CECRA Updates: May 20th, 2020

CECRA

As with all of the current support and relief measures, program criteria, requirements and guidance continue, and will continue, to evolve. We’ve updated our guidance to include the most up to date information from CMHC for the CECRA program (as of May 19, 2020). As more guidance, clarifications or revisions are released, we will update accordingly.

  • Details and guidance on the flow of the APPLICATION PROCESS
  • Detailed list of documents, agreements and attestations to be prepared and included as submissions with WHAT YOU NEED TO APPLY
    • Samples were provided for SAMPLE RENT REDUCTION AGREEMENT , FORGIVABLE LOAN AGREEMENT , PROPERTY OWNER'S ATTESTATION , and TENANT OR SUB-TENANT'S ATTESTATION
  • Enhanced guidance throughout, including updates to FAQ sections

The application portal is scheduled to open on May 25, 2020

In order to handle the anticipated volume, a staggered approach will be taken:

  • First, registration through the portal
  • Second, complete and submit applications

CMHC has provided the following table to manage the flow of registration. A Property Owner would register either on their assigned day, as noted below, or they can wait until May 29th onwards:

May Who should register?
25 Property owners who are located in Atlantic Canada, BC, Alberta and Quebec, with up to 10 tenants who are eligible for the program
26 Property owners who are located in Manitoba, Saskatchewan, Ontario and the Territories, with up to 10 tenants who are eligible for the program
27 All other property owners in Manitoba, Saskatchewan, Ontario and the Territories
28 All other property owners in Atlantic Canada, BC, Alberta and Quebec
29 All

Important to note: MCAP and First Canadian Title have been engaged by CMHC to deliver CECRA. You may be contacted by either MCAP or FCT throughout the application validation and payment processes.

Property owners will need to provide additional information, agreements and attestations to support their application and be eligible for CECRA. CMHC has provided samples for attestations and agreements, and can be found on their website. The documents for submission are currently listed as follows:

  • Tenant or Sub-tenant's Attestation
  • Property Owner's Attestation
  • Rent Reduction Agreement
  • Forgivable Loan Agreement
  • Property owner information
    • Includes property address, property type, property tax statement, latest rent roll for each property and the number of commercial units
  • Applicant information
    • Includes: banking information (including bank statement), property owner contact information, co-ownership information and contact details for co-owners
  • Tenant information

Includes: tenant contact information, registered business name, lease area and the monthly gross rent for the period of April, May and June 2020

TENANT OR SUB-TENANT'S ATTESTATION

Property owners must have each of their eligible commercial small business tenants and/or subtenants sign an attestation. The Tenants are responsible for attesting to their eligibility with the program requirements.
A thorough reading and review of the requirements in the sample forms must be undertaken to ensure compliance with all requirements. We have noted some key additional requirements and conditions in the sample attestation forms provided by CMHC:

  • Attestation that the Impacted Tenant has investigated and, where possible, has applied for non-repayable proceeds of any other government programs targeted at commercial rent assistance instituted in response to COVID-19 Emergency ("Rent Relief Programs"), and has pursued any insurance proceeds available to it in respect of any impairment of rental payment obligations ("Rental Insurance"). All non-repayable amounts received or receivable by the Impacted Tenant under Rent Relief Programs or Rental Insurance are required to be disclosed to the Property Owner, and the Impacted Tenant agrees to notify CMHC if it receives further amounts from these other funding sources.
  • The Impacted Tenant is not the subject of any actual or pending insolvency proceeding and has not made any filing for relief or protection under the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada), or any other bankruptcy or insolvency legislation of any jurisdiction.
  • The Impacted Tenant is not and is not owned by any entity that would be captured under the updated Exclusions List
  • Through an additional Integrity Declaration (Appendix A to the Attestation), Impacted Tenants are required to declare and confirm, amongst other requirements and conditions, that neither they nor any of their affiliates:
    • have been convicted of various crimes, penal or regulatory offences, nor are they under criminal prosecution, for offenses such as (but not limited to) forgery, fraud, bribery, corruption, international sanctions, taxation or money laundering;
    • been previously declared by the Government of Canada or any provincial, territorial or local government in Canada to be ineligible to do business with such government

As noted previously, a thorough examination of the requirements should be undertaken to ensure compliance with the program.

PROPERTY OWNER'S ATTESTATION

Property owners must sign an attestation confirming the information relating to the property owner and the property provided in the application is correct and attest to their eligibility with the program requirements.
A thorough reading and review of the requirements in the sample forms must be undertaken to ensure compliance with all requirements. We have noted some key additional requirements and conditions in the sample attestation forms provided by CMHC:

  • Attestation that the Property Owner has investigated and, where possible, has applied for non-repayable proceeds of any other government programs targeted at commercial rent assistance instituted in response to COVID-19 Emergency ("Rent Relief Programs"), and has pursued any insurance proceeds available to it in respect of any impairment of rental payment obligations ("Rental Insurance"). All non-repayable amounts received or receivable by the Property Owner under Rent Relief Programs or Rental Insurance are required to be disclosed to CMHC as part of its CECRA program application, and the Property Owner agrees to notify CMHC if it receives further amounts from these other funding sources (and may be required to pay some or all of such amounts to CMHC)
  • The Property Owner is not the subject of any actual or pending insolvency proceeding and has not made any filing for relief or protection under the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada), or any other bankruptcy or insolvency legislation of any jurisdiction.
  • The Property Owner is not and is not owned by any entity that would be captured under the updated Exclusions List
  • Through an additional Integrity Declaration (Appendix A to the Attestation), Property Owners are required to declare and confirm, amongst other requirements and conditions, that neither they nor any of their affiliates:
    • have been convicted of various crimes, penal or regulatory offences, nor are they under criminal prosecution, for offenses such as (but not limited to) forgery, fraud, bribery, corruption, international sanctions, taxation or money laundering;
    • been previously declared by the Government of Canada or any provincial, territorial or local government in Canada to be ineligible to do business with such government

As noted previously, a thorough examination of the requirements should be undertaken to ensure compliance with the program.

SAMPLE RENT REDUCTION AGREEMENT

Property owners must enter into a legally binding rent reduction agreement with each impacted tenant to confirm the rent reduction in accordance with the program terms and conditions.  This agreement is conditional upon final approval of the application for CECRA for small businesses.

A thorough examination of the sample rent reduction agreement would be required to fully understand all of the terms and conditions. We have noted one very key requirement, whereby the Landlord acknowledges that the rent is forgiven and will never be recoverable by the Landlord, and accordingly, the Landlord shall not attempt to use any means or mechanisms whatsoever, direct or indirect, to recover such reduced or forgiven amounts. Any such attempts are considered violations of the covenants of the Forgivable Loan Agreement Terms and Conditions, and is an Event of Default.

FORGIVABLE LOAN AGREEMENT

Property owners must agree to the terms and conditions in the application and outlined in the forgivable loan agreement between CMHC and the Property Owner.

A thorough examination of the forgivable loan agreement would be required to fully understand all of the terms and conditions. We have noted some key terms and conditions of which you should be aware:

  • The forgivable loan amount will be equal to:
    • Up to fifty percent of the Rent owed to the Property Owner by the Impacted Tenant(s) during the Eligible Period;
      minus
    • A pro rata portion of any insurance proceeds available or any non-repayable proceeds of any federal or provincial government programs (other than CECRA) targeted at commercial rent assistance instituted in response to COVID-19 emergency, received or receivable by the Property Owner and/or any Impacted Tenant in respect of the Eligible Period
  • Loan will be forgiven by CMHC on December 31, 2020, unless an Event of Default occurs
    • In the Event of Default, the Loan will become due and payable immediately upon demand by CMHC together with interest at 5% per annum.
  • The Property Owner shall not attempt to use any means or mechanisms whatsoever, direct or indirect, to recover the forgiven amounts that were agreed to in the Rent Reduction Agreement during or after the Program Period;
    • Such attempts will constitute and Event of Default

Again, a thorough examination of the forgivable loan agreement would be required to fully understand all of the terms and conditions.

On Friday, April 24, in an effort to mitigate the impact of COVID-19 on small businesses forced to cease or reduce operations and landlords who rent commercial properties to small businesses, the Federal Government announced a program targeted to reduce rent obligations during this period of closure.

This is a joint program between the federal government and the provincial governments.  Details coming from both levels of government are still in progress. 

On Thursday, May 14, CMHC provided an update on the Canada Emergency Commercial Rent Assistance (CECRA) program. Our summary below has been updated and revised to reflect the most recent updates from CMHC.

On Tuesday, May 19, CMHC released some welcome additional details on the application process for CECRA, provided sample templates for agreements and attestations, and provided additional guidance and responses to FAQ's.

  • This Program is intended for small businesses, non-profits and charities.  Impacted small business tenants or subtenants are defined as entities:
  • with monthly gross rent of  no more than $50,000 per location (as defined by a valid and enforceable lease agreement)
    • The property owner for each separate location will need to apply for the program for that location, and the program will only apply to a location/lease that meets the eligibility criteria
  • that generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level); and
  • have experienced a 70% drop in revenues from ordinary activities in Canada, calculated using your normal accounting method and excluding revenue from extraordinary items
    • Can be calculated by a comparison of each month, April, May and June, to the same month in 2019 or
    • alternatively compared to the average gross revenues for January and February 2020
    • Registered charities and non-profit organizations have the option to either include or exclude revenue from government sources as part of the calculation
  • Eligible small business tenants who are in sub-tenancy arrangements are also eligible, if the lease structure meets the program criteria
  • Criteria have been expanded to include situations where a property owner's small business is the only tenant (i.e., both property owner and sole tenant
    • Landlord's and tenants who are not at arm's length will be included in the CECRA program as long as there was a valid and enforceable lease agreement in place prior to April 1, on no greater than market terms

Commercial property owners will qualify for the CECRA program when they meet the following requirements:

  • Own or be the landlord of commercial real property* located in Canada which is occupied by one or more impacted small business tenants
  • Have entered into or will enter into a rent reduction agreement for the 3 month period from April, May, and June 2020, that will reduce the impacted small business tenant's rent by at least 75%;
    • The rent reduction agreement needs to include a moratorium on eviction for the period of April, May and June 2020
  • Declared rental income on the personal or corporate tax return for tax years 2018 and/or 2019
    • Exception is available for newly constructed or recently purchased properties, provided other requirements are met and an eligible lease was entered into on or before April 1, 2020.
  • * Commercial real property is defined as commercial properties with small business tenants. Commercial properties with a residential component and multi-unit residential mixed-use properties would equally be eligible with respect to their impacted small business tenants.

An Important Update – Prior to previous guidance, there is no longer mention of a requirement that the property have a mortgage. CECRA for small businesses will be administered undifferentiated for properties with mortgages, other forms of debt, or no mortgages at all.

The following are excluded from the CECRA program:

  • Entities owned by individuals holding political office
  • Entities that promote violence, incite hatred or discriminate on the basis of race, national or ethnic origin, colour, religion, sex, sexual orientation, gender identity or expression, marital status, family status, genetic characteristics, age, mental or physical disability, or conviction for an offence for which a pardon has been granted or in respect of which a suspension has been granted
  • An entity in the Lenders special accounts or Restructuring Group prior to March 1, 2020
  • Property Owner or Impacted Tenant are subject of any actual or pending insolvency proceeding or has made any filing for relief or protection under the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangements Act (Canada), or any other bankruptcy or insolvency legislation of any jurisdiction
  • Properties that are owned, in whole or in part, by a government or a branch of government (federal, provincial or municipal), or an agent of the Crown, other than any of the following:
    • airport
    • post-secondary institution
    • hospital
    • pension fund
    • any First Nation and any indigenous organizations and governments
    • any non-agent Crown corporation with limited appropriations, designated as eligible by CMHC
  • Property Owner or its affiliates, or Impacted Tenants or their affiliates, that have, under Canadian (including federal, provincial or territorial), foreign or international laws, been convicted of any crime or penal or regulatory offence in relation to any financial matters such as but not limited to forgery, fraud, bribery, corruption, international sanctions, taxation or money laundering; and further, that no such entities are under criminal prosecution for such offenses;
  • Property Owner or Impacted Tenants or their affiliates have previously been declared ineligible to do business with government in Canada (federal, provincial, territorial or municipal)

  • The Program pertains to rent payments for the months of April, May and June.
  • Property owners can apply later and the program will be applied retroactively
  • Application portal is expected to open May 25, 2020 – see APPLICATION PROCESS
  • Deadline to apply is August 31, 2020

  • As part of the application process, property owners will need to provide attestations for each impacted tenant that is seeking relief/assistance
  • The cost of monthly "rent" is to be split 3 ways – tenants are expected to pay up to 25% of the tenant's gross rent payable under the lease agreement, landlords will cover no less than 25% of the rent (through rent reduction), and the government will cover the remaining 50% in the form of forgivable loans.
  • The program will be administered by the Canada Mortgage and Housing Corporation.
  • Property owners must refund amounts paid by the small business tenant for the period
    • However, if agreed upon by both the property owner and the tenant, a credit to the tenant for a future month's rent (i.e., July for April) can be applied

Included in Gross Rent

  1. Net rent / minimum rent / base rent (in a net lease)
  2. Regular monthly installments of operating costs (in a net lease)
  3. Regular monthly installments of property taxes payable to the landlord (in a net lease)
  4. Regular monthly installments of other additional rent amounts payable to the landlord — for example: maintenance costs, repairs, utilities, management fees, etc. (in a net lease)
  5. Gross rent (in a gross lease)
  6. Percentage of sales rent paid (if included in the lease arrangement)

Excluded from Gross Rent

  1. Damages
  2. Indemnity payments
  3. Payments arising due to tenant default / landlord enforcement
  4. Payments arising due to landlord exercise of self-help remedies
  5. Interest and penalties on unpaid amounts
  6. Fees payable for discrete items or special services (for example: fees to landlord for reviewing plans, supervising work, considering requests for consent, performing exceptional tasks at tenant's request)
  7. Reconciliation adjustment payments
  8. Amounts required under the lease agreement to be paid separately by the tenant to 3rd parties (for example: property taxes, utilities, insurers)
  9. Costs of non-monetary obligations (e.g., repairs and maintenance)
  10. Insurance proceeds or proceeds from other rent subsidy programs

    Note: applying for insurance coverage does not remove you from being eligible for the program, but it may adjust the amounts received if you successfully receive payments from insurance claims or other programs to cover rent

Should you require additional information or assistance with the application process, please reach out to your Welch representative

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