Canada Emergency Commercial Rent Assistance (CECRA) – Frequently Asked Questions

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As we continue to actively monitor the latest developments related to the rollout of the Commercial Rent Assistance (“CECRA”) program, we have received a number of questions from prospective applicants seeking clarification with respect to the application process.

Through conversations with representatives at the Canada Mortgage and Housing Corporation (“CMHC”) and our review of CMHC’s online resources, we have assembled a list of frequently asked questions in order to guide prospective applicants through the application process.

Rent Reduction Agreement

Are property owners designated as Crown corporations eligible to apply for CECRA assistance?

CMHC is working in partnership with the Treasury Board and its provincial and territorial partners to provide further clarity on situations where a co-ownership arrangement exists between a government entity and a private party. CMHC is working to prepare a comprehensive list of Crown corporations which are eligible for CECRA assistance. The complete list, once available, will be posted on the CMHC website to assist organizations to determine their eligibility. 

How is “adjusted rent” calculated?

CMHC is working to provide further clarity on the calculation of adjusted rent. In normal circumstances, for a property owner applying on behalf of their tenant, adjusted rent is typically calculated as 50% of gross rent for the period of April, May and June.

Would a form of rent reduction agreement that was not prepared by CMHC be acceptable, provided that it complies with the CECRA program?

A non-standard rent reduction agreement will need to be accompanied by a rider to ensure that it adheres with the CECRA program requirements. The rider will prevail in the event of any inconsistency with the terms of the non-standard rent reduction agreement.

What types of riders are permitted to be added to the CMHC form of rent reduction agreement?

Property owners may use a custom form if they include the rider which CMHC expects to post on its portal in the coming weeks. The rider is to be used to ensure a custom form conforms to the CECRA program requirements.

Are there any support mechanisms in place for property owners with multiple properties applying for CECRA whereby they can be put in touch with a point of contact or "ambassador" to assist with the implementation of the program?

CMHC is working in partnership with MCAP, the administrator of the program on behalf of CMHC, to help facilitate the applications of “large property owners” on behalf of their impacted eligible tenants.

“Large property owners” refer to applicants who own more than 20 properties, or a property owner who may only own one property, but has more than 50 impacted tenants. Given the additional complexity of this type of application, the property owner who fits these criteria can reach out to CMHC’s CECRA team for more information. Applicants should be aware that the online portal only allows for a maximum of 50 tenants to be included per application. In such cases, applicants should get in touch with their “ambassador” in order have the application processed manually.

Will CMHC review forms of rent reduction agreement that are not submitted using CMHC’s standard form?

If the property owner qualifies as a “large property owner”, CMHC may review and approve the property owner’s form of rent reduction agreement for compliance with the CECRA program. In all other cases, a rider must accompany a revised or customized rent reduction agreement.

Forgivable Loan Agreement

What does “cost and expenses” refer to in section 2 of the Forgivable Loan Agreement?

Property owners should take a tiered approach when applying funds as follows:

  1. The first use of funds should go to the tenant directly (i.e. cut a cheque back to the tenant or a credit to the tenant’s account);
  2. The second use of funds should be used by property owners to reduce debt (i.e. mortgage or line of credit payments);
  3. The third use of funds should be for costs related to the property, including but not limited to, repairs and maintenance, utilities, insurance, etc.; and
  4. The final use of funds should be for general business purposes, accounting fees or taxes. For greater clarity, excess funds cannot be used for shareholder distribution/dividends, shareholder loans or bonuses.

If a property owner applies CECRA funds to property costs, and there is more in loan proceeds than operating costs, is the remainder of the loan amount not forgiven?

The loan is forgiven and funds are to be retained for future use against other business/property costs. As long as the property owner meets the terms and conditions of the loan, the loan will be forgiven on December 31, 2020.

If a loan has been granted, and the tenant is later deemed ineligible, we understand that the property owner must make commercially reasonable efforts to recover the full amount of rent as per the existing lease and repay CMHC with any proceeds therefrom. If these amounts are not recovered from the tenant, is the loan still forgiven?

Yes, the loan is still forgiven.

What are the implications if a tenant does not stay solvent until December 31, 2020, is the loan still forgiven?

If an impacted tenant was not insolvent at the time of the advance of the loan, but later becomes insolvent, the obligation remains only to make “commercially reasonable efforts to recover rent”.

If CMHC extends the CECRA program, will property owners be provided the option to opt-in or decline such extension, or is the extension automatic without further consent from the property owner?

The Federal government will ultimately decide whether to extend the CECRA program, taking into account the performance of various government programs in light of the on-going economic recovery. In the event the CECRA program is extended, the extension will not be automatic. Further communication would be provided at that time, but property owners will certainly be required to opt-in to this extension in order to continue to receive CECRA assistance.

Under section 9 of the Forgivable Loan Agreement (“Events of Default”), does a change of ownership or buying/selling of shares (at the beneficial level of ownership) constitute a restructuring? What kind of corporate restructurings are prohibited?

Prohibited restructurings would involve companies that seek protection to reorganize because of insolvency, to reach a compromise with creditors, or to restructure for the purposes of winding down the business. 

Can the beneficial owner of a property complete an application on behalf of the registered owner?

No, the property owner identified in the CECRA application must be the registered owner on title to the property. To the extent that the registered owner is a bare trustee, then it may be appropriate for the registered and beneficial owners to both sign the tenant attestation. As with any activities taken by a nominee or bare trustee relating to the property, the beneficial owner may be required to authorize the transaction. From CMHC’s perspective, this is a matter as an internal between the registered owner and the beneficial owner. 

Does the CECRA loan amount include HST?

No, the “gross rent” which forms the CECRA loan amount excludes HST. The tenant remains responsible for paying HST on the portion of rent for which it is responsible.

Conclusion

Given the technical nature of the program, property owners or tenants who think that they may benefit from CECRA should seek legal and other advisory counsel as soon as possible to assist them with assessing their situation, determining eligibility for the program and navigating the application process and documentation requirements.

The responses received from CMHC contained herein are current as of June 17, 2020, as supplemented by additional information provided on June 23, 2020. The most up-to-date information with respect to the CECRA program can be found on the CMHC website.

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