Update on Canada Emergency Commercial Rent Assistance (CECRA) program
More information on the CECRA program (originally announced April 24, 2020) was provided today during the Prime Minister’s daily COVID update speech. This program will provide a forgivable loan to landlords for up to 50% of a commercial tenant’s monthly rent, if the landlord and tenants agree to modify their existing lease agreement so that the tenant will pay no more than 25% of the original rent and the landlord will forgive at least 75% of the original rent for April, May and June 2020.
The mechanics of the program appear to work so that the rent reduction agreement becomes binding once final approval is given to the CECRA application. The landlord would receive the loan proceeds and any rent paid by the tenant, once the criteria of the CECRA application have been met then the loan would be forgiven and the landlord would provide refunds or credits to the tenant for any amount received in excess of the amount agreed to under the rent reduction agreement.
In order to qualify, the tenant must have experienced a 70% decline in gross revenue in April/May/June of 2020 compared to the corresponding month in 2019 (or to the average of Jan/Feb 2020 if the business was not in operation in 2019), the original monthly rent amount must have been $50,000 or less per location, and the tenant (or ultimate parent company of the tenant in certain situations) must have had less than $20 million in gross annual revenue in 2019.
As well, the landlord must agree to a moratorium on evictions and that they will not recoup the reduced rent under the agreement in other ways after the agreement is over.
The applications for CECRA will be available starting May 25, 2020 through the Canada Mortgage and Housing Corporation, which would require forecasting information about June revenue for tenants. Information is already posted at the link above so potential applicant landlords and tenants can work towards determining eligibility and preparing the necessary information.
There is no requirement that the commercial property have a current mortgage in order to apply for the program, the program is being managed by CMHC due to its expertise and experience with real estate in Canada. The Federal Government is encouraging landlords and tenants to apply for the CECRA program if applicable, but there is no requirement to do so.
The CECRA program has significantly more paperwork and legal documentation requirements than the other COVID-19 support programs presented by the Federal Government, but they have provided sample documents to provide examples of the underlying details.
Applications can be made up to August 31, 2020. The program is open to situations where the tenant and landlord are non-arm’s length, as long as the other requirements have been met.
Expansion of Canada Emergency Benefits Account (CEBA) to businesses with less than $20,000 of payroll in 2019
In the May 19, 2020 COVID-19 update speech from the Prime Minister, it was announced that the CEBA loan program was going to be expanded again to allow more active businesses access the $40,000 interest-free, partially forgivable loan to help with operating costs during the COVID-19 crisis. The program originally was accessible to businesses with $50,000 to $1,000,000 of payroll in 2019, then was expanded to businesses with $20,000 to $1,500,000 in 2019 payroll, and this expansion will allow businesses with less than $20,000 of payroll in 2019 to qualify.
The applicant business must have an active business account with a participating financial institution, have filed a 2018 or 2019 tax return, and have between $40,000 and $1,500,000 of eligible non-deferrable expenses (including rent, property taxes, utilities or insurance, among others). The other CEBA criteria regarding eligible use of the funds and repayment timing to access the partial forgiveness are not expected to be any different.
More details will be released in the coming days, and we will provide more detailed information as it becomes available – both the Canada.ca website and the major bank websites have not been updated for these changes. This expanded CEBA criteria may cause conflicts with the Regional Relief and Recovery Fund (RRRF) program we provided information on last Friday.
In order to apply for the RRRF funding, a business had to attest that it was not eligible for CEBA, so this expanded CEBA eligibility may now make businesses ineligible for the RRRF funding that would have been eligible under the previous CEBA rules.