Commercial Rent Assistance open to some mixed-use buildings

The federal government has created the Canada Emergency Commercial Rent Assistance program (CECRA) to help small businesses and commercial landlords. The government has reached an agreement in principle with all provinces and territories to implement the program.

CECRA will be of interest to landlords with commercial properties, or with properties with a commercial component. (However, in Ontario, the commercial component of each property must be at least 30%. Whether that is 30% by area or by rent, or either, is not clear.)

Provided the amount of the commercial use meets the tests, it appears that the owner can choose to apply for some eligible tenants, leaving others outside the program.

For April, May, and June, 2020, CECRA will provide forgivable loans to qualifying commercial property owners to cover 50% of rent payments for eligible small business tenants. The commercial tenant would pay at most 25% of their rent, and the landlord must forego at least 25%.

The relief can be applied retroactively. Landlords who have collected any rent from their tenants for the months of April, May or June 2020 in excess of the 25% of rent payable under CECRA would be required to refund the excess rent to the tenant, unless the landlord and tenant agree to credit that amount to future rent owing as it becomes due.

Eligible businesses are those paying less than $50,000 per month in rent, with less than $20 million in gross annual revenue, and which temporarily ceased operations or experienced a decrease in their revenue of at least 70% due to COVID-19. CECRA is also available to certain non-profit and charitable organizations, although the details of what constitutes their revenue are to be worked out.

Among other requirements now, eligible property owners must have a mortgage secured by the commercial property. However, in the near future, an alternative is to be available for owners without a mortgage.

CECRA loans will be forgiven if the property owner complies with the program’s terms and conditions, including not seeking to collect the applicable rent abatements after the program is over, and not evicting the tenant while the abatement agreement is in force.

CMHC will administer CECRA across Canada. More program details will be available soon, and applications are expected to be open in mid-May. The deadline to apply is to be August 31, 2020.

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Special rules in Ontario

Based on the federal agreement with the government of Ontario, mixed use properties are eligible if the property has at least a 30% commercial component, but clearly only for the commercial tenants.

In addition, the government funding, and the portion of rent covered by the tenant, are not to be applied to pay any of the Ontario property owner’s normal profits from rental income. Therefore, the property owner must set the commercial tenants’ rents at the level necessary to forego that profit for the relevant three-month period. While not certain, it seems likely that the owner can earn profit from tenants whose tenancies are not put into the program.

Applications for Ontario’s CECRA are to be available until Sept. 30, 2020, one month later than the deadline in other provinces.