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May 2, 2020

CMHC Provides Some Clarity on the Canada Emergency Commercial Rent Assistance Program

By: Darrell Gold and Rachel Puma

On April 27, 2020, our firm posted an article to explain the recently announced Canada Emergency Commercial Rent Assistance program (the "Program"), which can be accessed here.

On April 29, 2020, the Canada Mortgage and Housing Corporation (“CMHC”) released additional details about the Program in order to address some of the questions arising from the initial announcement of the Program.

The CMHC announcement can be accessed here. The CMHC website includes an option for interested parties to subscribe to be notified when additional details are available and when the application process opens.


Eligible Property Owners. As discussed in our previous article, the applicant for the Program must:

  1. be the registered property owner; and
  2. be the landlord under the lease (expressly required for the Ontario Program).

CMHC has announced that the property owners must also have declared rental income on their tax return (personal or corporate) for tax years 2018 and/or 2019.

Eligible Tenants. As explained in our last article and now as clarified by CMHC, an "eligible tenant" for the Program is a tenant (and now expressly including a sub-tenant):

  1. who pays no more than $50,000.00 in "monthly gross rent per location" (as defined by a valid and enforceable lease agreement);
  2. that is not operating an essential business (currently required for the Ontario Program);
  3. who generates no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the "ultimate parent level"); and
  4. is facing either:
    1. a "business shutdown", meaning the tenant has "ceased operations" or is "temporarily closed" (i.e. the tenant is "generating no revenues"); or
    2. has experienced a "decline in revenues" of at least 70% due to Covid-19. To measure revenue loss, small businesses can compare revenues in April, May and June of 2020 to that of the same month of 2019. Alternatively, small businesses can also use an average of their revenues earned in January and February of 2020. 

Existing Mortgage. The initial announcement provided that the loan must to be tied to an existing debt obligation, such as a mortgage. This created uncertainty about whether property owners who don’t have mortgages registered against the leased property, were eligible for the Program.

CMHC has clarified that an alternative mechanism will be implemented for those property owners who do not have a mortgage. Further information for this alternative mechanism will be outlined in the near future.

Loan Details

The initial announcement from the Government of Ontario explained that the Program provides commercial landlords with a forgivable loan equal to: 50% of the landlord's "before profit costs". CMHC has clarified that the loans will cover 50% of the gross rent (references to “fixed costs”, or "before profit costs", or to the property owner “foregoing profit”, were not used by CMHC so the previous concern about landlords foregoing profits for the 3 months seems no longer to be the case. That being said, it is not yet clear whether the Ontario Program must follow CMHC’s guidance or whether the Province can set its own criteria).

CMHC has also clarified that the Program loans will be forgiven if the property owner complies with all applicable program terms and conditions, including to not seek to recover rent abatement amounts after the Program is over. 

Application Details

The deadline to apply for the Program is currently August 31, 2020, and the loan can, and will, be applied retroactively, where applicable.

If "at the time of approval", property owners collected rent for April, May or June from "eligible tenants", the property owners must either:

  1. refund the amounts paid by the "eligible tenant" for the 3-month period (we assume property owners must only refund the amounts in excess of the 25% amount); or
  2. credit the tenant's future month's rent, if agreed upon by both parties.

Issues for Consideration

While CMHC's announcement clarifies some details about the Program, a number of questions remain unanswered, in addition to those noted above:

  • The Program terms and conditions, including what constitutes default under the loan, are unknown at this time. Relatedly, it is not clear what recourse the landlord may exercise if the tenant fails to pay its 25% of the rent or has an unrelated non-rent default under the lease.
  • It is unclear how the condition for declared rental income for tax years 2018 and/or 2019 will effect property owners who purchased property in 2020.
  • It is not clear how the "decline in revenue" requirement will be calculated. We predict this will be based on monthly gross revenue per location (similar to the $50,000 gross monthly rent limit).
  • It is not clear how the Program will apply retroactively to parties who have not entered into forbearance agreements during the 3-month period and/or who have collected rents from "eligible tenants in excess of the 25% required under the Program. CMHC has indicated that "this can be a flexible 3-month period"; however, it is not clear what this means or how the credit is to be applied.

We will continue to monitor pronouncements by the Federal and Provincial governments on the Program and will update you accordingly.

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