On May 14, Canada Mortgage Housing Corporation (CMHC) provided additional information on the Canada Emergency Commercial Rent Assistance (CECRA). The recent update answered many of our outstanding questions on the program, as outlined in our Bulletin "Leasing: Ontario and Canada Emergency Rent Assistance Programs" published on April 30, 2020.
CMHC released the following information on the application process for the CECRA:
- The application process will open to eligible property owners by the end of May.
- The online application process will include both fillable fields and templates of the documents required - these are not available yet.
- Property owners will need to provide information to prove
- Proof of an existing rent reduction agreement for the period of April, May and June 2020, which includes a moratorium on eviction, and
- Small business tenant financial hardship (i.e., attestation of 70% decline in revenue).
The highlights of the clarifying details provided by CMHC include:
- Most notably, and contrary to the earlier information released, it is not required that the property be secured with a mortgage. CECRA will be administered undifferentiated for properties with mortgages, other forms of debt, or no mortgages at all, and no alternative mechanism will be implemented.
- Small business tenants who are in sub-tenancy arrangements are eligible to apply if these lease structures meet the program criteria. It is unclear whether other arrangements, such as licenses or ground leases, would qualify for CECRA.
- Where a tenant has multiple locations, each qualifying location will apply for the CECRA separately.
- As part of the application process, the landlord will provide a declaration attesting that their tenants qualify for help under the CECRA (i.e., attestation of tenant's 70% decline in revenue).
Based on the new information released by CMHC, it is landlords, and not tenants, who are responsible for making the application to CMHC. As part of the application, landlords will have to attest that their tenant(s) have experienced a 70% decline in revenue. It is unclear what happens if a tenant misleads a landlord and the attestation is incorrect. The loan agreement will govern how funds provided under CECRA may be used, and it will be informative to see the terms of the actual loan agreement as well as the template rent reduction agreements to be provided by CMHC.
Previously, the Province of Ontario released details on the Ontario-Canada Emergency Commercial Rent Assistance Program (OCECRA), which were somewhat at odds with the federal announcements. The province has since amended the details of the OCECRA to be identical to the guidelines provided by CMHC. The previous reference under OCECRA to landlords "foregoing profit" in order to qualify for the program appears to be no longer applicable. Similarly, there no longer appears to be any requirement that the funds received under OCECRA be applied solely to "rent that relates to fixed costs."
The following details of the program remain outstanding:
- Is HST included in the $50,000 calculation of monthly rent?
- Can a landlord participate in the program for less than three months (i.e., only May and June)?
- Will the moratorium on rent evictions apply even if a tenant does not pay the remaining 25% of rent for which it is responsible?
- What if a tenant defaults during the three month period?
- Do properties owned by bare trustee corporations qualify for the program, as the beneficial owners of the property (i.e., the landlord) are not the registered owners?
For more detailed information on the eligibility requirements of the CECRA, please see our Bulletin "Leasing: Ontario and Canada Emergency Rent Assistance Programs" published on April 30, 2020, and the CMHC website: https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business.
As more information is released, we continue to provide updates. In the interim, if you have any questions or would like to obtain legal advice on the CECRA, please contact any lawyer in our Commercial Leasing Group. For more information on managing your business during COVID-19, visit our resource page at: https://www.mindengross.com/our-firm/covid-19-response.
Article originally published on 15 May 2020
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