June 16, 2020
Rent Assistance for Small Businesses
Applications recently opened for the Canada Emergency Commercial Rent Assistance (CECRA) program to offer rent assistance for small business operators. This program is designed to reduce by 75% the rent paid by eligible small business tenants that were impacted by COVID-19 for the months of April, May and June 2020.
The Canada Mortgage and Housing Corporation (CMHC) is administrating the CECRA program, which will be delivered by mortgage finance company MCAP and FCT (formerly First Canadian Title).
Below, we have summarized the key highlights and how to apply for the CECRA program for rent assistance for small business owners.
CECRA Program Summary
The CECRA program provides eligible commercial property owners with unsecured, forgivable loans up to 50% of gross rent for the months of April, May, and June 2020 from eligible small business tenants or subtenants experiencing financial difficulties due to COVID-19. Property owners must agree to a minimum of 75% rent reduction for the three months while the impacted small business tenant will be responsible for the remaining 25%. See below:
Rent (April, May, June)
50% Government *through forgivable loans
25% Property owner
Although the CECRA program is not mandatory, the federal and provincial governments are encouraging property owners to apply. The B.C. government also announced a new order under the Emergency Program Act (EPA) that will protect small businesses from eviction through the end of June 2020. The EPA order also restricts the termination of lease agreements and the repossession of goods and property.
Using the CECRA Funding
In order of priority, the property owners must use the CECRA funding to:
First, reimburse any rent paid above 25% by impacted tenants for the 3-month period unless the credit is applied against future rent.
Second, cover expenses relating directly to the property, including any financing on the property by the owner and maintenance and repair obligations.
CECRA Forgivable Loan Agreement
The interest-free loans to the property owner are to be forgiven on December 31, 2020, provided the terms and conditions of the loan are met and the rent reduction agreement, attestation, and supporting documents are accurate.
If the property owner files for bankruptcy, restructures, reorganizes, or dissolves the business, the loan must be repaid. Also, if the property owner defaults, the loan must be repaid at the request of CMHC. The rent reduction agreement also specifically states the property owner must not recover forgiven rent amounts from the impacted tenants when the program is over.
Am I Eligible for the Rent Assistance for Small Business?
To qualify for the CECRA funding program, the commercial property owner must meet the criteria listed below. They must:
Own commercial real property, which has impacted small business tenants;
Enter (or already have entered) into a legally binding rent reduction agreement with the impacted small business that reduces the rent by a minimum of 75% for April, May, and June 2020; and
Ensure the rent reduction agreement with each impacted tenant includes a moratorium on eviction for the period during which the property owner agrees to apply the forgivable loan proceeds and a declaration of rental revenue included in the attestation.
The CHMC has indicated the CECRA funding program is also applicable but not limited to:
Commercial properties with a residential component and multi-unit residential mixed-use properties with small business tenants;
New property owners who have recently constructed or purchased a property, provided all other requirements are met, including having entered into a lease on or before April 1, 2020, with an eligible tenant; and
Non-arm’s-length parties, including where the property owner owns the small business that is a tenant provided all other requirements are met; a valid and enforceable lease agreement is in place prior to April 1, 2020, and the rent under the lease is at a market rate.
A commercial property owner that is an individual holding a federal or provincial political office will not be eligible for the CECRA funding. In addition, CECRA will not apply to any federal, provincial or municipal government-owned property where the small business is a tenant. Certain exceptions apply, including:
A First Nation or Indigenous organization or government is eligible for CECRA funding for small businesses as a property owner if they have a long-term lease;
A third party is eligible for CECRA funding as the property owner if there are long-term commercial leases with third parties to operate the property (for example, airports); and
Hospitals, post-secondary institutions, and pension funds, as well as Crown corporations with limited appropriations designated as eligible under CECRA for small businesses.
What Is an Impacted Small Business Tenant?
The CECRA funding program offers rent assistance for small business for impacted small business tenants or subtenants, including not-for-profit and charitable organizations that are businesses that:
Pay no more than $50,000 per location in monthly gross rent, that is enforceable by a valid lease agreement;
Generate consolidated annual gross revenues of less than $20 million; and
Revenues have declined by at least 70% when compared to pre-COVID-19 revenues.
To calculate the decline in revenues, the small business can compare its gross revenues in April, May, and June 2020 to either the same period in 2019 or if the business was not operating in 2019 the revenues can be compared to the average gross revenues of January and February 2020
The CECRA funding program excludes small businesses opened on or after March 1, 2020.
The CECRA Application Process
The CECRA application portal became available on May 25, 2020, for property owners and landlords with staggered registration dates based on location. The deadline to apply is August 31, 2020, and the forgivable loan can be applied retroactively. Therefore, the application can be completed after the three-month period has ended, given the property owner can confirm and prove eligibility. Property owners must apply for all three months and can apply for multiple tenants at the same time.
Click here to access CECRA for Small Businesses Application.
The following supporting documentation is required to complete the CECRA application:
Attestations (samples available in application portal)
Tenant or Sub-tenant’s Attestation: Property owners will require a signed attestation from the Tenant attesting to their eligibility with the CECRA program requirements.
Property Owner’s Attestation: Property owners are required to sign an attestation confirming the information provided in the CECRA application is correct and attesting to their eligibility with the program requirements.
Agreements (samples available in application portal)
Rent Reduction Agreement: Property owners and each impacted tenant are required to enter into a legally binding rent reduction agreement to confirm the rent reduction in accordance with the program terms and conditions. This agreement is conditional until the CECRA application for rent assistance for small business is approved.
Forgivable Loan Agreement: Property owners must agree to the terms and conditions in the application and the forgivable loan agreement.
The following information is also required to complete the CECRA application:
Property owner information
Property information includes business address, type of use, property tax notice, most recent rent roll for each property and the number of commercial units; and
Applicant information includes banking info (including most recent bank statement) and the property owner (and co-owner if applicable) contact details and information.
Tenant information includes contact details, legal business name, number of employees, consolidated gross revenues, lease area (sq. footage) and the April, May, and June 2020 monthly gross rent amounts.
We Are Here To Assist Small Businesses
Manning Elliott is here to help if you have any questions regarding the CECRA funding program for rent assistance for small business. To assist business owners in navigating through these trying times, visit our blog to stay up to date on the most recent activity related to COVID-19.
If you have any questions about rent assistance for small business through the CECRA funding program, please contact us directly.
This content is believed to be accurate as of the date of posting. Canadian Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.