On April 16, 2020, Prime Minister Justin Trudeau announced the creation of a new program, the Canada Emergency Commercial Rent Assistance, to help small businesses that are commercial tenants with paying their rents for the months of April, May, and June 2020.
This program “will seek to provide loans, including forgivable loans, to commercial property owners who in turn will lower or forgo the rent of small businesses for the months of April (retroactive), May, and June.”
On April 24, 2020, the Prime Minister announced that the federal government reached an agreement in principle with all the provinces and territories with respect to the implementation of the program. The news release can be found here.
Overview
This program, to be administered by the Canada Mortgage and Housing Corporation (CMHC), will seek to lower commercial rent for eligible small business tenants by 75% for the months of April, May, and June. The gross rent for these three months will be covered as follows:
- Eligible commercial property owner – 25% of the gross rent
- Eligible small business tenant – 25% of the gross rent
- Government – 50% of the gross rent
Under this program, interest-free, forgivable loans will be provided to eligible commercial property owners to cover 50% of the gross rent payable by eligible small business tenants for the above-mentioned three months. Funds will be transferred to the eligible commercial property owner’s financial institution. A loan will be forgiven on December 31, 2020, provided all of the terms and conditions of the loan are met.
The commercial property owner cannot seek to recover rent abatement amounts from its tenant after receiving the forgivable loan under this program.
CMHC has engaged both MCAP and First Canadian Title to deliver the program. As such, either MCAP or First Canadian Title will contact the applicant during the validation and funding stages.
Who is an Eligible Commercial Property Owner?
An eligible commercial property owner is one who:
- owns commercial real property where one or more eligible small business tenants are located (commercial properties with a residential component and multi-unit residential, mixed-use properties would qualify for support with respect to the small business tenants);
- entered or will enter into a rent reduction agreement with respect to the months of April, May, and June 2020, which:
- reduces the rent of the eligible small business tenant for these months by at least 75%;
- states that the landlord will not evict the tenant during the period with respect to which the property owner agrees to apply the loan proceeds; and
- contains a declaration of rental revenue included in the attestation.
All of the above criteria must be met in order for the commercial property owner to be able to apply for the program.
The program does not apply to federally, provincially, or municipally-owned properties. Certain exceptions will be made where there are long-term commercial leases with third parties to operate the property (e.g. airports, post-secondary institutions, hospitals, pension funds, First Nation and indigenous organizations and governments, and designated Crown corporations).
Who is an Eligible Small Business Tenant?
Eligible small business tenants are those businesses, including non-profit and charitable organizations, that:
- are paying a maximum of $50,000.00 per month in gross rent per location, as evidenced by a valid lease;
- generate a maximum of $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level); and
- have experienced a minimum of 70% decrease in their pre-COVID-19 revenues. To quantify revenue loss, revenues in April, May, and June 2020 should be compared to the revenues in the same months in 2019 or, alternatively, to the average of the revenues earned in January and February 2020.
All of the above criteria must be met in order for a small business tenant to be eligible. Subtenants who meet these requirements will also be eligible if certain program criteria are met.
It appears that small businesses that opened on or after March 1, 2020, are not eligible.
In Ontario, the following small business tenants and subtenants are ineligible:
- Entities owned by individuals holding political office;
- Entities that promote violence, incite hatred or discriminate on the basis of race, national or ethnic origin, color, religion, sex, age or mental or physical disability; and
- An entity in the Lenders special accounts or Restructuring Group prior to March 1, 2020.
How do I Apply?
Eligible commercial property owners can apply online. The property owners will need to submit the following in support of their applications:
- Signed Forgivable Loan Agreement in the required form;
- Signed Rent Reduction Agreement in the required form;
- Signed Property Owner’s Attestation in the required form;
- Signed Tenant or Sub-tenant’s Attestation in the required form;
- Property information, including property address, property type, property tax statement, latest rent roll for each property, and the number of commercial units;
- Applicant information, including banking information (including bank statement), property owner contact information, co-ownership information, and contact details for co-owners; and
- Tenant information, including tenant contact information, registered business name, business number, number of employees, lease area, and the monthly gross rent for the period of April, May, and June 2020.
Templates of the Forgivable Loan Agreement, Rent Reduction Agreement, Property Owner’s Attestation, and Tenant or Sub-tenant’s Attestation are available on the application portal.
Timing
The application portal is now open. However, given the large volume of applications expected, registrations are to be staggered. Property owners located in Ontario with up to 10 eligible small business tenants may register: (a) on Tuesday, May 26, 2020; and (b) on or after Friday, May 29, 2020. Property owners located in Ontario with more than 10 eligible small business tenants may register: (a) on Wednesday, May 27, 2020; and (b) on or after Friday, May 29, 2020. Once registered, applicants will be able to enter data and upload documents into the portal at a later date if they wish. The deadline to submit applications is August 31, 2020. (This deadline has been extended. See below.)
The assistance under the program can be applied retroactively. Eligible commercial property owners may apply even after June 30, 2020, as long as they can prove eligibility during the above-mentioned three months.
Property owners will be required to refund amounts paid by the eligible small business tenants for the eligible period. If rent has been collected already before the approval under the program, the landlord may, if the tenant consents, credit the tenant for a future month’s rent.
Extension of Program through July 2020
The program has been extended such that funding will be available for the month of July 2020 as well. Participation by eligible property owners in the July extension is voluntary. Only tenants approved in the April, May, and June application will be eligible tenants for the purposes of the July rent relief. An eligible landlord is not required to include all the tenants in its original application in the July rent relief application. In addition, CMHC will not be assessing whether the eligible tenant continues to experience a reduction of at least 70% in revenue in the month of July.
Both existing and new applicants can apply for the July rent relief.
If a property owner has not yet applied for the program, the property owner may apply for the July extension as part of its application for the program. The deadline to submit new applications that include the July extension is August 31, 2020.
A property owner that has already applied for the program will have until September 14, 2020, to apply for the July extension and must apply for all those impacted tenants receiving the July rent relief at the same time. A property owner who has already been approved under the program will automatically qualify for the extension if it opts in. The approved property owner can simply log into the online portal and opt-in for the extension for the eligible tenants with respect to whom the property owner wishes to apply for the extension. The property owner must notify each of its tenants in writing (in prescribed form) once it has requested the extension on their behalf.
If the property owner already received an advance for the April to June period, it will receive a second forgivable loan advance for the July extension. Note that the forgivable loan amount will be based on the average of the gross rent amounts listed in the original application and will not be recalculated based on the actual rent payable for July.
In addition, CMHC announced that it is removing the requirement to claw-back provincial rent support funds and insurance proceeds from the forgivable loan amount for existing and new applicants. Existing affected applicants will have any previously clawed-back amounts added to their forgivable loan.
Extension of Program through August 2020
On July 31, 2020, the Minister of Finance, Bill Morneau, announced that the program will be extended by an additional month. Only those eligible tenants approved with respect to the months of April, May, June, and July qualify for the August extension. However, not all tenants in the original application are required to be included for the August extension.
Both existing and new applicants can apply for the August rent relief. If a property owner has not yet applied for the program, the property owner may apply for the August extension as part of its application for the program. The deadline to submit new applications that include the August extension is August 31, 2020. It should be noted that new applicants may apply for the 3-month, 4-month, or 5-month periods.
A property owner that has already applied for the program will have until September 14, 2020, to apply for the August extension. If a property owner has already been approved under the program, that property owner will automatically qualify for the extension if it opts in through the online portal. No additional documents are required to be submitted. As with the July extension, there will be no reassessment of whether the eligible tenant continues to have a 70% decline in revenue in the month of August. If the property owner has not yet applied for the July extension, the property owner can opt-in for the July and August extensions at the same time.
* Update – Extension of Program through September 2020 *
The Department of Finance Canada has recently announced that the program is being extended for one final time until the end of September. Tenants who qualified for the program based on existing parameters will automatically be eligible. The property owner can opt-in for September rent relief without reassessing whether the eligible tenant continues to have a 70% revenue decline in September. Participation in the extension is voluntary.
Both existing and new applicants can apply for the September rent relief. If a property owner has not yet applied for the program, the property owner may apply for the September extension as part of its application for the program. The deadline to submit new applications that include the September extension is September 30, 2020. New applicants will have the choice of applying for the three-month initial period, four months, five months, or six months.
A property owner that has already applied for the program will have until October 30, 2020, to apply for the September extension.
This blog post was written by Marina Abrosimov, a member of the Business Law team. Marina can be reached at 613-369-0363 or at marina.abrosimov@mannlawyers.com.
