Canada Emergency Commercial Rent Assistance – CECRA
Date: April 25, 2020
The Canadian government reached an agreement to implement the Canada Emergency Commercial Rent Assistance (CERCA) with the provinces. This program will lower rent by 75% for small business that have been affected by COVID-19. The Ontario government program is referred to as Ontario-Canada Emergency Commercial Rent Assistance program (OCECRA). Not-for-profit and charitable entities would also qualify for the program. At this time the Ontario government has provided more information than the federal government.
The government will be providing forgivable loans to commercial property owners that will cover 50% of three months of rental income payable by eligible small business tenants who are suffering as a result of COVID-19. CECRA will be providing relief to landlords for April, May and June.
The government will forgive the subsidy if the property owner agrees to reduce the rent by at lease 75% under a rent forgiveness agreement. the rent forgiveness agreement must state that the tenant will not be evicted while the agreement is in place. Therefore, the tenant according to the Ontario government must cover 25% of the rent in respect to fixed costs for three months.
The commercial rent subsidy is only in respect to small business tenants paying rent less than $50,000 per month who have temporarily ceased operations or have experienced at least a 70% of the rent in pre-COVID revenues.
The Ontario government states that there must be a 70% drop in pre-COVID-19 revenues by comparing April, May, and June 2020 with April, May, and June 2019. Alternatively, you could compare your average revenues from January and February 2020. The federal government at this point is silent on the revenue test. Please note, both governments do not mention what due diligence is required to determine the calculation of the 70% drop in revenues.
For example, a monthly rent for a small business is $10,000. The landlord would provide a rent reduction in the amount of $7,500 for April to June. The small business tenant would be responsible to pay $2,500 which is 25% of the gross rent. The federal government would absorb $3,750 in rent which is 37.5% and the Ontario government would absorb $1,250 which is 12.5% of the rent. Therefore, the landlord would be out of pocket 25% of the rent for three months. This is my interpretation of the information provided by the federal and Ontario government at this time. The actual final details may differ from my interpretation. Please do not prepare any agreements with tenants until the final details have been provided by the federal government.
CECRA will be administered by the Canada Mortgage and Housing Corporation and will be available until September 30, 2020. The support will be retroactive until April 1 covering April, May, and June.
The federal government announced that CECRA should be in operation by mid May and that the final details will be provided shortly. Once again do not prepare any agreements or negotiate a temporary contract until the details are finalized.