COVID-19: A primer on the CECRA rent relief program for SMEs

We’ve blogged extensively in recent weeks about the much-maligned Canada Emergency Commercial Rent Assistance program (CECRA) and its undue complexity—even though the initiative is intended to relieve the burden on small and mid-sized businesses struggling due to COVID-19.

We’ve been fielding countless calls from entrepreneurs who are still confused about the program and how it might help them. Before I give a primer on how CECRA could work for your organization, let’s recap some of the program’s key details.

The Canada Emergency Commercial Rent Assistance measure is designed to reduce rent for qualifying small businesses by 75 per cent, while providing loans to commercial property owners covering 50 per cent “… of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during April, May, and June.” Eligible small businesses must have experienced at least a 70 per cent reduction in pre-COVID-19 revenue, and pay less than $50,000 per month in rent.

If a participating landlord—who will be required to sign a rent reduction agreement as part of the program—reduces an impacted small business tenant’s rent by at least 75 per cent for the three corresponding months, the loans will be forgiven. The small business tenant would be required to cover the remaining 25 per cent of rent owing, while the property owner (who would also cover 25 per cent of the outstanding rent) would promise to not evict the tenant while the agreement was in place. That reduces an eligible tenant’s rent to 25 per cent of what they would otherwise have to pay for the three-month period impacted by COVID-19.

Key points to know about CECRA:

Landlords are not required to have a mortgage on their commercial property to qualify
The benefit does not apply to any federal, provincial or municipal owned properties
CMHC will transfer funds directly to the property owner’s financial institution
When applying, property owners will need to provide information to prove eligibility, including proof of an existing rent reduction agreement, a moratorium on eviction, and an attestation regarding a decline in revenue on the part of the impacted small business tenant—further details are still to come on the latter requirement
The program will apply for net advantage to leasing (NAL) situations, but must have a valid and enforceable lease agreement in place prior to April 1, 2020, with market terms
Small businesses no longer need to have ceased operations to qualify, but instead must only be able to demonstrate a 70% decline in revenue. The process for calculating revenue decline largely aligns with the methodology to qualify for the Canada Emergency Wage Subsidy. Affected small businesses can calculate their revenue losses by comparing their gross revenues from April, May and June of 2020 to those of the corresponding months in 2019, or make a comparison to their average gross revenue for January and February, 2020

Here’s an example of how CECRA works in practice:

Let’s say your organization pays $10,000 per month in rent on a commercial office space (CECRA applies to any category of commercial property).

If your landlord applies for CECRA, she would receive 50 per cent of your regular monthly rent ($5,000 per month for three months) as a forgivable loan after agreeing to reduce your rent by 75 per cent. You would continue to pay $2,500 per month in rent on the property, while your landlord would forego $2,500 in rent.

Your landlord’s loan would be forgiven if she complies with the program’s applicable terms and conditions—and doesn’t attempt to recover your forgiven rent when CECRA is wound down.

The catch is that business owners are reliant on their commercial landlords to apply for the benefit. Many have been unwilling to assist, creating a range of new stresses and challenges for entrepreneurs already facing overwhelming financial pressure due to social-distancing measures and the ensuing economic disruption.

To apply for CECRA, visit the CMHC website. If your organization requires assistance with this or any other COVID-19 relief measure, please contact a member of our team.

Armando Iannuzzi, Co-Managing Partner