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Bridge Beat

Apr 27, 2020

Ontario Announces Relief for Commercial Tenants

Friday, April 24th the Province announced the Ontario-Canada Emergency Commercial Rent Assistance Program (the “Program”). The Program provides forgivable loans to commercial landlords who may face a potential decrease in rental revenue due to tenants being unable to afford rent during the COVID-19 pandemic.  

The Relief: The Program provides commercial landlords with a forgivable loan equal to 50% of the landlord’s before profit costs. The other 50% of the before profit costs are to be covered equally by the landlord and the qualifying tenant (each to 25%).  Landlords will be able to apply for the Program until September 30, 2020 and relief will be provided retroactively to April 1, 2020 to cover the months of April, May and June.

Who Qualifies for Relief: The Program sets out two requirements. First, the commercial landlord’s property must have qualifying tenant. A qualifying tenant is a tenant whose gross monthly rent is less than $50,000.00, is not operating an essential business, and lastly is facing either a business  shutdown or has seen revenues decline by 70% due to COVID-19. Second, the applicant must be both the registered property owner as well as the landlord under the lease. This Program also extends to commercial property owners that have residential tenants as well as owners of mixed-use properties with a 30% commercial component.

Application Requirements: In order to apply for the Program the landlord must:

  • Tie the loan to an existing debt obligation. The default option under this program is a mortgage, but if the commercial property is mortgage-free the landlord must speak with CMHC to determine another qualifying debt obligation.
  • The Landlord must enter into a rent forbearance agreement with the tenant seeking relief that for a three month period will:
    • Decrease the amount of rent payable by the tenant to 25% of the landlord’s before profit costs; and
    • Include a prohibition on evictions.
  • Forego all profits on rent during the three month period.

    Issues for Consideration: While this program is welcome relief to many small business tenants across the Province, we see a number of question that must be top of mind for landlords when applying for relief and entering into agreements with their tenants:

  • As the Program is structured as a forgivable loan, what is the schedule for forgiveness and what constitutes a default under the loan?
  • Can a tenant force its landlord to apply for relief?
  • In the case of gross/semi gross leases, will the tenant be able to determine the landlord’s profit when it backs out the costs?
  • Who is responsible for the costs of the forbearance agreement? Is the government going to publish a standard form as part of the program?
  • Is a tenant willing to open its books to its landlord or provide other evidence (i.e. audited financial statements) that it has experienced a 70% decrease in revenue, year over year?

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