Comprehensive details released for the Canada Emergency Commercial Rent Assistance program



The Canada Mortgage and Housing Corporation (CMHC) has released new and comprehensive details for the Canada Emergency Commercial Rent Assistance (CECRA) program. The new details include important changes to anticipated requirements, including eliminating the requirement for properties to be subject to a mortgage.1

Under this voluntary program, CMHC will provide a forgivable loan to eligible property owners, which will cover up to 50% of the gross rent for qualifying impacted small business tenants during the three-month period of April, May and June 2020. Landlords (and, if applicable, sub-landlords) will need to enter into rent reduction agreements with impacted tenants to reduce the gross rent payable under the relevant leases by at least 75%. The impacted tenants will continue to be responsible for the remaining 25% of gross rent (unless their landlords agree to forgive more than 75% of gross rent).

An important caveat is that the loan must be applied in this way:

  1. first, to reimburse excess rent paid by tenants above 25% of the rent due and payable for April, May and June 2020 (unless tenants elect to credit the overpaid rent against future rent); and
  2. second, to pay property related costs and expenses, including debt servicing, operation, maintenance and repair obligations (ex. common area maintenance, property taxes, insurance and utility costs).

The maximum loan amount that each landlord could qualify for is a function, first of all, of the gross rent payable by impacted tenants (i.e. tenants who meet CECRA eligibility requirements) for April, May and June 2020. By way of example, if the gross rent payable during those months by all impacted tenants is $100,000, the maximum program loan amount will be calculated in the first instance as $50,000 (i.e. 50% of $100,000). The $50,000 figure would then be reduced to the extent of any applicable proceeds received from rental revenue insurance and under other government rent support programs.

We understand that:

  • There is no requirement for the loan proceeds to be applied towards property-related costs attributable to the period of the rent reduction. 
  • Landlords must maintain detailed records of the application of the loan proceeds.
  • The program does not restrict landlords’ ability to allocate the reduced rental amounts (i.e. 25% or less of gross rent for the eligible period) received from tenants.

Landlords should exercise caution in making binding commitments to tenants to reduce rent before the landlord’s application to CECRA has been finally approved.

Landlords should also be cognizant of ensuring that the level of rent reduction granted to tenants complies with existing covenants to lenders, and that any required lenders’ consents are obtained. We note that confirmation of this is now required in the property owner’s attestation that must be submitted with the loan application.

The key features of the CECRA program, based on the information released by CMHC to date, are outlined below.2 Some of the information in this bulletin will likely change in the coming days as CMHC is expected to revise its sample documents, release additional information and open the application portal on Monday, May 25, 2020. We encourage you to confirm the final program details and to seek professional advice before entering into any commitments to reduce rent and before making an application under the CECRA program.

Dentons will continue to monitor the developments resulting from COVID-19 and further details announced on the CECRA program.  For more information, please contact any member of Dentons’ Commercial Real Estate Law team.

Application process

  • Applications will be submitted by registered property owners (or their applicant designated contact) through an online portal, which will open on Monday, May 25, 2020. Once open, registration for the program will be staggered.
  • A registered property owner can submit a single application for multiple tenants.
  • The application will include the following:
    • an online application form with information regarding the relevant property, the property owner and impacted tenants;
    • submission of a rent roll for the relevant property;
    • submission of required rent reduction agreements;
    • agreement by the property owner to the terms of a forgivable loan with CMHC (sample terms here);
    • signed attestations from impacted tenants and impacted sub-tenants (sample attestation here); and
    • a signed attestation from the property owner (sample attestation here).

The sample documents linked above were first published by CMHC on May 19, 2020, and may differ from the final versions, which are expected to be released on May 25, 2020. It appears that all of CMHC’s forms must be submitted in the form provided by CMHC and cannot be amended.

  • The deadline for applications will be August 31, 2020. The program will be retroactive, meaning that property owners may still apply for assistance after June 2020, if they can prove eligibility during the months of April, May and June 2020.

Eligibility requirements

  • The applicant must be the registered owner (or its applicant designated contact) of a commercial property, which is a property used for retail, industrial or office purposes. Mixed-use properties with a residential component qualify if the property has a retail, industrial or office component.
  • “Registered property owners” includes ground lessees, emphyteutae, superficiaries or usufructuaries under registered ground leases, emphyteutis, right of superficies or usufruct (or notice thereof) and those with leasehold interests in a reserve governed by the Indian Act (Canada) that is not registered (provided the interests are authorized and granted in accordance with the Indian Act (Canada)).
  • Properties owned by government, a branch of government or a Crown agent do not qualify, except for properties owned or leased by an airport, a post-secondary institution, a hospital, a pension fund, first nation or indigenous organization or government, or a designated non-agent Crown corporation.
  • The property owner must have declared rental income on tax returns (personal or corporate) for the 2018 and/or 2019 tax year, unless the property commenced generating commercial rental income in 2020 (e.g., it was newly purchased or constructed).
  • The program will permit applications from registered owners who are nominees, agents or trustees for beneficial owners.
  • The property owner and impacted tenants cannot be subject to actual or pending insolvency proceedings.
  • Qualifying impacted tenants are for-profit or not-for-profit charitable entities or individuals who: (1) typically pay no more than $50,000 per month in gross rent for the relevant property; (2) generate no more than $20,000,000 in gross annual revenues at the parent level; and (3) will experience a decline in gross monthly revenues of at least 70% from pre-COVID 19 emergency revenues (determined by comparing gross monthly revenues in April, May and June 2020 to the corresponding months in 2019, or average revenues for January and February 2020 if the tenant is a new business and was not in operations in 2019).
  • The lease and sub-leases of the impacted tenants must expire later than August 31, 2020, and the impacted tenant must be committed to the lease and its duration.
  • Impacted tenants include sub-tenants, provided the other eligibility requirements have been met.
  • We note that qualifying properties do not need to be subject to a mortgage. This is a change from previous anticipated program requirements.

Rent reduction agreement

  • The property owner must enter into a rent reduction agreement  with the impacted tenants, which reduces the gross rent payable under the lease by at least 75% for the months of April, May and June 2020 and otherwise complies with program requirements. CMHC has produced a sample form (linked here), which may be required. If the impacted tenant is a sub-tenant, there must be also be rent reduction agreement between the sub-landlord and the sub-tenant.
  • “Gross rent” includes:
    • Net rent / minimum rent / base rent (in a net lease);
    • Regular monthly installments of operating costs (in a net lease);
    • Regular monthly installments of property taxes payable to the landlord (in a net lease);
    • Regular monthly installments of other additional rent amounts payable to the landlord, such as maintenance costs, repairs, utilities, management fees, etc. (in a net lease);
    • Gross rent (in a gross lease); and
    • Percentage of sales rent paid (if included in the lease arrangement).
  • “Gross rent” excludes:
    • Damages;
    • Indemnity payments;
    • Payments arising due to tenant default / landlord enforcement;
    • Payments arising due to landlord exercise of self-help remedies;
    • Interest and penalties on unpaid amounts;
    • Fees payable for discrete items or special services (e.g.,  fees to landlord for reviewing plans, supervising work, considering requests for consent, performing exceptional tasks at tenant’s request);
    • Reconciliation adjustment payments;
    • Amounts required under the lease agreement to be paid separately by the tenant to third parties (e.g., property taxes, utilities, insurers);
    • Costs of non-monetary obligations (e.g., repairs and maintenance); and
    • Insurance proceeds or proceeds from other rent subsidy programs.
  • The property owner cannot make any direct or indirect attempts to recover forgiven amounts under its rent reduction agreements, except that the property owner is required to make commercially reasonable efforts to recover previously forgiven rent if the impacted tenant has made a materially false or misleading statement in its attestation.

Loan terms

  • The property owner and the impacted tenants must pursue loss of rental insurance and any other available non-repayable governmental programs for COVID-19 commercial rent relief. The loan amount will be up to 50% of the gross rent, less any amounts receivable from rental loss insurance and other governmental commercial rent relief programs.
  • The rent reduction agreement cannot conflict with any other agreement of the property owner, and in particular, the property owner must obtain any consents that may be required from its lenders pursuant to any financing.
  • The loan must be applied as follows: (1) first, to reimburse any excess rent paid by tenants above the amount required under their rent reduction agreements for April, May and June 2020 (unless tenants elect to credit overpaid rent against future rent); (2) second, toward costs and expenses relating to the property, including principal and interest on debt service, operating costs, property taxes and insurance costs. The implications of this requirement were discussed in detail earlier in this bulletin.
  • The property owner will have ongoing duties to comply with the program requirements and to report to CMHC.
  • The property owner cannot serve default notices or take steps to evict an impacted tenant for default due to the COVID-19 emergency for the period commencing with the submission of the program application until the later of: (1) three months after the submission of the program application; or (2) the date on which the impacted tenant no longer receives rent reduction, forgiveness or a credit under its rent reduction agreement. wFor instance, if a landlord applies for the program on June 1, 2020, the foregoing moratorium on default notices and eviction will be in effect until September 1, 2020, even though the rent deduction agreement with its tenant ended on June 30, 2020. In this scenario, there would be a potential two-month gap in enforcement opportunities for the landlord.
  • Provided the property owner is not in default of its forgivable loan agreement, the CECRA program or its rent reduction agreements, the loan will be forgiven on December 31, 2020.
  • If the property owner defaults under the forgivable loan agreement, the CECRA program or its rent reduction agreements, CMHC may require immediate repayment of the loan with interest payable at 5% per annum.
  • The property owner cannot assign the forgivable loan agreement without the consent of CMHC. It is uncertain how this will affect sales of properties, if at all.
  • CMHC may terminate the forgivable loan agreement if funding is no longer available.
  • While the forgivable loan agreement contemplates that the loan may be advanced in stages, we understand that it is expected to be advanced in a single advance.

Dentons will continue to monitor the developments resulting from COVID-19 and further details announced on CECRA program.

1 CMHC Information Release

2 Ibid.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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