The Canada Emergency Commercial Rent Assistance Program: An Overview

June 30, 2020

This post was originally published May 8, 2020 and was last  updated on June 30, 2020.

On April 24, 2020, the Government of Canada announced that, in partnership with the provinces and territories, it will be providing relief to landlords who agree to reduce eligible commercial tenants’ rent obligations by at least 75% during the months of April, May and June 2020. Under the program, known as CECRA, the federal and provincial/territorial governments will partner to pay 50% of the gross rent in the form of a forgivable loan to landlords. The program is administered by the Canada Mortgage and Housing Corporation (CMHC) through an application portal that will be available starting at 8:00 a.m. (Eastern Time) on Monday, May 25, 2020.

Originally published on May 8, 2020, this post has been updated to reflect additional information released by CMHC on May 14th, 19th and 20th, 2020, most significantly with respect to the application process, which has now been clarified with the release of sample agreements and forms of attestation (as described below), as well as an update on timing. An additional update on June 5, 2020 adds information about alternative funding through the Regional Relief and Recovery Fund, while the most recent updates, from June 11, 19 and 30, 2020, deal with commercial eviction moratoriums and related legislation in seven of Canada’s provinces.

Overview

The Canada Emergency Commercial Rent Assistance (CECRA) program is a voluntary program to be administered by CMHC in partnership with the provinces and territories. CECRA is intended to help encourage commercial property owners and their tenants to work together to enter into a rent reduction agreement, in order to help minimize revenue loss to each party during the COVID-19 pandemic.

The fundamentals of the CECRA program were set out by CMHC in a document released on April 29, 2020 and are outlined below:

  • A commercial property owner that is eligible to participate in the CECRA program will be guaranteed to receive no less than 50% of its gross rent from eligible tenants for April, May and June 2020;
  • In order to obtain this benefit, the landlord and tenant must first enter into an agreement to reduce the tenant’s gross rent obligation by at least 75% during the applicable period;
  • To make up for the abatement (in part), the federal and provincial governments will provide a forgivable loan to the landlord covering 50% of the gross rent, leaving the landlord and tenant to cover the remaining 50% (however where a landlord agrees to grant a 100% rent reduction to the tenant during the applicable period, the landlord will cover the remaining 50% of gross rent with no contribution from the tenant);
  • The property owner must agree to reduce the tenant’s gross rent, rather than defer it, and may not take steps to recover the abatement at a later date;
  • The property owner must also agree to an eviction moratorium during the rent reduction period; and
  • The loan will be forgiven if the terms and conditions of the program are complied with (the date of forgiveness has now been set at December 31, 2020).

Each provincial/territorial government is announcing its own participation separately, but it appears that all jurisdictions will generally follow the rules set out by CMHC. As a consequence, there should be little or no difference in how the program operates and is administered from one jurisdiction to the next.

Since the initial announcement, additional details have been released, which we have incorporated into the discussion below. We will continue to update this information as further announcements are made.

Eligibility for CECRA

Both the commercial property owner and the tenant must meet certain eligibility tests.

Property owner

Under the CMHC requirements, the property owner must own or be the landlord of a property with impacted small business tenants (including subtenants) and must in most cases have declared rental income on its personal or corporate tax returns for 2018 and/or 2019. An exception to the tax return requirement exists for new builds and recent acquisitions that were leased to an eligible tenant on or before April 1, 2020. In addition, it must have entered into a rent reduction agreement for the months of April, May and June 2020 as described above. Finally, the rent reduction agreement must include (i) a moratorium on eviction during that period and (ii) a declaration of rental revenue as per the tenant’s attestation (see below).

CMHC has addressed several key issues relating to landlord eligibility, including the following:

  • Support is equally available for mortgaged and unmortgaged properties (and properties with other forms of debt);
  • Mixed-use buildings are eligible with respect to their small-business tenants; and
  • Properties owned by federal, provincial or municipal governments are generally not eligible, save for the following exceptions: (i) if the commercial property owner is a First Nation or an Indigenous organization or government which is the lessee of the property pursuant to a ground lease or similar long-term lease from such government to administer the commercial property; (ii) if the commercial property owner is the lessee of the property pursuant to a ground lease or similar long-term lease from such government to operate the property (such as a lease to an airport); (iii) if the commercial property owner is a crown corporation with limited appropriations designated as eligible for the CECRA program by CMHC; and (iv) if the commercial property owner is a post-secondary institution, hospital, or pension fund.

Tenant

CMHC states that the tenant or subtenant must:

  • Be a business, non-profit or charitable organization;
  • Pay no more than $50,000 monthly gross rent per location;
  • Generate no more than $20 million in gross annual revenues, as consolidated “at the ultimate parent level”; and
  • Have experienced a 70% decline in revenue, as measured with respect to April, May and June 2020 vs. either (i) the same period in 2019 or (ii) the average of January and February 2020 (it is currently unclear whether the option of using the January-February period as the comparator is open only to eligible tenants that were not yet in business in 2019 or to all eligible tenants). Commercial tenants that are not at arm’s length with their landlords are eligible for CECRA, provided that a valid and enforceable lease was in place on or before April 1, 2020 on no greater than market terms (and that the other eligibility requirements have been met).

Ineligible entities

Small businesses that opened on or after March 1, 2020 are not eligible for the CECRA program. In addition, certain types of property owners and commercial tenants are ineligible. These include:

  • Entities owned by political officeholders;
  • Entities promoting violence, inciting hatred or which discriminate on the basis of race, national origin, colour, religion or a number of other enumerated grounds of discrimination;
  • Entities using the premises for criminal purposes or that have been convicted of financial crimes or regulatory breaches or which are under criminal prosecution for such offences (including affiliates); and
  • Entities subject to any actual or pending insolvency proceedings as well as those that are making applications for relief under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

Application Process

The application process opens at 8:00 a.m. (Eastern Time) on May 25, 2020. To help manage the high volume of applications that are expected, CMHC is taking a staggered approach to registration and is asking eligible commercial property owners to register on the following days once the application portal has opened:

 Day Who should register?
 Monday (May 25)  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)  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)  All other property owners in Manitoba, Saskatchewan, Ontario and the Territories
 Thursday (May 28)  All other property owners in Atlantic Canada, BC, Alberta and Quebec
 Friday (May 29) All

Commercial property owners will be able to apply with respect to all eligible tenants at the same time. The application deadline for CECRA is August 31, 2020. Before May 25, 2020, interested parties can register to receive email alerts relating to the application process.

Documents and agreements

CMHC has provided sample versions of the application documents available on its website, although it cautions that the final versions may differ. These documents include both a tenant’s attestation and a property owner’s attestation, in which the parties attest to their eligibility for the program, notably with respect to the 70% revenue decline, but also with respect to certain character issues relating to financial crimes or regulatory offences and issues of personal integrity that could be of concern to CMHC. To this end, both the tenant’s and property owner’s attestations incorporate an “Integrity Declaration” that is designed to ensure that CMHC does not advance loans to persons involved in criminal activity or who are otherwise of poor moral character. Note that, if an owner or tenant is not an individual, then depending on the type of entity that it is, it must make the Integrity Declaration with respect to its directors, officers, shareholders, beneficial owners and other similar individuals.

Parties must have a rent reduction agreement in place, including a moratorium on eviction and proof of tenants’ financial hardship, in order to participate in CECRA. To take advantage of the program at the earliest opportunity, eligible owners/landlords and tenants should begin to discuss a rent reduction agreement even before the application process opens on May 25, 2020. CMHC has provided a sample form of Rent Reduction Agreement on its website.

Finally, the property owner must sign a Forgivable Loan Agreement with CMHC in the form that is available on CMHC’s website.

Alternatives to CECRA

If a business does not receive support through the CECRA program, there are other programs to which it could potentially look for relief, including inter alia the federal Regional Relief and Recovery Fund (RRRF). Operating through six regional development agencies, the RRRF provides pandemic relief funds in support of businesses and communities nationwide. Generally, access to RRRF loans is available only where a business has been unable to obtain other forms of federal relief. As noted on the RRRF website, the terms on which RRRF support is available vary from region to region.

Moratoriums on Commercial Tenant Evictions

In addition to participating in the CECRA program, several Canadian provinces have taken (or are in the process of taking) steps to curtail the eviction of commercial tenants during the pandemic. The terms of these moratoriums on evictions vary from jurisdiction to jurisdiction, as discussed below:

British Columbia

Effective May 20, 2020, Ministerial Order M179 prohibits commercial landlords from evicting, terminating a lease, re-entering, distraining or taking any steps to rent out a tenant’s leased property on the tenant’s behalf (without the tenant’s consent). The Order applies where the landlord and tenant are eligible for the CECRA program and does not affect the right of the landlord to pursue legal remedies after the Order expires with respect to breaches that occurred while the Order was in effect. The Order will continue in force until the expiry of either the CECRA program or the B.C. state of emergency. On June 24, 2020, Premier Horgan announced that the state of emergency will be extended until July 7, 2020.

Alberta

On June 16, 2020, Bill 23, enacting the Commercial Tenancies Protection Act (the “Act”), was introduced in the Legislative Assembly of Alberta. If passed in its current form, the Act will protect commercial tenants from eviction or from having their leases terminated for non-payment of rent during the period beginning on June 16, 2020 and ending on August 31, 2020. In addition, landlords will be prohibited from giving notice of default, distraining for rent, increasing rent and/or charging penalties with respect to unpaid rent. While the prohibition on evictions will not apply retroactively, the prohibition on rent increases and penalties will apply from March 17, 2020 and any such amounts collected between that date and June 16, 2020 may need to be reimbursed or credited to the tenant.

One important aspect of the Act is the requirement that landlords and tenants to whom it applies develop a rent payment plan with respect to any payments that have not been paid as required by the applicable tenancy agreement. The rent payment plan, which can extend beyond August 31, 2020, must account for rent, fees and penalties that the landlord was prohibited from charging under the Act.

The Act will apply to commercial tenancies that are eligible for the CECRA program but are not currently participating and also in cases where commercial tenants have had to close their businesses as a result of public health orders or have experienced revenue declines of 25 percent or more as a result of the COVID-19 pandemic.

Saskatchewan

On June 5, 2020, the Government of Saskatchewan issued Ministerial Order 102 under The Emergency Planning Act that includes a moratorium on commercial tenant evictions. It also prohibits commercial landlords from using the tenant’s failure to pay rent as a ground for doing any of the following: exercising re-entry rights, distraining or taking any steps to rent out the tenant’s leased property on its behalf (without the tenant’s consent). The Order is in effect until either the end of the State of Emergency or the end of the period for which CECRA benefits are available.

Manitoba

On June 26, 2020, the Government of Manitoba announced its intention to introduce a temporary ban on commercial evictions to protect businesses and increase participation in the CECRA program. In its press release, the Government stated that the measure would prevent a commercial tenant from being evicted during the COVID-19 pandemic if it and its landlord are eligible for the CECRA program but have not yet applied. While the precise provisions of the moratorium, which will be contained in amendments to The Emergency Measures Act, have not been released, the Government stated that it will be consistent with those in other provinces.

Ontario

As of June 18, 2020, amendments to the Commercial Tenancies Act implementing an eviction moratorium in Ontario with respect to most commercial tenancies came into effect. The amendments prohibit certain actions by a commercial landlord that is eligible to receive assistance under the CECRA program with respect to a commercial tenant but has not elected to participate in the program. Specifically, where rent is in arrears, a landlord who is a party to a commercial tenancy that is subject to the amendments is prohibited from commencing an action or bringing an application for a writ of possession, as well as from exercising its right of re-entry or seizing any goods or chattels as a distress for arrears of rent. This moratorium is in effect until August 31, 2020 and applies retroactively to the period from May 1, 2020 to June 17, 2020.

Quebec

Quebec’s proposed commercial eviction moratorium was introduced as part of a general pandemic response bill on June 4, 2020. However, for procedural reasons unrelated to the eviction moratorium provision, the bill did not pass prior to the National Assembly’s summer recess. As a result, the eviction moratorium will not take effect as planned and it remains to be seen whether it will be considered again at a later date. As proposed, the commercial eviction moratorium would have prevented landlords, in the event of non-payment of rent by a tenant, from terminating a commercial lease, carrying out a seizure of property on the leased premises, or giving tenants a prior notice of the exercise of a hypothecary right over property contained in the leased promises and registering the prior notice at the Register of Personal and Movable Real Rights.

Nova Scotia

Nova Scotia’s moratorium on commercial evictions predates the CECRA program. Effective March 31, 2020, it prohibits retail and commercial landlords from exercising the remedies of notice to quit or distress under the Tenancy and Distress for Rent Act. This applies to rent due on or after March 22, 2020 from a retail or commercial tenant whose business has been “substantially and directly restricted”, or required to close altogether, by an order issued under the Health Protection Act. The Nova Scotia moratorium will be in effect as long as the province’s State of Emergency continues.

Other Provinces and Territories

New Brunswick lifted its moratorium on commercial tenant evictions as of June 1, 2020. Manitoba, Prince Edward Island, Newfoundland & Labrador, Yukon, Northwest Territories and Nunavut have not introduced moratoriums of this type.

Frequently Asked Questions

Many landlords and commercial tenants are expressing interest in taking advantage of CECRA. The following are among the questions that we are hearing from those in the industry:

Q1. Is the CECRA program mandatory?

A1. No. Both the landlord and the tenant must meet the eligibility requirements and agree to participate. This includes the parties entering into a freely negotiated rent reduction agreement.

Q2. We have already worked out a landlord-tenant arrangement. Can we still take advantage of CECRA?

A2. Yes, to the extent that your arrangement is compliant with the CECRA eligibility requirements. If it is not, you can still participate if you alter your arrangement to meet the eligibility requirements. For example, in addition to amending any other non-compliant aspects of the agreement, any rent paid in excess of the CECRA maximum must be refunded or credited to the tenant in accordance with the CECRA requirements. Note that the 25% tenant contribution is a maximum; an arrangement in which the tenant paid less would not be non-compliant on that basis.

Q3. Can we participate retroactively?

A3. Yes, as noted above, CMHC states that you may apply for CECRA until August 31, 2020, provided that the landlord and tenant were eligible during the months of April to June 2020. If eligible for the program on this basis, the property owner would be required to refund any rent paid in excess of the CECRA maximum to the tenant (or, alternatively, to credit the rent in accordance with the CECRA requirements).

Q4. How do we calculate eligibility with respect to the CECRA $20 million consolidated gross revenue test? For example, is there any guidance on what constitutes the “ultimate parent level” in the case of a business that is part of a multinational conglomerate?

A4. We understand that this is a significant issue for some commercial property owners and tenants in determining a tenant’s eligibility for the program. To date, the only guidance released by CMHC on this point has been that if the small business tenant or its ultimate owner produces consolidated statements, then the tenant would use revenues reported for the group level of companies. Alternatively, if the small business tenant does not produce consolidated statements, then it is the specific revenue of the tenant that applies for the $20 million revenue test.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

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