Canada Housing and Mortgage Corporation Releases Details on CECRA Application
Canada Housing and Mortgage Corporation (“CMHC”) has announced that the Canada Emergency Commercial Rent Assistance (“CECRA”) application portal opens today, May 25, 2020, and has released application documents which will be required to complete an application and access the CECRA.
The terms of the sample documents are complicated, and vary significantly from, or add significant additional features to, the details previously released by the Government of Canada and CMHC respecting the CECRA. We have provided a summary of these diversions and additions below, however we highly recommend that any tenant, landlord or property owner considering participation seek legal advice respecting the sample documents.
Staggered Application Dates
CHMC has requested that, due to an anticipated high volume of applications, applicant landlords apply as follows. We note that applications for the CECRA must be initiated by property owners. Tenants cannot initiate the process on their own initiative.
|Day||Who should register?|
|Monday, May 25, 2020||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, 2020||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, 2020||All other property owners in Manitoba, Saskatchewan, Ontario and the Territories|
|Thursday, May 28, 2020||All other property owners in Atlantic Canada, BC, Alberta and Quebec|
|Friday, May 29, 2020||All|
Property owners must agree to the terms and conditions of three documents in order to apply for the CECRA:
- Property Owner’s Attestation (“Owner’s Attestation”);
- Rent Reduction Agreement (“RRA”); and
- Forgivable Loan Agreement (“FLA”).
In addition to the Property Owner’s requirements above, all tenants, sub-tenants, and further inferior interest holders which are ‘Impacted Tenants’ must agree to the terms and conditions of two documents in order to be eligible to receive a rental subsidy pursuant to the CECRA:
It is unclear whether CMHC will accept any amendments to the sample agreements posted on the CMHC website, although we anticipate that CMHC will accepted limited, if any, amendments.
Notable additions to, or diversions from, earlier CECRA details provided by the Government of Canada or CMHC include:
|Leases between non arms-length parties must be for market rent and entered into prior to April 1, 2020.||
section 6, Tenant’s Attestation; section 3, Owner’s Attestation
|Tenants are not entitled to apply if their lease expires prior to August 31, 2020.||
section sections 4 and 5, Tenant’s Attestation
|Subject properties need not be mortgaged in order for property owners to apply for the CECRA.|
|Applicants (both tenants and landlords) must investigate and where applicable apply for insurance and other government subsidy proceeds in order to be eligible, which funds are deducted from the forgivable loan principal.||
section 14, Tenant’s Attestation; section 6, Owner’s Attestation
|Landlord’s must disclose details respecting their rent roll and other property details.||
section 11, Owner’s Attestation
|Property owners owned or controlled by persons holding federal or provincial government office are not eligible.||
section 13, Owner’s Attestation
|The subject property must not be owned in whole or in part by the federal, provincial or municipal government, except with a few narrow exceptions, including where a property owner is a First Nation or Indigenous organization or government which leases the subject property from the federal, provincial or municipal government.||
section 14, Owner’s Attestation
|All applicants (both tenants and landlords) must execute an integrity declaration, indicating that a person will not be eligible under the CECRA if such person:
Appendix A, Tenant’s Attestation; Appendix A, Owner’s Attestation
|Tenants will no longer be eligible solely due to cessation of operations as originally announced. Instead, all tenants must meet the 70% revenue reduction requirement. New businesses may establish reduction in revenues may use January and February as comparators.||
section 12, Tenant’s Declaration
|The RRA provides that owners will forgive at least 75% of total aggregate gross rent due under the applicable lease in the months of April, May, and June 2020*, while the FLA provides that owners will be eligible for a forgivable loan for up to 50% of the aggregate of all recurring amounts payable under the terms of the applicable lease for the same months**. It is not clear whether the inconsistent definition of rent across the RRA and FLA is intentional or material.||
*section 4, RRA
**sections 1 and 24 ‘Rent’, FLA
|If an Impacted Tenant has already paid in excess of the reduced rent amount, the Tenant may elect whether to receive a reimbursement or to apply the reduction against upcoming rent, except that sub-landlords may not elect to receive a reimbursement.||
section 6, RRA
|Existing rent reduction agreements are confirmed, however any such existing agreement will be subject to the terms of the RRA. Any reduction in such agreement will be included in the amount of the reduction provided for in the RRA.||
section 8, RRA
|Loan proceeds must be used solely to reimburse tenants and costs and expenses related to the subject property including debt servicing*. Notably, the property owner is not entitled to reinstatement of full rental obligations if an Impacted Tenant commences any process under the Bankruptcy and Insolvency Act (Canada).||
*section 2, FLA
|Property owners must make knowledge-qualified representations respecting tenant eligibility* and must report any non-compliance or ineligibility which the Landlord becomes aware of following advance of the loan principal.||
*section 11, RRA
**section 6, FLA
|The principal of any forgivable loan advanced under the CECRA is reduced by a pro rata portion of:
section 1(c)(ii), FLA
|Loans will be repayable on December 31, 2020 unless forgiven, and loans will be forgiven provided the property owner does not default under the FLA, including a breach of the Owner’s Attestation or a term of the RRA, commencement by the property owner of any process under law governing bankruptcy, restructuring, reorganization, dissolution, winding-up, arrangement, similar processes initiated by third-parties, or appointment of a receiver or trustee.||
sections 3(a) and 9, FLA
|Property owners may be required to submit additional documentation or information to CMHC.||
section 7, FLA
|Significant positive and restrictive covenants.||
section 8, FLA
|If a default occurs, the loan principal will bear 5% interest per annum.||
section 10, FLA
|CMHC may terminate the agreement if the Government of Canada does not adequately fund the CECRA.||
section 12, FLA
|Property owners are subject to a broadly worded conflict of interest prohibition.||
section 15, FLA
We have yet to see what level of participation the CECRA will receive. The application process is onerous and relatively complicated. Property owners may incur significant expense in order to responsibly apply for and obtain support under the CECRA.
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.
We will provide further updates respecting the CECRA as further details become available.