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CECRA: Canada Emergency Commercial Rent Assistance

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    CECRA: Canada Emergency Commercial Rent Assistance

    On April 24, 2020, the Prime Minister announced the federal government reached an agreement in principle with all provinces and territories to implement the Canada Emergency Commercial Rent Assistance (CECRA) for qualifying commercial property owners and small business tenants.

    While the full terms and conditions of CECRA are not yet available, the Prime Minister’s Office has announced preliminary details, which are subject to change while intergovernmental agreements are finalized.

    What is CECRA?

    CECRA provides financial assistance to certain commercial property owners which provide rent forgiveness to small business tenants affected by the COVID-19 pandemic. The rent relief plan, to be funded jointly with the provinces, will provide non-repayable loans to commercial property owners to cover 50% cent of rent payments for April, May and June of 2020.

    Canada Emergency Commercial Rent Assistance (CECRA)

    The loans will be forgiven if the property owner agrees to cut the rent by at least 75% for those months and promises not to evict the tenant. The small business tenant must cover the remaining portion of the rent, which would be up to 25%.

    Who is eligible to apply for and receive CECRA?

    Qualifying commercial property owner to receive financial assistance from CECRA, the small business tenant:

    1. Must be paying $50,000 of rent or less per month; and
    2. Has temporarily ceased business operations or has experienced at least a 70% reduction in pre-COVID-19 revenues.

    Small business tenants also include not-for-profit and charitable organizations. The current terms do not specify whether “rent” means base (net) rent or gross rent.

    What are the eligibility criteria for landlords?

    1. The owner and the tenant must enter into a rent forgiveness agreement or similar agreement.
    2. The program will allow the property owners renting space to these businesses to obtain a forgivable loan from the Canada Mortgage and Housing Corporation that will cover 50% of their rent for the period of April, May and June.
    3. In exchange, property owners must sign an agreement
      • Committing them to lowering the rent their tenants pay by at least 75% over the same period, and
      • Must agree not to evict their tenants during the months in which the rent forgiveness applies.
    4. The owner’s property must be mortgaged by a lender. The forgivable loans would be disbursed directly to the owner’s lender.

    The loan will be forgiven when the landlord can show they have passed on the rent reduction to the tenant. In other words, Ottawa will ultimately cover 50% of the cost, while provinces and territories cover another 25% and small businesses cover the final 25%.

    When will CECRA be available?

    It is expected that CECRA will be available for application starting in mid-May 2020 with any rent forgiveness to be retroactive to April and May.

    Who will administer CECRA?

    CECRA will be administered by the Canada Mortgage and Housing Corporation (CMHC). It will be a collaboration between the federal, provincial and territorial governments.

    Who will fund CECRA?

    The federal government and applicable provinces or territories will fund 50% of the monthly rent for the applicable three months. Commercial property owners will be responsible for 25% and the tenants will be responsible for the remaining 25% unless otherwise agreed to between the owner and the tenant.

    What is next?

    More details on CECRA for small business tenants are expected soon as well as an additional rent forgiveness program for large business tenants which presumably pay more than $50,000 per month in rent.

    More Options

    The government also is offering a $40,000 government-backed loan to businesses, $10,000 of which can be non-repayable.

    Prime Minister Trudeau mentioned those businesses with no revenue at all, those that cannot make even the 25% of their rent can still access the Canada Emergency Business Account (CEBA). Which is supposed to forgive $10,000 worth of a $40,000 loan if the rest is repaid before the end of 2022.

    Ontario-Canada Emergency Commercial Rent Assistance (OCECRA) Program

    The Ontario Government is also committing $241 million to partner with the federal government and deliver more than $900 million in urgent relief to small businesses and their landlords through a new program, the Ontario-Canada Emergency Commercial Rent Assistance Program (OCECRA).

    The OCECRA will provide forgivable loans to eligible commercial property owners experiencing potential rent shortfalls because their small business tenants have been heavily impacted by the COVID-19 crisis.

    How does the program work?

    The program has been developed to share the cost between small business tenants and landlords. Small business tenants and landlords would each be asked to pay 25% of the before profit costs and the provincial and federal government would cost share the remaining 50%.

    For example, a monthly rent for a small business is $10,000.

    • In this example, assume the landlord doesn’t make a profit.
    • The landlord forgoes $2,500 (25%).
    • The small business would be responsible for paying $2,500 (25%).
    • The government would cover the remaining $5,000, with $3,750 from the federal government (37.5% of rent) and $1,250 (12.5% of rent) from the provincial government.

    To receive the loan, property owners will be required to reduce the rental costs of small business tenants for April, May and June 2020 by at least 75%.

    The loan would also be contingent on the signing of a rent forgiveness agreement between impacted tenants and landlords. This would also include a moratorium on evictions for three months.

    How long would a commercial property owner have to apply for OCECRA?

    The OCECRA would be administered by the Canada Mortgage and Housing Corporation (CMHC) and would be available until September 30, 2020. Support would be retroactive to April 1, covering April, May and June 2020.

    Are there any eligibility requirements for commercial property owners?

    The OCECRA would apply to commercial properties with small business tenants.

    Commercial properties with a residential component, and residential mixed-use properties with a 30% commercial component, would be equally eligible for support with respect to their commercial tenants.

    The property owner must be the registered owner and landlord of the residential or commercial real estate property. If a property owner does not have a mortgage secured by a commercial rental property, the property owner should contact CMHC to discuss program options, which may include applying funds against other forms of debt facilities or fixed cost payment obligations (e.g. utilities).

    What are the eligibility requirements for small businesses?

    An eligible small business tenant is one that:

    • Pays monthly rent not exceeding $50,000 in gross rent payments; and is,
    • A non-essential small business that has temporarily closed, or who is experiencing a 70% drop in pre-COVID-19 revenues (determined by comparing revenues in April, May or June to the same month in 2019 or alternatively compared to average revenues for January and February 2020). 

    Not-for-profit organizations and charitable entities would also be considered for the program.

    Does the OCECRA program factor in profits for the commercial property owner through the loan period?

    The forgivable loan would be conditional on the property owner and tenant entering into a rent forgiveness agreement (including a moratorium on eviction for three-months) pursuant to which the property owner would reduce the tenant’s monthly rent to 25% of rent that relates to fixed costs for three months.

    The property owner would be responsible for the remaining 25%. For certainty, government funding, and remaining monthly tenant rent payment obligations (i.e. 25%), would not cover the property owner’s profits derived from rental income – that is, in applying for this program, the property owner agrees to forego profit for a three-month period.

    Are any small businesses excluded from the OCECRA program?

    The following exclusions would apply: 

    1. Entities owned by individuals holding political office;
    2. Entities that promote violence, incite hatred or discriminate on the basis of race, national or ethnic origin, color, religion, sex, age or mental or physical disability; and,
    3. An entity in the Lenders special accounts or Restructuring Group prior to March 1, 2020.

    F.A.Q’s:

    What is CECRA?

    CECRA provides financial assistance to certain commercial property owners which provide rent forgiveness to small business tenants affected by the COVID-19 pandemic. The rent relief plan, to be funded jointly with the provinces, will provide non-repayable loans to commercial property owners to cover 50% cent of rent payments for April, May and June of 2020.

    Who is eligible to apply for and receive CECRA?

    Qualifying commercial property owner to receive financial assistance from CECRA, the small business tenant:

    1. Must be paying $50,000 of rent or less per month; and
    2. Has temporarily ceased business operations or has experienced at least a 70% reduction in pre-COVID-19 revenues.
    What are the eligibility criteria for landlords?
    1. The owner and the tenant must enter into a rent forgiveness agreement or similar agreement.
    2. The program will allow the property owners renting space to these businesses to obtain a forgivable loan from the Canada Mortgage and Housing Corporation that will cover 50% of their rent for the period of April, May and June.
    3. In exchange, property owners must sign an agreement
      • Committing them to lowering the rent their tenants pay by at least 75% over the same period, and
      • Must agree not to evict their tenants during the months in which the rent forgiveness applies.
    4. The owner's property must be mortgaged by a lender. The forgivable loans would be disbursed directly to the owner's lender.
    When will CECRA be available?

    It is expected that CECRA will be available for application starting in mid-May 2020 with any rent forgiveness to be retroactive to April and May.

    Who will administer CECRA?

    CECRA will be administered by the Canada Mortgage and Housing Corporation (CMHC). It will be a collaboration between the federal, provincial and territorial governments.

    Who will fund CECRA?

    The federal government and applicable provinces or territories will fund 50% of the monthly rent for the applicable three months. Commercial property owners will be responsible for 25% and the tenants will be responsible for the remaining 25% unless otherwise agreed to between the owner and the tenant.

    How does OCECRA work?

    The program has been developed to share the cost between small business tenants and landlords. Small business tenants and landlords would each be asked to pay 25% of the before profit costs and the provincial and federal government would cost share the remaining 50%.

    To receive the loan, property owners will be required to reduce the rental costs of small business tenants for April, May and June 2020 by at least 75%.

    The loan would also be contingent on the signing of a rent forgiveness agreement between impacted tenants and landlords. This would also include a moratorium on evictions for three months.

    How long would a commercial property owner have to apply for OCECRA?

    The OCECRA would be administered by the Canada Mortgage and Housing Corporation (CMHC) and would be available until September 30, 2020. Support would be retroactive to April 1, covering April, May and June 2020.

    Are there any eligibility requirements for commercial property owners for OCECRA??

    The OCECRA would apply to commercial properties with small business tenants.

    Commercial properties with a residential component, and residential mixed-use properties with a 30% commercial component, would be equally eligible for support with respect to their commercial tenants.

    The property owner must be the registered owner and landlord of the residential or commercial real estate property. If a property owner does not have a mortgage secured by a commercial rental property, the property owner should contact CMHC to discuss program options, which may include applying funds against other forms of debt facilities or fixed cost payment obligations (e.g. utilities).

    What are the OCECRA eligibility requirements for small businesses?

    An eligible small business tenant is one that:

    • Pays monthly rent not exceeding $50,000 in gross rent payments; and is,
    • A non-essential small business that has temporarily closed, or who is experiencing a 70% drop in pre-COVID-19 revenues (determined by comparing revenues in April, May or June to the same month in 2019 or alternatively compared to average revenues for January and February 2020). 

    Not-for-profit organizations and charitable entities would also be considered for the program.

    Does the OCECRA program factor in profits for the commercial property owner through the loan period?

    The forgivable loan would be conditional on the property owner and tenant entering into a rent forgiveness agreement (including a moratorium on eviction for three-months) pursuant to which the property owner would reduce the tenant's monthly rent to 25% of rent that relates to fixed costs for three months.

    The property owner would be responsible for the remaining 25%. For certainty, government funding, and remaining monthly tenant rent payment obligations (i.e. 25%), would not cover the property owner's profits derived from rental income - that is, in applying for this program, the property owner agrees to forego profit for a three-month period.

    Are any small businesses excluded from the OCECRA program?

    The following exclusions would apply: 

    1. Entities owned by individuals holding political office;
    2. Entities that promote violence, incite hatred or discriminate on the basis of race, national or ethnic origin, color, religion, sex, age or mental or physical disability; and,
    3. An entity in the Lenders special accounts or Restructuring Group prior to March 1, 2020.

    For more information on the various government assistance programs during COVID-19, click here.

    – Baber Rahim, Tax Law Clerk & JD Candidate

    © Kalfa Law 2020

    The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.
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