord agrees to grant a 100% rent reduction to the tenant during the applicable period, the landlord will cover the remaining 50% of gross rent with no contribution from the tenant);
  • The property owner must agree to reduce the tenant’s gross rent, rather than defer it, and may not take steps to recover the abatement at a later date;
  • The property owner must also agree to an eviction moratorium during the rent reduction period; and
  • The loan will be forgiven if the terms and conditions of the program are complied with (the date of forgiveness has now been set at December 31, 2020).

Each provincial/territorial government is announcing its own participation separately, but it appears that all jurisdictions will generally follow the rules set out by CMHC. As a consequence, there should be little or no difference in how the program operates and is administered from one jurisdiction to the next.

Since the initial announcement, additional details have been released, which we have incorporated into the discussion below. We will continue to update this information as further announcements are made.

Eligibility for CECRA

Both the commercial property owner and the tenant must meet certain eligibility tests.

Property owner

Under the CMHC requirements, the property owner must own or be the landlord of a property with impacted small business tenants (including subtenants) and must in most cases have declared rental income on its personal or corporate tax returns for 2018 and/or 2019. An exception to the tax return requirement exists for new builds and recent acquisitions that were leased to an eligible tenant on or before April 1, 2020. In addition, it must have entered into a rent reduction agreement for the months of April, May and June 2020 as described above. Finally, the rent reduction agreement must include (i) a moratorium on eviction during that period and (ii) a declaration of rental revenue as per the tenant’s attestation (see below).

CMHC has addressed several key issues relating to landlord eligibility, including the following:

  • Support is equally available for mortgaged and unmortgaged properties (and properties with other forms of debt);
  • Mixed-use buildings are eligible with respect to their small-business tenants; and
  • Properties owned by federal, provincial or municipal governments are generally not eligible, save for the following exceptions: (i) if the commercial property owner is a First Nation or an Indigenous organization or government which is the lessee of the property pursuant to a ground lease or similar long-term lease from such government to administer the commercial property; (ii) if the commercial property owner is the lessee of the property pursuant to a ground lease or similar long-term lease from such government to operate the property (such as a lease to an airport); (iii) if the commercial property owner is a crown corporation with limited appropriations designated as eligible for the CECRA program by CMHC; and (iv) if the commercial property owner is a post-secondary institution, hospital, or pension fund.

Tenant

CMHC states that the tenant or subtenant must:

  • Be a business, non-profit or charitable organization;
  • Pay no more than $50,000 monthly gross rent per location;
  • Generate no more than $20 million in gross annual revenues, as consolidated “at the ultimate parent level”; and
  • Have experienced a 70% decline in revenue, as measured with respect to April, May and June 2020 vs. either (i) the same period in 2019 or (ii) the average of January and February 2020 (it is currently unclear whether the option of using the January-February period as the comparator is open only to eligible tenants that were not yet in business in 2019 or to all eligible tenants). Commercial tenants that are not at arm’s length with their landlords are eligible for CECRA, provided that a valid and enforceable lease was in place on or before April 1, 2020 on no greater than market terms (and that the other eligibility requirements have been met).

Ineligible entities

Small businesses that opened on or after March 1, 2020 are not eligible for the CECRA program. In addition, certain types of property owners and commercial tenants are ineligible. These include:

  • Entities owned by political officeholders;
  • Entities promoting violence, inciting hatred or which discriminate on the basis of race, national origin, colour, religion or a number of other enumerated grounds of discrimination;
  • Entities using the premises for criminal purposes or that have been convicted of financial crimes or regulatory breaches or which are under criminal prosecution for such offences (including affiliates); and
  • Entities subject to any actual or pending insolvency proceedings as well as those that are making applications for relief under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

Application Process

The application process opens at 8:00 a.m. (Eastern Time) on May 25, 2020. To help manage the high volume of applications that are expected, CMHC is taking a staggered approach to registration and is asking eligible commercial property owners to register on the following days once the application portal has opened:

 Day Who should register?
 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

Commercial property owners will be able to apply with respect to all eligible tenants at the same time. The application deadline for CECRA is August 31, 2020. Before May 25, 2020, interested parties can register to receive email alerts relating to the application process.

Documents and agreements

CMHC has provided sample versions of the application documents available on its website, although it cautions that the final versions may differ. These documents include both a tenant’s attestation and a property owner’s attestation, in which the parties attest to their eligibility for the program, notably with respect to the 70% revenue decline, but also with respect to certain character issues relating to financial crimes or regulatory offences and issues of personal integrity that could be of concern to CMHC. To this end, both the tenant’s and property owner’s attestations incorporate an “Integrity Declaration” that is designed to ensure that CMHC does not advance loans to persons involved in criminal activity or who are otherwise of poor moral character. Note that, if an owner or tenant is not an individual, then depending on the type of entity that it is, it must make the Integrity Declaration with respect to its directors, officers, shareholders, beneficial owners and other similar individuals.

Parties must have a rent reduction agreement in place, including a moratorium on eviction and proof of tenants’ financial hardship, in order to participate in CECRA. To take advantage of the program at the earliest opportunity, eligible owners/landlords and tenants should begin to discuss a rent reduction agreement even before the application process opens on May 25, 2020. CMHC has provided a sample form of Rent Reduction Agreement on its website.

Finally, the property owner must sign a Forgivable Loan Agreement with CMHC in the form that is available on CMHC’s website.

Frequently Asked Questions

Many landlords and commercial tenants are expressing interest in taking advantage of CECRA. The following are among the questions that we are hearing from those in the industry:

Q1. Is the CECRA program mandatory?

A1. No. Both the landlord and the tenant must meet the eligibility requirements and agree to participate. This includes the parties entering into a freely negotiated rent reduction agreement.

Q2. We have already worked out a landlord-tenant arrangement. Can we still take advantage of CECRA?

A2. Yes, to the extent that your arrangement is compliant with the CECRA eligibility requirements. If it is not, you can still participate if you alter your arrangement to meet the eligibility requirements. For example, in addition to amending any other non-compliant aspects of the agreement, any rent paid in excess of the CECRA maximum must be refunded or credited to the tenant in accordance with the CECRA requirements. Note that the 25% tenant contribution is a maximum; an arrangement in which the tenant paid less would not be non-compliant on that basis.

Q3. Can we participate retroactively?

A3. Yes, as noted above, CMHC states that you may apply for CECRA until August 31, 2020, provided that the landlord and tenant were eligible during the months of April to June 2020. If eligible for the program on this basis, the property owner would be required to refund any rent paid in excess of the CECRA maximum to the tenant (or, alternatively, to credit the rent in accordance with the CECRA requirements).

Q4. How do we calculate eligibility with respect to the CECRA $20 million consolidated gross revenue test? For example, is there any guidance on what constitutes the “ultimate parent level” in the case of a business that is part of a multinational conglomerate?

A4. We understand that this is a significant issue for some commercial property owners and tenants in determining a tenant’s eligibility for the program. To date, the only guidance released by CMHC on this point has been that if the small business tenant or its ultimate owner produces consolidated statements, then the tenant would use revenues reported for the group level of companies. Alternatively, if the small business tenant does not produce consolidated statements, then it is the specific revenue of the tenant that applies for the $20 million revenue test.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

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