With the August 31 deadline for first-time applications for Canada Emergency Commercial Rent Assistance (CECRA) now passed, the three-month program that evolved into five months of relief is closed to new recipients. Despite previous last-minute extensions — announced on June 30 and July 31 — knowledgeable followers of government machinations weren’t expecting a repeat yesterday.
“There was not a very strong chance that it would be extended,” concludes Brooks Barnett, director of government relations and policy with REALPAC, an organization well versed in commercial landlords’ experiences with the program.
Many commercial tenants are again earning enough revenue to surpass the threshold initially established for qualifying for CECRA. It was tailored to businesses and not-for-profit organizations registering a maximum of $20 million in gross annual earnings and suffering an average 70 per cent decline in revenue during April, May and June 2020 compared to the same period in 2019 (or Jan and Feb 2020 for new businesses). As the economy shakes off its COVID-19-imposed torpor, Barnett speculates funds might be deployed differently to those still struggling.
“There could be assistance packages for specific types of real estate — something for restaurants, for example,” he suggests.
With CECRA now closed, Finance Minister Chrystia Freeland did announce two other COVID-19-related program extensions yesterday. The Canada Emergency Business Account (CEBA), which provides small businesses and not-for-profits with partially forgivable loans of up to $40,000 to help cover operating costs, will be available for two extra months, covering September and October. The Business Credit Availability Program (BCAP), which provides loan guarantees for small and medium-sized enterprises seeking operating lines of credit or new term loans to help sustain operations, will be extended until June 2021.
“The federal government is actively considering what further measures are needed as we continue with a safe reopening of the economy,” Freeland said.
“We are taking the necessary steps to ensure that small businesses will be able to access the liquidity they need to keep operating while times are still tough,” concurred Mary Ng, Minister of Small Business, Export Promotion and International Trade.
As of late August, the government reports approximately 730,000 loans, representing more than $29 billion in credit, had been conferred through CEBA. No recent tallies have been released for CECRA, but the output has been more modest. As of July 30, approximately $613 million had flowed through to 63,000 qualifying business or not-for-profit tenants, which, in itself, was an impressive acceleration from the numbers announced on July 3, when $221 million had been disbursed to 29,000 tenants.
Program design assigned key responsibilities to landlords
CECRA’s seeming sluggish performance can be attributed to a later rollout, since it did not open for applications until May 25, and a more complicated program design. The three-party arrangement among the lender — taking form in the assigned program administrator, Canada Mortgage and Housing Corporation (CMHC) — qualifying tenants and their landlords, designates landlords as the channel for the delivery of funding.
“It could have been a direct subsidy to tenants, but that’s not the architecture they chose,” Barnett muses. “We should recognize that these are not only unprecedented times for the economy, but also for public policy. CECRA will end up as a case study in a public administration textbook at some point, but it’s still not clear if it’s going to be a ‘Do this’ or a ‘Don’t do this’ example.”
Landlords choosing to take on the role were obligated to: opt in on behalf of every tenant that met the program’s criteria; provide documentation of each tenant’s qualifications; and relinquish any later claims on the 25 per cent of rent they would forego to participate in the program. While some observers disdain rules they say left tenants dependent on their landlords’ good graces, others note that commercial landlords also faced some difficult choices.
“If they went with CECRA, they were giving away the ability to later collect rent they couldn’t collect during the COVID period and, for sure, they would not get it back,” says David Tang, a partner with Miller Thomson LLP, who is active in the firm’s charities and not-for-profit practice.
“Most of the major landlord groups in this country were way ahead of the government in providing rent deferrals and abatements,” Barnett reports. “They were deferring rent and coming up with repayment plans themselves, which, under CECRA, had to be set aside.”
Nor was the application process a task to take on lightly. “It is administratively very, very complex and very, very burdensome,” he reiterates.
Limitations in the online registration portal added to the challenge since space was allotted for a maximum of 50 tenants. However, he credits CMHC for its outreach to large landlords in creating so-called ambassadors to shepherd them through the process.
“They have been very helpful to the larger firms that have thousands of tenants. Some of these companies had to file for all tenants at the same time, which is an incredible amount of work to do,” Barnett recounts. “Also, the payout to firms has been happening quite quickly once all the due diligence is done. By and large, I think CMHC needs to be commended for the speed at which they worked to get this together.”
Calls for direct access for tenants
The Canadian Federation of Independent Business has been among the voices consistently calling for tenants to be given direct access to CECRA. The most recently released results from the organization’s ongoing membership survey, collected during the period from July 31 to August 13, show that 15 per cent of 5,100 respondents received benefits as tenants, while 3 per cent had partaken as landlords. A much larger proportion — 60 per cent — had tapped into CEBA.
“The unfairness of this program is off the charts, with established businesses from coast-to-coast being shut out of accessing help they need in order to keep their businesses going,” maintains Laura Jones, a CFIB executive vice president. “Does it make sense for a drycleaner on one side of the street to survive while the one on the other side shuts down simply because one landlord was able to apply for the program and the other one wasn’t?”
Tang recalls mixed reaction during one his firm’s regularly scheduled COVID-19-related webinars, which focused on CECRA. Like most sectors, not all charities and not-for-profits were adversely affected, while those in need of assistance operate out of a range of different accommodations from office buildings to retail plazas to residential towers.
“There was strong interest and there was some very real concern from the charity sector whether their landlords would take advantage of the program, and, anecdotally, that (concern) seems to have been borne out,” Tang says.
He hypothesizes many landlords were forced to weigh two less-than-appealing scenarios: a red tape odyssey ending in a guaranteed 25 per cent cut in rent income; or the risk of even greater losses from insolvent tenants. Nevertheless, Barnett underscores the many large landlords that have acted in their tenants’ interests — evidenced in the willingness to sign on for July and August extensions to the program.
CECRA registrants already approved or in the pipeline for the original three months of the program now face some more paperwork in order to claim subsidies for July and August, and have a couple more weeks — until September 14 — to submit it. They won’t be required to prove that tenants’ revenue was less than 70 per cent of 2019 levels during July and August, but they will have to inform all tenants and submit new applications.
“I think many landlords generally see that, if there is any rent assistance available for any period of time, it would be in everyone’s interest to move forward and try to get it no matter how additionally arduous that might be,” Barnett says. “One thing COVID-19 has brought to the forefront is the value in strong working relationships with tenants.”
Barbara Carss is editor-in-chief of Canadian Property Management.