Will CECRA Become a Viable Option for Commercial Landlords and Tenants?By sedoo
As the COVID-19 pandemic continues, many commercial Landlords and Tenants have been negotiating and entering into rent deferral agreements and/or rent abatement agreements.
On April 24, 2020 the Federal Government announced the Canada Emergency Commercial Rent Assistance for small businesses (CECRA) to provide relief for small businesses experiencing financial hardship due to COVID-19. CECRA offers forgivable loans to eligible commercial property owners to reduce the rent owed by their impacted small business Tenants and to meet operating expenses on commercial properties. Further details were promised to be released around mid-May which has created some uncertainty and scepticism in the marketplace.
The following summarizes what has been released so far by the Federal Government:
- The Canadian Mortgage and Housing Corporation (CMHC) is to administer the CECRA program;
- the commercial property owner, to be eligible under the CECRA program, must own or be the Landlord of the commercial real property which is occupied by one or more impacted small business Tenants;
- “impacted small business Tenants” under the CECRA program are businesses — including non- profit and charitable organizations — that:
- pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement);
- generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level); and
- have experienced at least a 70% decline in pre-COVID-19 revenues.
- the Landlord must enter (or have already entered) into a rent reduction agreement for the period of April, May and June 2020, reducing the Tenant’s rent by at least 75%;
- the rent reduction agreement must include a moratorium on eviction for the period of April, May and June 2020;
- the Landlord must have declared rental income on its tax return (personal or corporate) for tax years 2018 and/or 2019;
- commercial properties with a residential component and multi-unit residential mixed-use properties would equally be eligible with respect to their impacted small business Tenants;
- CECRA doesn’t apply to any federal, provincial, or municipal-owned properties; and
- eligible Tenants who are in sub-tenancy arrangements could also eligible.
It is anticipated that the application process will open in the second half of May 2020. So far there has been a reluctance by many Landlords and Tenants to commit to a CECRA rent reduction agreement until the complete details and process is unveiled by the Federal Government.
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