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COVID-19: Canada Emergency Commercial Rent Assistance for Small Businesses

By James Struthers, Peter Eirikson + Navnit Duhra - April 25, 2020 under Business Advisory

Please refer to this post for the most updated information on CECRA: Canada Emergency Commercial Rent Assistance Application and Document Samples – CHMC Releases Details (posted May 25, 2020)

Mortgage and Rent Subsidy for Small Business Affected by COVID-19

On April 24, 2020, Prime Minister Justin Trudeau announced the Canada Emergency Commercial Rent Assistance program (“CECRA”) for small to medium sized businesses, charitable organizations and non-profits as part of the Government of Canada’s COVID-19 Economic Response Plan.

CECRA Overview

Essentially, the CECRA is a mortgage and rent subsidy.  Rent payments for April, May and June otherwise payable by eligible tenants (“Subsidized Rent”) will be paid:

— 25% by tenants;
— 25% by landlords;
— 25% by Canada; and
— 25% by the applicable provincial or territorial government.

The CECRA will:

— be operational mid-May;
— be administered by Canada Mortgage and Housing Corporation;
— be in the form of a forgivable loan to mortgaged property owner; and
— effectively lower rent for the months of April, May and June by 75% for small business, non-profits and charities negatively affected by COVID-19.

Are You Eligible?

Eligible organizations must:

  1. either:
    a. temporarily ceased operations; or
    b. have experienced at least a 70% drop in pre COVID-19 revenues;
  2. qualify as ‘small’ organizations;
  3. pay less than $50,000 in rent; and
  4. be tenants in a building subject to a mortgage.

Update May 4, 2020:  The original wording of the CECRA as published by the Government of Canada specified that tenants leasing from landlords that do not have a mortgage on their property would not be eligible to participate.  However, according to the CMHC, an alternate mechanism will be available to such tenants and landlords under the CECRA.  We anticipate that this alternative mechanism will provide for a lower subsidy payable directly to building owners rather than lenders.

Update May 7, 2020: CMHC has added that eligible businesses must have annual revenues of less than $20,000,000 annually, and that revenue reductions may be demonstrated by comparing a business’ revenues from April, May and June 2020 to the same months in 2019.  Federal MPs continue to debate the adequacy of a commercial rent subsidy program which excludes eligible tenants in buildings not subject to a mortgage, however, no further details regarding the alternative mechanism available to such tenants and owners have yet to be published.

Forgivable Loans

CECRA loans will be forgivable if commercial landlords with a mortgage on their property agree to reduce eligible tenant rents by 75% for the months of April, May and June pursuant to a rent forgiveness agreement (“RFAs”).  RFAs will prohibit eviction during the term of such agreement.  In essence, federal and provincial/territorial governments will remit 50% of the Subsidized Rent directly to the landlord’s lender to offset the landlord’s mortgage payments.  Landlords will remain responsible for the remainder of such mortgage payments.

More Details to Come

Currently, we recognize the following to be unclear:

  1. how the temporary cessation of operations will be defined and assessed;
  2. how revenue declines will be defined and assessed;
  3. what minimum terms RFAs must include; and
  4. whether tenants, landlords, either, or both may apply for relief under the CECRA.

When further details become available, MT+Co. will provide clarity on the above-items and update this blog.

Want More?

We will continue to keep you updated as more details emerge.  If you have any questions about your business and managing responses to COVID-19, feel free to contact James Struthers, Peter Eirikson or Navnit Duhra.



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