Removing landlords from the application process hasn’t necessarily made the Canada Emergency Rent Subsidy (CERS) more accessible for commercial tenants experiencing pandemic-related financial stress. Canada’s leading commercial real estate organizations are calling for more flexible rules with retroactive eligibility to capture more businesses that have been either overlooked or hesitant to enter the program.
CERS uptake statistics, posted on the Canadian government’s website, show that 196,640 distinct applicants have received support through the program in the roughly nine months between Sept. 27, 2020 and July 2, 2021. That’s an increase from the approximately 130,000 individual businesses subsidized in the six months of the forerunner Canada Emergency Commercial Rent Assistance (CECRA) program, but far off the pace of the 449,250 businesses that have tapped into the Canada Emergency Wage Subsidy (CEWS) since it became available in March 2020.
“What we’re hearing from some of our members is their tenants are not going through the application process because they are not totally comfortable in providing their share of the rent even though it’s highly discounted. They don’t want to be offside with CRA (Canada Revenue Agency) by agreeing to put it forward when they might not have it,” advises Brooks Barnett, director of government relations and policy with REALPAC, which represents many of Canada’s largest commercial real estate companies, property funds and investment managers. “Also, CERS requires historical data to prove revenue loss, and there are a number of businesses that just didn’t have that so they were never admitted into the program.”
REALPAC, Canada-wide chapters of the Building Owners and Managers Association (BOMA) and the commercial real estate development organization, NAIOP, recently submitted joint recommendations for program revisions to Finance Minister Chrystia Freeland. They’re also attempting to determine how many tenants have opted to negotiate rent deferrals or abatements directly with their landlords rather than apply for CERS.
Program parameters derived prior to the second wave
The program was devised and introduced when COVID-19’s second wave was strongly hinted, but the severity of that outbreak, a third wave and prolonged lockdowns in some areas of the country were still in the future. Barnett points to retailers, restaurateurs and personal service providers in the Greater Toronto Area that have effectively been closed to walk-in business for seven of the nine months CERS has been available as examples of those stretched to make the rent contribution that program rules dictate.
Nor could landlords choose to simply forego that portion of the rent since both the up to 65 per cent CERS and the 25 per cent top-up for recipients in lockdown situations is calculated on expenses paid, rather than what’s actually owing. Alternatively, the commercial real estate organizations call for the subsidies to be tied to recipients’ contracted rents, which would give more leeway to negotiate other arrangements around the remainder and more assurance of collecting rental income needed to meet property owners’ operational obligations.
“There’s no incentive in CERS to provide rent deferrals or abatements because if owners do that, the overall proportion of money that tenants are eligible for also decreases,” Barnett says. “Or in some other cases, where tenants have had landlords willing to offer them 100 per cent deferrals, they haven’t applied because they think that’s preferable to the 65 or 90 per cent CERS coverage. So we think there are some built-in disincentives.”
In addition, the real estate organizations urge a loosening of the evidentiary requirements so that clearly struggling businesses can be more easily admitted into the program, and a higher funding cap for CERS recipients operating businesses from more than one location. The maximum available subsidy for a given four-week period has been $75,000 per single location or $300,000 for multiple locations. However, the latter ceiling translates to ever-diminishing amounts of relief for businesses with more than four separate addresses — prompting the industry advocates to suggest $1.8 million would be a more realistic maximum when applied to larger chains.
Under the terms of the 16-week extension past June 5, which was announced in the 2021 federal budget last April, the maximum CERS subsidy has now been trimmed to 60 per cent for the period from July 3 to 31 and is slated to drop twice more — to 40 per cent on August 1 and to 20 per cent on August 29 — before coming to and end on September 25. Nevertheless, industry advocates are calling on the government to grant retroactive subsidies in cases where they have adjusted the rules, including for new program entrants that could have theoretically qualified for the program at any time dating back to Sept. 27, 2020.
“That would effectively guarantee coverage to tenants that will possibly help set them up better coming out of the pandemic,” Barnett reasons. “I think the government would be well served by increasing that budget.”
Thus far, approximately $6.5 billion has been allocated through CECRA and CERS together. That breaks down to: $1.8 billion in CECRA relief; $4 billion in CERS; and a further $699 million for the lockdown top-up support. In comparison, nearly $84.6 billion has gone to employers/employees via the Canada Emergency Wage Subsidy.
Many commercial property owners continue facilitator role
Even after CERS replaced CECRA and commercial property owners were no longer a direct channel for tenant relief, Barnett underscores the key guidance and support that many have provided. He also commends CECRA and CERS program administrators and various provincial or local level programs, while noting that the overall patchwork can be befuddling.
“Landlords at the entity level were basically holding the hands of tenants and figuring out the wide array of programs that were out there, which were applicable for which tenants, and how all the puzzle pieces fit together. For a national company with 500 tenants across the country, for example, it’s a monumental task to figure out the mishmash of programs that tenants might be eligible for,” he recounts. “The staff at CRA and the federal government have been extraordinary at moving quickly on the pandemic. It’s been impressive to see how fast they came out with the policy and the program, but it has still been administratively very burdensome for applicants. They’re often struggling to understand all the requirements and responsibilities and then to provide a fulsome application to the satisfaction of the government.”
On the flipside, CERS is vulnerable to disreputable applicants. Along with more supports for tenants, commercial real estate organizations are calling for clearer accountability mechanisms to ensure that received funds are delivered to where they are owed.
“All of these are very important issues and they are all things that we are working on with the government, and the government is receptive,” Barnett reports. “Now that they’ve risen for the summer, there is no (near-term) legislative opportunity to get this through the House of Commons, but we’re very optimistic that the CRA can deal with some of this administratively and then some of this could be done through Order in Council (regulations).”
The enabling legislation for the 16-week extension also included authority to enact a further CERS extension, taking it to Nov. 20, 2021 if deemed necessary.
“The government hasn’t really given us much of a signal whether it will do that,” Barnett says. “If it does, it might be because the lockdowns lasted longer in Ontario and some other places than might have originally been expected.”
Barbara Carss is editor-in-chief of Canadian Property Management.