Commercial leasing specialists flag some potentially cumbersome details in commercial rent relief program

Vague or cumbersome details flagged in OCECRA

Monday, April 27, 2020

Commercial leasing specialists are raising some questions about unspecified and/or potentially cumbersome details of the Ontario-Canada Emergency Commercial Rent Assistance (OCECRA) program. As announced late last week, the Canadian and provincial/territorial governments have reached an agreement in principle for the rollout of the three-month program, and Ontario has committed $241 million for its share of proposed forgivable loans for commercial landlords who agree to a 75 per cent rent reduction for small business and not-for-profit tenants suffering COVID-19-related financial stress.

A newly released advisory memo from Aird & Berlis LLP highlights some of the still unclear qualifications that could exclude some landlords or their tenants, or require extra administrative effort to fulfill. Notably, Ontario proposes to cover only fixed rental costs in its share of the forgivable federal-provincial loan for landlords.

“Landlords are to forgo any profits from their rent during the eligibility period. However, it is expected that the calculation of rent for the purposes of OCECRA will prove difficult for landlords as it will be challenging for landlords to ascertain the quantum of rent attributable to profit at a specific point in time,” Aird & Berlis’ commercial leasing practitioners observe.

Last week’s announcement indicated the program will be tied to mortgaged commercial properties and that Canada Mortgage and Housing Corporation (CMHC) will deliver a joint federal-provincial loan, equal to up to 50 per cent of monthly rent, directly to the lenders of qualifying landlords. However, there are hints that broader rules might apply.

“The Ontario government has confirmed that further options may be available to property owners that do not have financing in place for the affected property, which may include the option to apply funds against other debt facilities or fixed-cost obligations, such as utilities,” the memo notes.

Property owners are instructed to pursue such negotiations with CMHC. Meanwhile, the stipulation that a landlord must be the registered owner on the property title is seen as potentially problematic for those who own properties through a trustee or nominee or via a leasehold interest. Ultimately, Aird & Berlis’ leasing specialists suggest landlords may prefer to stick with rent deferral agreements they have already negotiated.

“A landlord may decide that OCECRA may be a better option than a previously negotiated rent deferral agreement, in which case it may decide, with the agreement of its tenant, to terminate the rent deferral agreement and opt to apply for OCECRA,” they note. “However, OCECRA does not require a landlord to forgo its rent deferral agreement in favour of OCECRA. In fact, landlords will likely prefer deferral arrangements with their tenants, where the landlord will at some point be made whole, over any arrangement that would require it to forgo rent.”

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