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Executive Summaries Jul 22, 2020

Details on Canada Emergency Commercial Rent Assistance (CECRA)

Canada Emergency Commercial Rent Assistance for Small Businesses: highlights following the announcement by the Prime Minister of Canada, Mr. Justin Trudeau, on June 29, 2020 and the new details released by the Canada Mortgage and Housing Corporation on July 2 and July 17, 2020.

Updated on July 17, 2020: the changes made are in blue.

In order to help businesses in Canada overcome the financial repercussions caused by the COVID-19 crisis, several support measures have been put in place by the federal government. These include the Canada Emergency Commercial Rent Assistance (“CECRA”) for small businesses.

Further to the update published on May 20 by the Canada Mortgage and Housing Corporation (“CMHC”) (as updated pursuant to subsequent announcements made up on June 8, July 2 and July 17, 2020) with respect to the CECRA program, the following is a summary of the program’s key elements, which take into account the main developments between the initial announcement of the program and the above-mentioned recent updates as well as informal clarifications provided by CMHC.

What Assistance Is Offered and Who Can Benefit from It?

The CECRA is intended to support small business tenants who have experienced a decline in revenues of at least 70% compared to their revenues generated during the reference period prior to the COVID-19 crisis by providing access to forgivable loans from the federal and provincial governments to landlords who own (with some exceptions2) commercial real estate property and who rent to such tenants. The essential requirements to qualify as a small business and the broad guidelines for the method of calculating the decline in revenue are outlined below. These forgivable loans will bear no interest and will cover an amount equal to 50% of the total amount of gross rents normally payable by such tenants, initially for the period of April, May and June 2020 (as extended, if applicable, the “Covered Period”), but potentially for July 2020 as well. Last June 29, the Prime Minister of Canada, Mr. Justin Trudeau, announced the extension of the Covered Period (the "Announcement of Extension") for an additional month, as follows:

  • in order to benefit from the extension, eligible applicants for the AUCLC must apply for the extension, which is voluntary for new and existing applicants; and
  • the additional assistance is allocated if the revenues of AUCLC-eligible small business tenants have decreased by at least 70% for the period of April, May and June 2020, without having to reassess the decrease in their revenues in July as well.

The total amount of a Tenant's gross rent includes the base rent, the Tenant's regular monthly contribution to operating costs, property taxes and other additional rent amounts (e.g. for maintenance and repairs) payable under a legally enforceable lease. The program specifically provides for certain amounts to be excluded from the calculation of the total gross rent.

A commercial property is a commercial building (bearing or not a mortgage) housing small business tenants (commercial buildings with a residential component and/or a mixed-use residential building are also included).

This program is available provided, among other things, that such landlords reduce the gross rents of such tenants by at least 75% for the Covered Period to ensure that the total amount of gross rents that such tenants will now be required to pay for the Covered Period will not exceed 25% of the gross rents that they would have had to pay for the same period had it not been for the reduction of 75% or more, which is a condition sine qua non of the CECRA.

Such landlords will therefore absorb the balance of the gross rents normally payable by these tenants for the Covered Period, which is at least 25% of the total amount of such rents, representing the amount not covered by forgivable loans or payable by the tenants. If the aid is granted and the program requirements are met, these landlords will not have to repay the forgivable loans.

On June 8, 2020, in order to encourage the participation of landlords in the CECRA program, the Quebec Minister of Economy and Innovation, Mr. Pierre Fitzgibbon, announced that the Quebec government will make an additional contribution to the CECRA program by compensating 50% of the 25% portion absorbed by landlords registered in the program. Landlords will therefore be able to receive an amount equivalent to 12.5% of the total cost of rent, to reduce their losses by half. Following the Announcement of Extension on July 17, no information has been provided by the Government of Quebec as to whether it will extend for July.

If, as a result of an application for assistance submitted in accordance with the terms and conditions of the CECRA by a landlord/owner (the “Landlord”) of commercial real estate housing at least one small business tenant with an income decline of minimum 70%, a loan is granted, the program will allow:

  • the portion of the total amount of gross rent normally payable for the Covered Period (the total amount normally payable for the said period, the “Targeted Rent”) by the small business tenant covered by this application (the “Tenant”), be limited to 25% of the Targeted Rent, thereby allowing the Tenant, as Ottawa hopes, to maintain its operations and retain its workforce; and
  • the Landlord is assured of receiving at least 50% of the Targeted Rent (up to 62.5% in the province of Quebec for April, May and June 2020, due to the new bonus offered by the Government of Quebec which has not yet confirmed the extension for July). According to the assumptions of the federal government, it would allow the Landlord to pay for the operating expenses of the building.

What Are the Main Conditions for Applying and Receiving Assistance?

An application for assistance under the program can only be submitted by a Landlord who owns commercial real estate with at least one tenant who is an impacted small business. This application must relate to at least one tenant (or sub-tenant) of this commercial property that is a small business that has opened its doors before March 1, 2020 and has experienced a decrease in revenue of at least 70%.

It should be noted that a coalition of large retailers and commercial property owners, which includes, among others, the Hudson’s Bay Company, Indigo Books & Music Inc. and Cadillac Fairview, are lobbying Ottawa to negotiate rent relief allowing large corporate tenants to see their rent reduced by a third. A request has also been formulated to allow tenants to obtain a low-interest loan. Such initiative aims to help large businesses that are not included in the CECRA program. As of July 17, 2020, no developments have been reported to date.

CMHC has specified that a Landlord will only be able to submit one application per building. While in our view this is not apparent from the measures announced to date, we understand that CMHC will specify that a Landlord may submit only one application per building. This application will have to be supported by all the documentation and information required under the program:

  • attestations for each Tenant or subtenant;
  • the Landlord’s attestation;
  • a rent reduction agreement between the Landlord and each Tenant (said agreement is conditional upon acceptance of the application by CMHC and the granting of the assistance requested between the Landlord and the Tenant) reducing the Targeted Rent of each Tenant by at least 75%; and
  • the forgivable loan agreement between CMHC and the Landlord (in this case, the Landlord must accept the terms and conditions of the forgivable loan agreement available on the CMHC portal).

It should be noted that certain particularities apply in the case of subletting depending on whether the Tenant and the sub-tenant are both eligible for AUCLC or whether only the sub-tenant is eligible for AUCLC.

In addition, with respect to the July extension, a Landlord may opt for the said option only once and shall include all affected Tenants it wishes to include in the application. Thus, a Landlord may not submit the extension option twice in order to add additional Affected Tenants.

The application requires, among other things, the following attestations:

The Landlord:

  • must own commercial real property located in Canada that generates rental income and is home to at least one qualified small business tenant;
  • must have reported rental income on its income tax return for the 2018 or 2019 tax year or both, or have demonstrated that it is a new or recently purchased commercial property and that the lease with the Tenant was entered into on or before April 1, 2020;
  • must have entered into or concluded a rent reduction agreement (including an eviction moratorium for the period during which the Landlord agrees to apply the proceeds of the forgivable loan and a rental income tax return) reducing the Tenant’s gross rent by at least 75% for the Covered Period;
  • must not hold a federal or provincial political office and is not an entity controlled by a person holding such office; and
  • may not at any time claim from the Tenant the 25% share that the Landlord must pay (the share assumed by the Landlord is subject to the improvement announced by the Government of Québec). It should be noted that the program does not prevent the Landlord from increasing the rents in accordance with the market. However, the Landlord shall refrain from attempting to use any means or mechanism whatsoever, whether direct or indirect, to recover the rebated amounts agreed upon in the rent reduction agreement during or after the period covered by the program.

The Tenant:

  • must have temporarily suspended its operations or experienced a decrease in revenue of at least 70% compared to its pre-pandemic revenues (based on one of the calculation methods mentioned in the next section);
  • must not pay more than $50,000 per month in gross rent per site (excluding sales taxes such as HST); and
  • must not generate more than $20 million in gross annual revenue at the consolidated entity level, i.e., at the ultimate parent entity level. These gross annual revenues are to be calculated on the basis of the financial revenues of 2019. The Tenant shall use the 12-month period used by its company to calculate its financial data.

How Do You Calculate the Revenue Decrease of a Small Business Tenant?

The 70% decrease in pre COVID-19 pandemic revenues can be calculated using two methods:

  • comparing revenues in April, May and June 2020 to revenues in the same months of 2019; or
  • if the Tenant is a new business that was not in operation during the period of April to June 2019, compare the revenues of April, May and June 2020 with the average revenues of January and February 2020.

Since an application for assistance can be made as of May 25, 2020, it will not be possible to determine with certainty the June 2020 income until the 6th week after the opening of the application period. If the application is submitted before July 1, 2020, CMHC states that the Tenant may use its June 2020 forecast. The 70% income reduction criteria will be based on the average income generated in the months of April and May and the projected income for June. CMHC stated that the June projections must be supportable by the variables at play for the Tenant. The result must be guided by the average reduction in income for April and May and by the expected change, taking into account the guiding principles of the Province of Quebec regarding the reopening of the economy.

It is important to note that these revenues must come from ordinary activities in Canada (calculation of revenues according to the usual accounting method, excluding extraordinary items).

How Do I Apply for Assistance?

The application submitted by the Landlord, which must be completed and submitted online by the prescribed deadline, will be administered by CMHC. As of July 17, 2020, the application deadline is August 31, 2020. Application forms are now available on the CMHC website.2 If the Landlord already has his application for rental assistance approved, he has until September 14, 2020 to apply for the extension for July. As of July 17, 2020, the Landlord may opt for the July extension at the same time he submits his new application.

It should be noted that the Landlord must obtain an attestation completed by each impacted Tenant. The Tenant remains responsible for the declarations mentioned in its own attestation. The Landlord is entitled to rely on this attestation and Tenants’ declarations and will only be required to confirm that it is not aware, acting reasonably and without investigation, of any false or misleading information contained in the declaration provided by the impacted Tenant(s). CMHC mentioned that if any information in the Tenant's certificate is found to be false or misleading, the Tenant will be liable for any rent rebates under the terms of its lease.

In addition, the rent reduction agreement to be entered into between the Landlord and each of its impacted Tenant(s) provides that the rent reduction is conditional upon CMHC’s approval of the application.

The CECRA application portal opened on May 25, 2020. Given the high number of applications expected by CMHC, CMHC has provided a timeline on its portal to submit applications. It is expected that under normal circumstances, the assessment process should take one or two days, after which the Landlord will be informed of its eligibility. The Landlord should receive the forgivable loan within one week of the application date.

More time will be required to process applications should they be more complex or if the program is experiencing higher volumes.

CMHC has retained MCAP and FCT Title Insurance for the CECRA program to handle the financing component with governments.

What Else Should You Know about CECRA?

There is no limit on the amount of funding that can be provided to companies at this time.

The application will be made by the Landlord after a written agreement with each of its Tenants. We refer you to the forms available on the CMHC website.

The Landlord and the Non-Arm’s Length Tenant are included in the CECRA program if there is a valid and enforceable lease agreement in place before April 1, 2020, without being modified after that date, on the terms and conditions not exceeding those of the market.

Once the application is approved, governments will pay 50% of the gross monthly lease directly to the Landlord’s financial institution. According to CMHC, the financial institution may be any deposit-taking institution designated by the Landlord, provided the bank account is held in Canada. The financial institution serves as an intermediary for the program administrator to advance the forgivable loan to the Landlord.

If April and May rents have already been paid by the Tenant to the Landlord, the latter shall retroactively reimburse April and May rents or otherwise agree with the Tenant on a credit that may be extended to the Tenant for a subsequent month. The three-month period may be flexible.

Short-term leases (e.g. a month-to-month lease) are eligible if (i) the lease is legally binding and in effect prior to April 1st, 2020, and (ii) program requirements are met.

The Landlord may still apply for the program after the April/May/June 2020 period if it can demonstrate that it was eligible for the CECRA program during that period. The program will be applied retroactively. As of July 17, 2020, the application deadline is August 31, 2020. If the Landlord already has his application for rental assistance approved, he has until September 14, 2020 to apply for the extension to July. As of July 17, 2020, the Landlord may opt for the July extension at the same time he submits his new application.

CECRA forgivable loans will not be subject to repayment if the Landlord and each Tenant comply with the terms and conditions of the program. The interest-free forgivable loan will be forgiven on December 31, 2020, meaning that CMHC will automatically waive the loan on that date. The loan will therefore not have to be repaid if the Lessor complies with the terms and conditions of the loan. CMHC states that no formal notice of forgiveness will be provided. It should be noted that if the Landlord declares bankruptcy, restructures, reorganizes or dissolves its business, the loan will have to be repaid. Moreover, in the event of default, CMHC may exercise all recourses against the Landlord to recover the funds granted under the CECRA program.

Are There Any Other Considerations?

Some information not yet known

As previously mentioned, although some information has recently been provided by CMHC, a few program details are still unknown. Some of the pending questions include:

  • Does the Landlord have any recourse against the Tenant if the Tenant defaults on payment?
  • In Quebec, a state of health emergency was declared on March 14, 2020. Should a small business that opened between March 1 and March 13, 2020 be eligible for the assistance program?
  • Will an assistance program be available for large tenant businesses?

Tenants Depend on their Landlord for program Application

A Tenant is entirely dependent on its Landlord to apply for assistance. A survey published by CFIB shows that more than 40% of small businesses in Canada have experienced a 70% drop in income during a period covered by the CECRA and would be eligible for the program.

Since Landlords are not required to join the program, some Tenants are concerned that their Landlords will not take steps to benefit from the program, and cannot force these Landlords to apply for assistance. The bonification announced by the Quebec government could encourage landlords to join the program. In addition, Bill 61 - An Act to stimulate the economy of Québec and mitigate the consequences of the state of health emergency declared on March 13, 2020, due to the COVID-19 pandemic, as amended, proposes certain measures to stimulate the economy, in particular by including a measure to prevent any termination between the adoption of the Act and August 1, 2020 of a commercial lease on immovable property due to non-payment of rent after March 13, 2020. If this bill, including this measure, is assented to when parliamentary activities resume, this prohibition on termination could encourage landlords to enrol in the program. Finally, it should be noted that several other small business programs are offered by governments.

Concerns about the Income drop factor

The 70% revenue decrease factor may also be of concern for some companies. Indeed, this approach may not take into account businesses that, although seriously affected by the crisis, do not meet the eligibility criteria. Some businesses may even consider closing or ceasing operations in order to meet the 70% drop test. In addition, having experienced a 70% or more decrease in revenues, some Landlords are questioning the financial capacity of their Tenants to pay their 25% share.

Buildings Owners without tenants are not Eligible

The assistance does not take into account the small business that owns its premises and is also experiencing financial difficulties. However, the small business may be able to work out an arrangement with its mortgage creditor to make mortgage payments.

The administrative complexity of the program

Finally, there are some concerns among Landlords and their Tenants about the complexity that the program could bring, particularly with respect to the administrative burden that the application could create for mortgage creditors.

For 25 years, BCF’s mission has been to support Canadian businesses. We know the issues you face and our Real Estate Law team is available to help you use the resources at your disposal. Please do not hesitate to contact us for advice and assistance in the process.


[1] The CECRA does not apply to buildings owned by a federal, provincial or municipal government, or to any owner occupying a federal or provincial political office or controlled by a person occupying such an office, except as provided for in the program. As of July 17, 2020, these exceptions are as follows: (i) if there is a long-term lease to a First Nation or an Aboriginal organization or government, that entity qualifies as property owner; (ii) if there is a commercial long-term lease in favour of a third party operating the property, such as an airport, that third party qualifies as property owner; (iii) the property owner is a Crown corporation with limited appropriations designated by CMHC as eligible for the program; and (iv) the property owner is a post-secondary educational institution, hospital or pension fund. If the entity falls within one of these exceptions, it may apply for assistance under the program, as long as the other criteria are met. In addition, we understand that CMHC will soon clarify the cases of partial ownership of a building by a federal, provincial or municipal government by clarifying paragraph 14 of the Owner's Certificate available on CMHC's website.

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