FAQs About The Ontario-Canada Emergency Commercial Rent Assistance Program
We are getting tons of calls to help answer questions about the Ontario-Canada Emergency Commercial Rent Assistance Program (OCECRA)
Here are the answers to some of your most common questions
What Is The Criteria For Landlords?
A Landlord must meet the following criteria:
· You own property that generates rental revenue from commercial real property located in Canada.
· You are the property owner of the commercial real property where the impacted small business tenants are located.
· You have a mortgage loan secured by the commercial real property, occupied by one or more small business tenants.
· You have entered or will enter into a rent reduction agreement for the period of April, May, and June 2020, that will reduce impacted small business tenant’s rent by at least 75%.
· Your rent reduction agreement with impacted tenants includes a moratorium on eviction for the period of April, May and June 2020.
· You have declared rental income on your tax return (personal or corporate) for tax years 2018 and/or 2019.
Landlords must apply by August 31, 2020
What Is Considered An Impacted Small Business Tenant Or Subtenant Under The Program?
An impacted small business tenant or subtenant are businesses, including non-profit and charitable organizations, must be at arm’s length in relationship to their Landlord (e.g. not family) and:
· you pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement),
· you generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level), and
· you have temporarily ceased operations (i.e. generating no revenues), or has experienced at least a 70% decline in pre-COVID-19 revenues.**
** To measure revenue loss, small businesses can compare revenues in April, May and June of 2020 to that of the same month of 2019. They can also use an average of their revenues earned in January and February of 2020.
Can You Give Me An Example Of How The Program Works?
Imagine that the 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 percent of rent). The small business would be responsible for paying $2,500 (25 percent of rent). The government would cover the remaining $5,000, with $3,750 from the federal government (37.5 percent of rent) and $1,250 (12.5 percent of rent) from the provincial government.
Can I Obligate My Landlord To Apply?
Unfortunately, not. On the date of the News Release from the Prime Minister’s office there was both a collective sigh of relief and a flurry of new questions. This lifeline brings into question both parties’ eligibility and the Landlords willingness to participate. Effectively, the landlord agrees to waive 25% of the rent for the 3-month period (April, Many and June) and is made whole on the remaining 75% by (1) receiving 25% from the tenant and (2) 50% in forgiven loans from the government (federal and provincial governments to share in the cost). Some Landlords have already extended free rent periods or other compromises /deductions to their small business tenants. This is also where having a relationship in good standing with the Landlord is proving to be part of the decision too.
I Would Like To Know If I Am Eligible, Who Can I Talk To?
A great resource for seeking clarity on your eligibility is your accountant. Landlords should also contact CMHC to discuss their options, including applying the loaned funds to other existing debts or fixed cost payments (e.g., utilities).
Who Will Administer The Loans?
The Federal Canada Mortgage and Housing Corp.
Are Commercial Properties That Also Have Apartments Eligible?
Commercial properties with a residential component, and residential mixed-use properties that have a 30 per cent commercial component, would be equally eligible for support with respect to their commercial tenants only.
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 percent of rent that relates to fixed costs for three months. The property owner would be responsible for the remaining 25 per cent. For certainty, government funding, and remaining monthly tenant rent payment obligations (i.e. 25 per cent), 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:
· Small Business Tenants that are within an arm’s length in relationship with the Landlord (e.g. Family)
· Entities owned by individuals holding political office;
· 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,
· An entity in the Lenders special accounts or Restructuring Group prior to March 1, 2020.
I Have Tried My Best To Negotiate A Solution With My Landlord And We Have No Resolve. Is There Anyone Looking To Buy A Restaurant Business These Days?
Absolutely. There are long standing investors in the hospitality industry who are looking to the future and those who are choosing to enter the market now. There is always a demand for AAA locations. We help our clients make confident decisions in these trying times and negotiate excellent deal terms.
CHI Real Estate Group is committed to supporting local small businesses and Landlords. Don’t hesitate to contact us by calling 647-347-9723 if you have any questions at all.
Sources referenced for this article include:
https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business