Canada Mortgage and Housing Corporation (CMHC), which is the entity responsible for administering the Canada Emergency Commercial Rent Assistance (CECRA) program, has provided additional clarification on the mechanics of the program. When the Federal government announced the CECRA program on April 24, 2020, many felt that it left many questions unanswered.

Prime Minister Justin Trudeau stated that the CECRA program would be fully flushed out by mid-May. As part of the CECRA program rollout, the following is a summary of some additional details released by CMHC:

Eligible Property Owners: To qualify for the CECRA, the owner of the property must:

• own property that generates rental revenue from commercial real property located in Canada;
• own commercial real property where an impacted small business tenant is located;
• have a mortgage loan secured by the commercial real property, occupied by one or more small business tenants;
• have entered or will enter into a rent reduction agreement for the period of April, May, and June 2020 that will reduce an impacted small business tenant’s gross rent by at least 75 per cent, and such gross rent reduction agreement must include a moratorium on eviction for the relief period; and
• have declared rental income on its tax return (personal or corporate) for tax years 2018 and/or 2019.

Impacted Small Business Tenants: Impacted small business tenants 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 temporarily ceased operations (in essence, generating no revenues), or have experienced at least a 70 per cent decline in pre-COVID-19 revenues.

Calculations of Revenue Loss: To measure revenue loss, small businesses can compare revenues in April, May and June of 2020 to that of the same month of 2019. They can also use an average of their revenues earned in January and February of 2020.

Retroactive Effect: The CECRA can be applied retroactively. Eligible property owners may still apply for assistance once the three-month period has ended if they can prove eligibility during those months.

Flexibility and Tenant Rent Credit: Eligible property owners must refund amounts paid by the impacted small business tenant for the relief period. For example, if gross rent has been collected at the time of approval for the CECRA, a credit to the impacted small business tenant for a future month’s gross rent (e.g. July 2020 for April 2020) is acceptable, if agreed upon by both the eligible property owner and the impacted small business tenant. This can be a flexible three-month period.

Forgivable Loan Structure: CMHC will provide forgivable loans to Eligible Property Owners:

• the loans will cover 50 per cent of the gross rent owed by impacted small business tenants during the three-month period of April, May and June 2020;
• the eligible property owner will be responsible for no less than half of the remaining 50 per cent of the gross rent payments (paying no less than 25 per cent of the total); and
• the impacted small business tenant will be responsible for no more than half of the remaining 50 per cent of the gross rent payments (paying no more than 25 per cent of the total).

No Recovery for Rent: The CECRA for small businesses loans will be forgiven if the eligible property owner complies with all applicable program terms and conditions including to not seek to recover gross rent abatement amounts after the program is over.

Eligible Property Owners with No Mortgage: CMHC has stated that property owners whose properties are not mortgaged will have an alternative mechanism for commercial rent assistance, to be outlined in the near future.

Deadline to Apply: August 31, 2020.

A few questions have now been answered, but there are more details and answers to come. It’s important to note that the CECRA program is voluntary, rather than mandatory. Consequently, not all landlords that could potentially take advantage of the CECRA program will necessarily take advantage of this program for various reasons.

Unless and until a landlord has entered into a rent relief agreement with a tenant in accordance with the terms of the CECRA program, the terms of existing leases and/or rent deferral agreements (to the extent that individual tenants and landlords have negotiated such agreements), shall continue to bind the parties.

Susan Rosen is a partner with Gowling WLG (Canada) LP.