Further to our blog entitled COVID-19 | Ontario-Canada Emergency Commercial Rent Assistance Program, CMHC has finally released further details about the OCECRA program including the opening date of the applications portal on May 25, 2020 at 8:00 a.m. EST.
Amidst reports that many landlords were refusing to apply for the OCECRA program, Premier Doug Ford pleaded with landlords to participate in the OCECRA program, stating: “It is not going to be forever. It is going to be for a few months. Help people out. You have an obligation to do that as a landlord”. Prime Minister Justin Trudeau provided a more business-oriented argument for landlords to participate in the OCECRA program, stating: “With many people discovering that we can work from home … there may be a lot of vacancies in commercial buildings over the coming months and years. Who knows exactly what the post-pandemic world will look like exactly?”.
CMHC provided further reasons for landlords to participate in the OCECRA program including the risks and costs of eviction such as the length of time and additional costs in finding a new tenant in a tight market, while receiving no rental income and paying the mortgage and other expenses. CMHC stated “Financially, it just makes sense” for landlords to provide rent relief to tenants and apply to the OCECRA program.
We suggest landlords obtain legal advice in respect to navigating commercial lease issues in these unprecedented times, including review of the commercial lease agreement, assessment of legal remedies available for non-payment of rent, negotiating a rent deferral agreement, negotiating and applying for the OCECRA program, re-negotiating lease agreements, etc.
Further Details of OCECRA Program Released
The OCECRA program is a cost-sharing program between landlords, small business tenants and the federal and provincial governments.
The landlord agrees to be responsible for at least 25 percent of the monthly gross rent during April, May and June 2020. The tenant agrees to pay no more than 25 percent of the monthly gross rent during the three month period. The government will provide an unsecured, forgivable loan to the landlord of up to 50 percent of the monthly gross rent owed during the three month period less any insurance proceeds available and/or non-repayable proceeds of any government commercial rent assistance program.
The “monthly gross rent” is defined as the total gross rent payable as set out under a valid and enforceable lease agreement. In a net lease, the “monthly gross rent” is: (a) the net rent / minimum rent / base rent; and (b) regular monthly installments of operating costs, property taxes and other additional rent amounts (e.g. maintenance, repairs, utilities, etc.) payable to the landlord. Any amounts required to be paid by the tenant directly to a third party are excluded from the definition of “monthly gross rent”. In a gross lease, the “monthly gross rent” is the gross rent.
The landlord must enter into a forgiveable loan agreement and agree that the loan will be used solely for: (a) first, reimbursing the tenant for any rent paid above 25 percent of the rent due and payable during the three month period, unless the tenant elects to apply the previously paid rent against future rent; and (b) second, any costs and expenses relating directly to the commercial property. The landlord must agree that it will not require each eligible tenant to pay more than 25 percent of the rent for April, May and June 2020, or attempt to recover any forgiven amounts from the tenant by any means.
On December 31, 2020, the loan will be forgiven as long as the landlord has complied with the terms and conditions of the OCECRA program. If the landlord defaults on the forgiveable loan agreement, then CMHC may demand immediate repayment of the principal amount in full with interest.
Eligible Tenants – Requirements
1. Monthly Gross Rent: The tenant has a monthly gross rent of less than $50,000 in connection with the property. The monthly gross rent amounts for April, May and June 2020 are fully and accurately stated in the rent reduction agreement. CMHC may request and review documents, records or information to confirm the accuracy of the attestation and the tenant’s eligibility.
2. Gross Annual Revenue: The tenant does not generate more than $20 million in gross annual revenue.
3. Decline in Gross Monthly Revenue: The tenant, to the best of its knowledge and based on information available, experienced a decline in gross monthly revenues of at least 70 percent, as determined by comparing the average gross monthly revenues in April, May and June 2020 to: (a) the corresponding months in 2019; or (b) where the tenant is a new business and was not operating in 2019, average revenues for January and February 2020. The tenant’s eligibility will be determined by forecasting revenues in late May 2020 and June 2020. The landlord does not have to wait until the end of June 2020 to apply.
4. Other Government Assistance and Insurance: The tenant has investigated and applied for any available non-repayable government programs for commercial rent assistance due to COVID-19, and pursued available insurance proceeds in respect to rental revenue or rental payment obligations. This may include CEBA (up to $10,000 of the forgiveable portion of loan) and business interruption insurance. Any non-repayable amounts received or receivable must be disclosed to the landlord and CMHC.
5. Bankruptcy: The tenant must not be the subject of any actual or pending insolvency proceeding, and has not filed for relief or protection under the BIA, CCAA, etc.
6. Exclusions: The tenant must not be an individual, or be controlled by an individual holding federal or provincial political office. The tenant must not be a person, or owned by any person that promotes violence, incites hatred, or discriminates based on race, national or ethnic origin, colour, religion, age, sex, sexual orientation, disability, etc. In addition, the tenant must not use any portion of the leased premises for any criminal activity.
7. Integrity Declaration: The tenant is required to complete an Integrity Declaration, unless exempted by CMHC, to declare that the tenant and its affiliates have not been: (a) convicted of any crime, penal or regulatory offence related to financial matters such as forgery, fraud, bribery, corruption, taxation or money laundering; (b) declared to be ineligible to do business with any federal, provincial, territorial or local government in Canada; and (c) there are no other facts which could reasonably raise CMHC’s concerns with entering into a business relationship with the tenant or the tenant’s integrity.
Eligible Landlords – Requirements
1. Registered Owner: The landlord is the registered owner of a commercial property with at least one tenant that is eligible to receive benefits under OCECRA. A commercial property may be a mixed-use property with a residential component.
2. Rent Reduction Agreement: The landlord must enter into a rent reduction agreement with the tenant to reduce the monthly gross rent during April, May and June 2020 by at least 75 percent.
3. Declared Rental Revenue: The landlord declared rental revenue from the property on its tax returns in 2018 and/or 2019, and the property has commenced generating rental revenue in 2020. CMHC may request and review documents, records or information to confirm the accuracy of the landlord’s representations.
4. Moratorium on Eviction: The landlord agrees to not serve any default notices or take steps to evict the tenant due to COVID-19, from the date of the application until three months later, or until July 1, 2020, whichever is later.
5. Conduct of Business: The landlord will carry on, maintain and conduct its business in accordance with good business practices and prudent cash flow measures.
6. No Mortgage Requirement: The landlord does not need to hold a mortgage to apply for OCECRA.
7. Consents: The landlord has obtained the necessary consent from its lenders to participate in the OCECRA program.
8. Other Government Assistance and Insurance: The landlord has investigated and applied for any available non-repayable government programs for commercial rent assistance due to COVID-19, and pursued available insurance proceeds in respect to rental revenue. This may include CEBA (up to $10,000 of the forgiveable portion of loan) and business interruption insurance. Any non-repayable amounts received or receivable must be disclosed to CMHC, and the landlord acknowledges its obligations to pay some or all of these amounts to CMHC.
9. Bankruptcy: The landlord must not be the subject of any actual or pending insolvency proceeding, and has not filed for relief or protection under the BIA, CCAA, etc.
10. Exclusions: The landlord must not be an individual, or be controlled by an individual, holding federal or provincial political office. The landlord must not be a person, or owned by any person that promotes violence, incites hatred, or discriminates based on race, national or ethnic origin, colour, religion, age, sex, sexual orientation, disability, etc. In addition, the landlord must not use any portion of the commercial property for any criminal activity.
11. Exclusion for Government: The landlord must not be owned, in whole or in part, by the federal, provincial or municipal government. Exceptions include First Nations, airport leases, post-secondary institutions, hospitals and pension funds.
12. Integrity Declaration: The landlord is required to complete an Integrity Declaration, unless exempted by CMHC, to declare that it (and its affiliates) have not been: (a) convicted of any crime, penal or regulatory offence related to financial matters such as forgery, fraud, bribery, corruption, taxation or money laundering; (b) the landlord and its affiliates have not been declared to be ineligible to do business with any federal, provincial, territorial or local government in Canada; and (c) there are no other facts which could reasonably raise CMHC’s concerns with entering into a business relationship with the landlord or the landlord’s integrity.
How to Apply?
Due to the expected large volume of applications, CMHC has requested landlords across the country to apply on certain staggered dates. Ontario landlords with up to 10 eligible tenants are asked to apply on May 26, 2020. Ontario landlords with more than 10 eligible tenants are asked to apply on May 28, 2020.
The deadline to apply is August 31, 2020.
Further details about applying for OCECRA including eligibility requirements, sample documents (tenant’s attestation, landlord’s attestation, rent reduction agreement and forgiveable loan agreement) and the applications portal are found here.
How Can We Assist You?
Our lawyers have expertise and experience in commercial lease matters and can assist you in resolving your legal issues in a timely and cost-effective manner. Please contact us for an initial consultation through our Request Consultation Form, email to info@gilbertsondavis.com or by telephone (416) 979-2020.
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