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. Here is a summary of what we know so far as it relates to Ontario tenants:
What we know:
- This Program is intended for small businesses, non-profits and charities. Small business is defined as entities with monthly rent of less than $50,000.
- Businesses are only eligible if they are non-essential services that have temporarily ceased operations or have experienced a 70% drop in revenues (as calculated by a comparison of each month, April, May and June, to the same month in 2019 or alternatively compared to the average for January and February 2020)
- Mixed-use properties with at least 30% commercial component will be able to apply with respect to their commercial rents.
How it will work:
- The cost of monthly « rent » is to be split 3 ways – tenants are expected to pay 25% of the « before profit costs », landlords will cover 25% of the rent (through rent reduction), and the government will cover the remaining 50% in the form of forgivable loans.
- The loans will be contingent on the landlord and tenant signing rent forgiveness agreements (which also includes a moratorium on evictions for 3 months).
- The forgivable loans will be disbursed directly from the commercial property’s mortgage lender.
- The program will be administered by the Canada Mortgage and Housing Corportion.
- In applying for the program, the landlord agrees to forego profit for the 3-month period.
- The Program pertains to rent payments for the months of April, May and June.
- Applications are expected to be open by Mid-May 2020
- Applications are expected to be available until September 30, 2020
What we don’t know:
- What if the property does not have a mortgage on it? How will rent relief be determined and how will it be administered?
- How will « before profit costs » be defined? Presumably, it will not be 25% of pre-COVID-19 rent payments. There are mentions of « fixed costs », but will it only be fixed costs or will it include operating costs as well if the businesses are still operating?
- How will gross rents be defined? Will it include operating cost recoveries?
- How will the landlord prove that they have foregone profit for the 3 month period? Especially in situations where the property has both small business and large business tenants.
- Will there be any exclusions for associated corporations?
- Is the landlord responsible for ensuring that the tenant is eligible? Does the landlord need proof that the revenues have dropped by at least 70%?
- Will differing provincial approaches result in disparity in application and magnitude of support to be received?
- Will templates be provided for tenant and landlord agreements?
We will continue to keep updated as more details become available.