Over Half of Small Businesses in Canada will Not be Able to Pay Rent in May Amid Pandemic Shutdowns

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EDITOR’S NOTE: There is an update to this article, read more here: Canadian Government Announces 75% Rent Relief for Small Retailers and Businesses

Over half of small businesses in Canada will not be able to pay May rent without additional support and there is an urgent need for provinces to work with the federal government to deliver rent relief as soon as possible.

In his daily briefing on April 16, Prime Minister Justin Trudeau promised that rent relief was coming soon for Canadian small business owners. But since then — a week later — there has been no update and nothing small businesses can take to the bank and give them some peace of mind.

“Businesses and commercial property owners are also facing specific challenges because of COVID-19. So we plan on introducing the Canada Emergency Commercial Rent Assistance. This program will provide support to help small businesses with their rent for the months of April, May, and June. To implement this program, we have to work with the provinces and territories as they govern rental relationships and we hope to have more details to share very soon,” he said.

Karl Littler, Senior Vice-President, Public Affairs with the Retail Council of Canada, said “people are eagerly awaiting the flesh on the bones from the Prime Minister’s announcement.”

“But recognize ultimately that it’s a fairly complex topic to address in part because there may be some relevant provincial actions required here,” said Littler. “The federal government is going to want to make sure there’s an apportionment here of the negative impacts of COVID-19 such as they aren’t all borne by the tenants. Some recognition by the landlords that if there’s going to be support in this space landlords too are going to have to take a haircut by way of an abatement not just by way of deferral.

“There’s going to be a need to ensure that landlords don’t then scoop it back in some sort of rent increase. In order to focus everybody’s minds on finding common solutions there may well be a requirement at the provincial level to ensure that there are no commercial evictions for a period.”

Littler said he believes the federal government will step up big time financially to ensure that rent essentially gets paid on time which helps to protect the ecosystem with some conditions attached – freezing rental rates for a period, barring commercial evictions for a period, some abatement by landlords, and tenants will have to take on some debt under federal terms.

“April 1 was scary, and it’s important to get the right government relief in place fast to prevent May 1 from being a nightmare on Main Street,” said Laura Jones, executive vice-president of CFIB.

“People white-knuckled their way through April. People have savings. People are dipping into their credit cards. For some people those emergency business accounts were available, those emergency business loans, but the longer this goes on it gets exponentially more difficult for people to cope with because you’ve deprived many businesses of sales. And sales is oxygen to business. That’s what it feels like literally and that’s how they describe it too. They describe feeling like they’re drowning. Drowning in debt. Drowning in despair.”

In the past few years there has been increasing talk about the retail apocalypse. But that talk could be a living reality for many small retailers across the country very soon as the COVID-19 (coronavirus) pandemic has closed their businesses and gutted their revenues while they still have fixed costs to take care of such as rent to landlords.

She said rent relief is urgently needed as only one in five businesses is fully open and revenue declines are dramatic for nearly all small firms. And the critical time for relief is now.

“Last week the federal government announced a new rent program, I know many business owners are anxiously waiting for the details as the stress of having bills mount with no revenue is getting more intense,” said Jones.

“Anxiety is high. Small businesses are very nervous about May rent. They’re cautiously optimistic because the government has announced the program but like with many of these programs the announcement comes before the details. I think there are a lot of small businesses that are holding their breath right now.”

A recent CFIB survey of small business owners found:

  • 92 percent think provincial governments should provide protection to commercial tenants to prevent evictions during the COVID-19 emergency;

  • 91 percent agree that for rent assistance to be meaningful, it needs to be grants or rent forgiveness, not just loans/deferrals;

  • 75 percent believe the cost of commercial rent that cannot be paid due to COVID-19 revenue losses should be shared between governments, landlords and tenants, with 19 per cent disagreeing;

  • Over half (58 percent) will not be able to pay May rent in full without further assistance (up from 25 per cent for April), compared to 37 percent who say they can pay, while the rest don’t know; and

  • 54 percent trust their landlord to be reasonable, 33 percent do not.

As the first day of May looms large in just a few days, retailers, food service tenants, landlords, and everyone along the consumer real estate transactional chain are working together to ensure that there are retail and restaurant environments to return to when shopping and dining venues reopen, said Michael Kehoe, Lead Ambassador in Canada for the New-York based International Council of Shopping Centres.

“All parties await details on a federal program related to commercial space rent payments that was briefly mentioned by the Prime Minister, but with no information on the timing etc. The uncertainty with this, and so many other matters currently, is unsettling for the entire industry that can’t afford to wait,” said Kehoe, a veteran of more than 40 years in the industry and broker/owner of Fairfield Commercial Real Estate in Calgary.

“According to several medium to large scale consumer real estate landlords, on-time contracted April rent payments were in the 60-70 percent range but May 1 could be a different story. A cooperative and non-confrontational landlord and tenant relationship is more important than ever with communication channels wide open and all creative solutions on the table.

“I am sure that there are many heart-to-heart conversations under way at this time working on solutions to ensure that, as the weeks that could turn into months, that the entire consumer real estate industry avoids being jeopardized so that there is limited long-term damage, rampant unemployment and irreparable harm to our favourite shopping and dining venues. We need a consumer real estate sector left to serve shoppers in communities across Canada post crisis that is vital to our way of life.”

A new survey released Thursday by Restaurants Canada revealed that nearly all foodservice businesses are concerned about their current debt levels, and many won’t survive the impacts of COVID-19 without longer-term solutions.

The survey found that 75 percent of respondents said they are either very or extremely concerned about their current level of debt; one out of every two independent restaurants does not expect to survive if conditions don’t improve over the next three months; most multi-unit foodservice businesses will have to permanently shut down at least one of their locations if conditions don’t improve over the next three months; and at least three quarters of respondents identified rent as a main source of debt for their operations, reinforcing the urgent need for relief in this area.

“Even the most experienced restaurateurs are struggling to meet their rent obligations, through no fault of their own, due to the unprecedented circumstances we’re all now facing,” said Shanna Munro, Restaurants Canada President and CEO. “COVID-19 has taken a devastating toll on small businesses, with restaurants being among the hardest hit. Even once restrictions are eased, they’re still going to need help to avoid closing down due to crushing levels of debt.”

Restaurants Canada recommends:

  • An immediate moratorium on evictions and lock-outs for commercial tenants. This would relieve pressure while stakeholders continue to develop solutions for the long term. Many restaurants haven’t been able to pay rent this month and are now at risk;

  • Rent assistance at a percentage in line with decreased revenue. Deferrals and loans can help in the short term, but in the long term will contribute to more permanent closures due to insurmountable debt if not combined with mechanisms for relief; and

  • Measures that continue while the economy is still in recovery. Foodservice businesses will need a sustained period of support to ramp back up while consumer spending rebounds. Restaurants Canada recommends continuing rent relief measures until businesses have returned to a fixed percentage of pre-COVID-19 revenues.

“Restaurants Canada commends the federal government for leading a coordinated effort with the provinces and territories toward the creation of a Canada Emergency Commercial Rent Assistance program,” said David Lefebvre, Restaurants Canada Vice President, Federal and Quebec. “We look forward to ensuring the needs of foodservice businesses are addressed as part of this program so that they will be able to remain viable as the economy recovers from COVID-19.”

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