We recently posted about the new Canada Emergency Wage Subsidy and how the program was designed as part of the Federal Government’s Economic Response Plan to help employers keep employees on payroll (see that post here).
As a further part of its Economic Response Plan, Prime Minister Trudeau announced on April 24, 2020 that the Federal Government has reached an agreement with provincial and territorial governments to provide relief to small businesses affected by COVID-19.
The Canada Emergency Commercial Rent Assistance for small businesses (“CECRA”) will provide forgivable loans to commercial property owners to cover 50% of their tenant’s rent for April, May, and June, 2020. In exchange, property owners will be required to reduce rent by 75% and include a no-eviction term during the duration of the agreement.
The federal, provincial, and territorial governments will be responsible for jointly covering 50% of a small business’ rent, while the commercial tenant will be responsible for 25%, and the property owner 25%. Relief will be implemented and administered by the Canada Mortgage and Housing Corporation.
CECRA is retroactive to April 1, 2020 and expected to be operational by mid-May, 2020. Eligible businesses in British Columbia will receive a total of $300 million in relief with the B.C. Government contributing an estimated $80 million.
To be eligible, a small business must:
- have been paying rent of less than $50,000 per month; and
- have temporarily ceased operations; or
- experienced at least a 70% reduction from its pre-COVID-19 revenues.
This financial support is also available to non-profit and charitable organizations.
While CECRA will provide some welcome relief, there are many unanswered questions about how it will operate in practice, and whether it will be effective.
For example, CECRA does not require a landlord to participate even if their tenants need financial support. Landlord are facing their own challenges and may have lenders who are not prepared to defer payments or offer other relief. As such, landlords may be incentivized to refrain from opting into CECRA in order to preserve their right to eviction upon non-payment by a tenant.
In addition, the Canadian Federation of Independent Businesses has reported that 40% of small businesses have seen a revenue drop of 70% or more as a result of the economic impact of COVID-19, with over 50% reporting that they are unable to pay rent. As a result, the minimum threshold for revenue loss may be too high and many businesses will not qualify for relief they desperately need.
Finally, some are concerned that the three-month period may not be long enough to properly assist businesses, who may need relief for longer. However, if recent amendments to requirements for loans under the Canada Emergency Business Account are any indication of the government’s willingness to listen to business owners, adjustments may be made to the terms and requirements of CECRA in the near future.
The final terms and conditions of CECRA have yet to be released. We will be monitoring this situation, so please check back soon for updates.
If you have any questions about this program, or how it impacts your business, please contact Jordanna Cytrynbaum, John Fiddick or Joseph Romanoski.
Please see here for more about CECRA: