When the Canada Emergency Commercial Rent Assistance (CECRA) program launched on May 25, it included updated eligibility criteria to make it available to property owners who do not hold a mortgage, addressing an oversight identified by the Canadian Real Estate Association (CREA) earlier in May. Here’s an overview of what REALTORS® – and their commercial clients – should know about the program.
How it works
CECRA provides forgivable loans to qualifying commercial property owners to cover 50% of three monthly rent payments to compensate for small business tenants experiencing financial hardship during April and May (retroactive), and June.
The CECRA loans will be forgiven if the qualifying property owner agrees to reduce the small business tenants’ rent by at least 75% and not to evict the tenant during the term of the written agreement. The small business tenant would pay the remaining 25% of rent.
However, the qualifying small businesses tenants must:
- pay no more than $50,000 in monthly gross rent per location
- generate no more than $20 million in gross annual revenues
- have experienced at least a 70% decline in pre-COVID-19 revenues, compared to revenues in the same period in 2019, or average of revenues earned in January and February of 2020
The upside and downside of CECRA
The upside is that both sides of the deal get something from this program. The tenant pays only one quarter of their normal monthly rent and the landlord gets 50 per cent of the total rent covered, which may be enough to keep both the landlord and the tenant afloat.
On the downside, the landlord is still short 25% of the rent. However, keeping a good tenant solvent over the longer term is likely preferable to trying to get 100% of the rent and losing the tenant altogether. Also, it’s up to the landlord to apply for the CECRA program. But the tenant can make a convincing case to their landlord that the program would benefit both parties.
There’s also a risk if the small business cannot demonstrate that they’ve actually lost the required 70 percent of revenue, because if not, they won’t qualify for CECRA.
How will it work for you and your tenant clients?
Commercial tenants, including Realtors, who can leverage the boost that this rent relief scheme provides, will benefit if they meet the thresholds stipulated by the program, and if they can gain some competitive ground in one of several ways such as:
- recover their business income fairly soon following the pandemic slowdown
- restructure their business to lower overhead costs while increasing efficiency
- establish new market share
- devise ways to attract new clients through marketing and value added benefits
- ably adopt new modes of operating arising from the pandemic, such as social distancing, sanitizing, and whatever remains necessary for public health and safety
What landlord clients need to know about CECRA
Landlords of commercial space may evict tenants who are struggling to pay rent and on the brink of bankruptcy. But, in so doing may face a new set of problems if the landlord:
- receives zero rental income to cover their mortgage and other costs
- continues to pay mortgage payments, property tax, maintenance and other costs
- incurs debt waiting to install new tenants which can typically take 6 months up to 18 months and possibly longer if the economy remains in recovery mode
- rents out a space, for far lower rental income due to the significant competition from other commercial landlords, desperate for tenants in the post-pandemic economy
What is known about CECRA, and all the many other government financial aid programs on tap, is that they were designed over the course of weeks, not months and years as is usually the case. Policy created out of urgent need is bound to have gaps and flaws. That is why it makes sense for commercial business to consult their Realtor to help them come to a decision about the various financial aid programs, such as CECRA.
Realtors’ expertise fills the knowledge gap
Given the complex nature of the CECRA program, business clients should consult with their banks, their lenders, and their accountants to get a complete picture of the risks and benefits of proceeding with the CECRA program. Realtors with commercial expertise can assist by:
- assessing how well CECRA can form part of a strong business plan, or not
- breaking down the numbers for potential scenarios
- helping negotiate the terms of the rental agreements that will be financially viable
- making market projections about the feasibility of their current properties
- supporting any downsizing or restructuring plan for their commercial properties
- looking for prime opportunities to swap out or acquire new properties that may be available during a time when businesses are closing out and owners are looking to make a change
Find out more specific details on the program requirements and how to benefit from it by going to the Canada Mortgage and Housing Corporation website.