Canada Emergency Commercial Rent Assistance – Additional Guidance for Property Owners and Tenants
Earlier today, the Canada Mortgage and Housing Corporation (“CMHC”) released additional details regarding the Canada Emergency Commercial Rent Assistance Program (“CECRA”). The details were posted on the CMHC website and can be accessed here. The CMHC announcement addresses some of the questions raised by the initial press release from the Federal government and “backgrounder” from the Ontario government. The CMHC announcement also clarifies the eligibility requirements for property owners and small business tenants, and provides additional guidance regarding administration, including as to how existing rent arrangements for April-May should be treated.
The CMHC website now includes a “Keep Me Posted” option to subscribe to be notified when additional details are released and when the application process opens. They have also listed contact details for more information.
What does the CMHC announcement clarify? Does it provide any new information?
- If the property is not secured by a mortgage, an alternative mechanism will be implemented. CMHC indicates that further information will be provided in the near future.
- The $50,000 eligibility cap for small business tenants is determined based on monthly gross rent per location (as defined by a “valid and enforceable lease agreement”).
- The loans will cover 50% of the gross rent. The tenant will be responsible for paying no more than 25% of the total gross rent, and the property owner will be responsible for the remaining amount (no less than 25% of total gross rent).
- The CECRA loans will be forgiven if the property owner complies with all applicable program terms and conditions including not to seek to recover rent abatement amounts after the program is over.
- A tenant’s eligibility on the basis that it “ceased operations” or “temporarily closed” is confirmed as meaning it is “generating no revenues”. Small business tenants are eligible if they have (a) temporarily ceased operations (i.e. are generating no revenues), or (b) have experienced at least a 70% decline in pre-COVID-19 revenues (either in comparison to revenues for April, May and June of 2019 or to the average of their revenues earned in January and February 2020).
- The CMHC announcement contains no reference to “fixed costs,” or to the property owner “foregoing profit.” The use of these terms in previous communications was a source of confusion.
- New: Eligible property owners must have declared rental income on their tax return (personal or corporate) for tax years 2018 and/or 2019.
- New: Eligible tenants must generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the “ultimate parent level”).
- New: The deadline to apply is August 31, 2020. Property owners may still apply for assistance after the 3-month period has ended if they can prove eligibility during those months.
- New: Property owners must refund amounts paid by the small business tenant for the (3-month) period. If rent has been collected for April, May or June “at the time of approval”, a credit to the tenant for a future month’s rent (i.e. July for April) is acceptable (provided same is agreed upon by both the property owner and the tenant). While CMHC indicates that “this can be a flexible 3-month period” no further parameters are provided.
Takeaways and Outstanding Questions
The CMHC announcement clarifies some details and should be the main resource for information on this program going forward. However, outstanding questions remain, including:
- What if the eligibility requirements are satisfied for less than the full three-month period? Will the parties still be eligible for the month(s) that the criteria are satisfied?
- Does the moratorium on eviction prevent an owner from terminating for non-rent defaults or in accordance with existing termination rights under the lease? Relatedly, what is the landlord’s recourse if the tenant fails to pay its 25% of the rent?
- What are the other options if the property is not mortgaged?
- Is the owner responsible for verifying a tenant’s eligibility (or, for example, will CMHC be verifying that tenants meet the eligibility requirements at the time of “approval”)?
- It is unclear what CMHC intends by stating “this can be a flexible 3-month period” in connection with the refund of amounts already paid by the tenant. For example, assuming the tenant agreed, would a refund in September or later be acceptable?
- How will the 70% drop-in-revenue requirement be calculated for tenants with multiple locations? While the “per location” language is only used in connection with the $50,000 gross rent cap, we assume it will be applied to the revenue loss eligibility test as well.
- Will the requirement that the property owner declared rental income in its 2018 and/or 2019 tax returns exclude owners who purchased a property in 2020 from eligibility?
- How will the $20 million gross annual revenue cap be applied in the context of a sublease? For example, if the lease is signed by a franchisor with sales over $20 million but subleased to franchisee under $20 million, will the subtenant be eligible?
We expect that additional details will be released in the coming days and we will report on any further information as it becomes available.
Special thanks to the following articling students for their assistance with the preparation of this post: Laura Alford, Victor Choi and Joshua Hollenberg.