Government assistance for commercial rent for small businesses

On April 24, 2020, the federal government announced Canada’s Emergency Commercial Rent Assistance program to support commercial tenants whose operations are disrupted by the COVID-19 pandemic and commercial landlords who are having difficulty meeting their mortgage obligations and other fixed costs.

Through the Canada Mortgage and Housing Corporation (CMHC), the program will offer forgivable loans to owners of eligible mortgaged commercial properties to cover up to 50% of the rents payable by eligible small businesses for the months of April, May and June. In return, landlords will have to lower or cancel rents for their business tenants for these three months.

For the time being, only commercial property owners with mortgages are eligible for Emergency Assistance.

Eligible small businesses are those whose monthly rent does not exceed $50,000 per location, who do not generate more than $20 million in gross annual revenues, and who have temporarily ceased operations or experienced a decline of at least 70% in revenues prior to the COVID-19 pandemic. Emergency assistance will also be available to non-profit and charitable organizations.

The CMHC forgivable loan will be written off if the landlord agrees to reduce the eligible tenant’s rent by at least 75% for a period of three months, and no less than three months. If necessary, the measure can be applied retroactively for the months of April and May. During this period, the tenant will be entitled to remain on the premises, with the landlord’s right to evict suspended.

If the reduction granted by the homeowner is less than 75%, the CMHC forgivable loan may have to be repaid according to terms to be determined shortly.

Commercial property owners are under no obligation to participate in the Emergency Assistance program, even though their tenants are eligible. However, those who apply to CMHC can be sure of receiving 75% of the applicable rent for the months of April, May and June, as long as the rent reduction granted is 75%. In such a case, small business tenants who have agreed to this measure will benefit from rent relief, being required to pay only 25% of the applicable rent for these months.

The application of Emergency Assistance and the terms and conditions of forgivable loans remain uncertain for the time being, and raise a number of questions. For example, companies that do not meet the above-mentioned eligibility criteria and are genuinely in difficulty will receive nothing, including those whose revenues fell by half while they remained open during COVID-19.

Nevertheless, CMHC has summarized the requirements to be met by commercial building owners in order to join Emergency Assistance, as follows:

  • be a property owner generating rental income from commercial real estate located in Canada
  • be the owner of the commercial building housing the affected small business tenants
  • have a mortgage secured by a commercial rental property with at least one small business tenant
  • have entered into or will enter into a rent reduction agreement that will reduce the affected small business tenant’s rent by at least 75% for the period April (retroactive), May and June 2020

(note: a reduction of less than 75% should result in repayment of the loan according to terms to be determined)

  • the rent reduction agreement with the affected tenants includes an eviction moratorium for the period April, May and June 2020
  • report rental income on your tax return (individual or corporate) for the 2018 or 2019 tax year or both

In addition, CMHC is working with the government to develop another mechanism whereby commercial property owners without mortgages can benefit from similar assistance.

The federal government, which expects Emergency Assistance to be in place by mid-May, will be releasing more information about the program’s terms and conditions in the next few days. Applications must be submitted no later than August 31, 2020.

By Alexandre Béchard and Mathieu Tremblay

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