On November 2, 2020, the federal government outlined the framework for the Canada Emergency Rent Subsidy (CERS), by introducing Bill C-9 An Act to amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy).
CERS is a new program to support Canadian businesses affected by the COVID-19 pandemic and replaces the now-expired Canadian Emergency Commercial Rent Assistance (CECRA) program. CERS will provide rent support directly to tenants. Although the legislation remains in draft form, it appears that CERS will work as follows:
- CERS will deliver direct rent support to qualifying tenants without the need to work though their landlords. In other words, no rent relief agreement will have to be entered into between tenants and landlords, although we suspect that for some tenants, funds received under CERS will be insufficient and, as such, they may approach their landlords for further rent relief.
- The new program is structured as a subsidy and not a forgivable loan like CECRA. Therefore, no loan agreement is required. We understand that the federal government will seek to expedite payments (via direct cash deposits) to qualifying tenants.
- In order to qualify for CERS, businesses, charities and not-for-profit organizations must have encountered a revenue drop. In such case, qualifying organizations will receive a percentage of their expenses reimbursed, on a sliding scale, of up to a maximum of 65 per cent of eligible expenses. To be eligible for the maximum subsidy of 65 per cent, a tenant must have suffered revenue losses of at least 70 per cent. In such case, for example, a tenant with a monthly rent of $10,000 would receive a subsidy of $6,500 from CERS.
- A tenant can claim up to a maximum of $75,000 in rent per location, per qualifying period (being approximately one month), and that same tenant, together with its affiliates, can claim up to an overall maximum of $300,000 per period for all its locations. For greater certainty, although the maximum rent is $75,000, CERS’s maximum subsidy is 65 per cent of this $75,000, which represents a maximum subsidy of $48,750 for a qualifying period.
- Unlike CECRA, there appears to be no restrictions on the types of tenants (big versus small) that can apply for CERS. If a tenant pays more than the maximum $75,000/ $300,000 amounts, they can still claim the first $75,000/ $300,000 under CERS.
- Additionally, a top-up of up to a maximum of 25 per cent — referred to as Lockdown Support — will be made available for organizations that were forced to shut down for a period of at least one week due to public health restrictions (i.e., an order or decision by a qualifying public health authority made in response to the COVID-19 pandemic), in addition to the above-mentioned 65 per cent subsidy, for a total of 90 per cent. As the 25 per cent top-up is based on the duration of the shut down, it will vary following a sliding scale for organizations that did not close for the full period.
- CERS is effective as of September 27, 2020, and will be available to tenants until June 2021. However, after December 19, 2020, the federal government will have the opportunity to adjust the current framework and make necessary adaptations to the subsidy rates, amounts, thresholds, etc.
- Due to what appears to have been an error in drafting Bill C-9, tenants will be required to pay their landlord prior to being able to apply for CERS. As at the time of writing, it remains to be seen if this issue will be rectified so as to allow tenants to access the subsidy before they pay rent.
Program promised to be more accessible for a broader range of tenants
With the announcement of a new program offering support for commercial rent, it is interesting to look at the impacts of its predecessor, CECRA. As of October 2020, the government of Canada had delivered more than $1.8-billion in rent support through CECRA for small businesses. Despite this, the program faced numerous criticisms since its announcement on April 24, 2020.
Among frequently voiced complaints, the program was voluntary, which meant tenants whose landlords opted out were ineligible from receiving CECRA benefits. CECRA also imposed a revenue loss threshold which automatically disqualified some businesses that had still suffered significant losses. Finally, the program only covered business that paid up to $50,000 in monthly rent.
Even though the federal government appears to have addressed some of the shortcomings of CECRA, criticisms are already starting to surface regarding CERS. Impacts of this new program, which the government maintains will be more accessible and better suited for the tenants’ needs, are yet to be seen. One thing is certain: CERS comes just in time for landlords and tenants in the commercial real estate industry who were worried about CECRA coming to an end.