Commercial Rent Relief: CECRA gives way to a

OUT OF THE OUT OF THE CROSSFIRE CROSSFIRE

New Rent Relief Program to Channel Funds Directly to Tenants

By Barbara Carss

CANADA EMERGENCY Commercial Rent Assistance (CECRA) has now given way to a new, somewhat inaccurately named version of the federal-provincial/ territorial relief program to help businesses and not-for-profit organizations with strained financial resources due to COVID-19. As Finance Minister Chrystia Freeland announced earlier this month, the new Canada Emergency Rent Subsidy will provide support for fixed property expenses that could include commercial mortgage payments for qualified recipients who own their premises.

The threshold for qualifying has also been adjusted. CECRA recipients had to prove a 70% drop in revenue from prepandemic levels, while the new program will apply a sliding scale to prorate the subsidy to recipients’ losses and needs.

Perhaps most pertinently for both CECRA’s critics and commercial landlords somewhat caught in the crossfire, the new program will channel funds directly to tenants or mortgagees. As Freeland outlined, they can attain subsidies for up to 65% of their fixed property expenses. Businesses faced with compulsory shutdowns for COVID-19related public health reasons will be eligible for a further 25% top-up, taking the subsidy to as much as 95%.

“A tenant-side rent bank or rent subsidy is what REALPAC has been asking for from the outset. We are also encouraged that mortgage support is also available in this version of the program,” says Michael Brooks, Chief Executive Officer of REALPAC, which counts many of Canada’s most prominent commercial landlords among its membership. “We will look closely at details, such as how the rent subsidy part actually finds its way to the landlord, but, all in all, it’s very encouraging,”

The Canadian Federation of Independent Business (CFIB) likewise commends the new program, although it continues to advocate for qualifying candidates who did not receive CECRA support because their landlords chose not to participate in the program. In such cases, CFIB argues overlooked tenants should be allowed to retroactively claim the funding they theoretically could have received during the six months CECRA was available.

The new program will be retroactive for October in recognition of the gap from CECRA’s final expiry date on September 30. Looking forward, current funding parameters are promised until December 19, 2020, with extensions “to be adapted and targeted as needed” available until June 2021.

“We are particularly pleased the government has delivered on CFIB’s three major recommendations for rent support: ensuring the program is independent of landlord participation; continues for the months ahead; and

provides support to businesses with revenue losses on a sliding scale,” observes Laura Jones, CFIB’s Executive Vice President. “The additional 25% coverage for businesses facing closures due to public health orders is also good news.”

COMPLICATED PROGRAM DESIGN The federal government reports approximately $1.8 billion had been dispersed to more than 130,000 business through CECRA as of early October. In contrast, approximately 765,000 loans, equating to more than $30 billion, had been allocated through the Canada Emergency Business Account (CEBA) by the same date. That program initially provided partially forgivable loans of up to $40,000 for qualifying small and mid-sized businesses, but the maximum loan amount has now been increased to $60,000.

CECRA’s comparatively sluggish performance can be attributed to a later rollout, since it did not open for applications until May 25, and a more complicated program design. Landlords were the designated channel for delivery of relief in the three-party arrangement among the lender — taking form in the assigned program administrator, Canada Mortgage and Housing Corporation (CMHC) — qualifying tenants and commercial property owners.

“It could have been a direct subsidy to tenants, but that’s not the architecture they chose,” muses Brooks Barnett, REALPAC’s Director of Government Relations and Policy. “We should recognize that these are not only unprecedented times for the economy, but also for public policy. CECRA will end up as a case study in a public administration textbook at some point, but it’s still not clear if it’s going to be a ‘Do this’ or a ‘Don’t do this’ example.”

Landlords choosing to take on the role were obligated to: opt in on behalf of every tenant that met the program’s criteria; provide documentation of each tenant’s qualifications; and relinquish any later claims on the 25% of rent they would forego to participate in the program. While some observers disdain rules they say left tenants dependent on their landlords’ good graces, others note that commercial landlords also faced some difficult choices.

“If they went with CECRA, they were giving away the ability to later collect rent they couldn’t collect during the COVID period and, for sure, they would not get it back,” says David Tang, a partner with Miller Thomson LLP, who is active in the firm’s charities and not-for-profit practice.

“Most of the major landlord groups in this country were way ahead of the government in providing rent deferrals and abatements,” Barnett reports. “They were deferring rent and coming up with repayment plans themselves, which, under CECRA, had to be set aside.”

BURDENSOME PROCESS Nor was the application process a task to take on lightly. “It was administratively very, very complex and very, very burdensome,” Barnett reiterates.

Limitations in the online registration portal added to the challenge since space was allotted for a maximum of 50 tenants. However, he credits CMHC for its outreach to large landlords in establishing so-called “ambassadors” to shepherd them through the process.

“They were very helpful to the larger firms that have thousands of tenants. Some of these companies had to file for all tenants at the same time, which is an incredible amount of work to do,” Barnett recounts. “Also, the payout to firms was happening quite quickly once all the due diligence was done. By and large, I think CMHC needs to be commended for the speed at which they worked to get this together.”

Meanwhile, Brooks suggests the government could be trading one program delivery challenge for another with its new direct subsidies.

“The federal government will have to ensure that rent relief monies applied for by the tenant, actually get to the landlord, and actually is owing,” he says. “The anti-fraud parts of this will be daunting for them to figure out. That was possibly why it was originally structured through the landlord.”

TENANTS’ INTERESTS Tang recalls mixed reaction last spring during one of his firm’s regularly scheduled COVID-19-related webinars, which focused on CECRA. Like most sectors, not all charities and not-for-profits were adversely affected, while those in need of assistance operate out of a range of different accommodations from office buildings to retail plazas to residential towers.

“There was strong interest and there was some very real concern from the charity sector whether their landlords would take advantage of the program, and, anecdotally, that [concern] seems to have been borne out,” Tang says.

He hypothesizes many landlords were forced to weigh two less-than-appealing scenarios: a red tape odyssey ending in a guaranteed 25% cut in rent income; or the risk of even greater losses from insolvent tenants. Nevertheless, Barnett points to the many large landlords that have acted in their tenants’ interests — evidenced in their willingness to sign on for the July-to-September extension of what was originally conceived as a threemonth program.

“I think many landlords generally see that, if there is any rent assistance available for any period of time, it would be in everyone’s interest to move forward and try to get it no matter how additionally arduous that might be,” Barnett says. “One thing COVID-19 has brought to the forefront is the value in strong working relationships with tenants.” zz