Business COVID-19

Here Is What You Need to Know About Rent Relief For Small Businesses Experiencing Hardship

Rent relief

When the federal government announced plans to introduce a new rent relief program for struggling small businesses in late April, it sparked hope. For businesses that have been fully or partially shut down or simply struggling to pay rent, the Canada Emergency Commercial Rent Assistance (CECRA) program is widely considered to offer a much-needed lifeline. 

CECRA Basics

The CECRA offers unsecured, forgivable loans to eligible commercial landlords for covering a maximum of 50 per cent of the rent their tenants owe for the months of April, May and June. To receive the loan, landlords must enter into a Rent Reduction Agreement with their tenant to reduce their gross monthly rent payment by at least 75 per cent.  In effect, the program covers 50 per cent of the rent, the tenant pays up to 25 per cent, and the landlord forgives at least 25 per cent.  Landlords must also agree to the terms and conditions of the loan, which include a moratorium on evictions during the rent reduction period. 

To qualify, small businesses must: 

  • Have experienced at least a 70 per cent decline in pre-COVID revenue.  
  • Pay $50,000 or lower in monthly gross rent 
  • Have annual gross revenue of no more than $20 million (calculated on a consolidated basis at the parent company level) 
  • Attest to their eligibility

Canada Mortgage and Housing Corporation (CMHC) is responsible for administering the joint federal-provincial/territorial program. The CMHC application portal opened on May 25 and will run until August 31, 2020. Applications may be made retroactively up to that date. Non-profits and charities are also eligible under the program. Since the CECRA was first announced, the program has undergone several refinements. Commercial landlords had asked for clarifications, some voicing concerns about taking on added financial risk. As program advocates point out, however, it makes good financial sense for affected property owners, who can continue to receive income and avoid the costs of searching for new tenants, while their tenants can avoid bankruptcy and eviction.

Addressing A Complex Challenge

The program, in its latest iteration, is a workable solution to a very complicated problem.  Small business tenants that qualify are in need of this relief and want breathing room to recover. Nonetheless, the program structure does require some heavy lifting for landlords, in addition to foregoing 25 per cent of the rent payable to them.  Landlords are also taking on some liability by opting for the program to help their tenants. 

At KPMG Law LLP, we are seeing many tenants ask their landlords to take advantage of this program, however landlords are moving a bit more cautiously, as there are certain obligations attached to the forgivable loans provided by CMHC.  Clearly, there is broad interest from landlords of all types and sizes, ranging from large, institutional property owners to the local, family-owned strip plaza. 

Advice to Commercial Landlords

My general advice to landlords is to take a pragmatic approach and really examine the pros and cons of the program as it applies to your specific situation, with a view to supporting your tenants through this period.  As some provinces move to prohibit evictions, bear in mind that the enforcement regime may be different during the pandemic.  

The loan you receive should either refund any amount previously paid by your tenant that exceeds 25 per cent of rent payable for April, May and June 2020; or pay operating costs and expenses on the property. These costs may include property taxes, insurance, utilities, and financing obligations.  The loan will be forgiven if these and other conditions are met by December 31, 2020.

Advice To Tenants

I advise tenants to have an honest dialogue with their landlord about where their business is at today and what the future looks like.  They should approach this problem as a team, with the landlord trying to find the best solution to a challenging situation for all parties. The ultimate solution could mean the CECRA or some other type of relief or alternative, such as postponing rent for a period of time. 

It is unclear if the federal government will extend commercial rent relief past June or if some provinces will institute or extend a moratorium on evictions. What is clear is that for some small business tenants, the CECRA can mean the difference between survival and closing down for good.  For landlords who are able to participate, your tenants will remember and appreciate that you stood by them through tough times. Providing some measure of rent relief can help small businesses manage the costs of the pandemic and help to restart our economy.

A Partner at KPMG Law LLP, Ali Baniasadi’s business law practice focuses on all aspects of commercial real estate, including financing and leasing of commercial properties.