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Delays in Government Rental Assistance Program for Retailers in Canada Could Cause Many Permanent Closures

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Each passing day without clarity in the federal government’s commercial rent assistance program is putting more and more Canadian businesses under the threat of permanent closure as they struggle to stay alive during the COVID-19 (coronavirus) pandemic.

“It’s a mess,” said Laura Jones, executive vice-president of the Canadian Federation of Independent Business. “Rent is one of the biggest bills a business owner has to pay – rent and wages are the two big ones. We don’t have a rent program that will help enough tenants in place right now.

“The program itself although the details of it have been described the application process won’t be available until the middle of May and then the money for the program we don’t know when that’s going to start flowing. Will it be days after the application process is open or weeks? That’s an open question.

“I think the design looks beautiful in theory. It looks great in a textbook but in practice it’s not working.”

The CFIB has members in the position of being tenants, landlords, and both.

“The program is working for some. That’s what we’re hearing. We’re hearing about 25 percent of our landlord members are planning to use the program. But we’re still hearing from both landlords and tenants a lot of uncertainty about whether the program will work for them. About a third of our landlords are saying they don’t know if they’re going to use the program. And we’ve got a lot of our tenant members also saying they’re not sure their landlords are going to be accessing the program,” said Jones.

KENSINGTON AREA IN CALGARY. PHOTOS: TOURISM CALGARY

The Canadian Emergency Commercial Rent Assistance (CERCA) program announced recently by Prime Minister Justin Trudeau will provide forgivable loans to qualifying commercial property owners to cover 50 percent of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during April, May, and June; the loans will be forgiven if the mortgaged property owner agrees to reduce the eligible small business tenants’ rent by at least 75 percent for the three corresponding months under a rent forgiveness agreement, which will include a term not to evict the tenant while the agreement is in place and the small business tenant would cover the remainder, up to 25 percent of the rent.

Impacted small business tenants are businesses paying less than $50,000 per month in rent and who have temporarily ceased operations or have experienced at least a 70 percent drop in pre-COVID-19 revenues.

There is much confusion for both landlords and tenants on what the program entails but critics point to several issues: businesses that have seen revenue reductions of less than 70 percent are not eligible; businesses paying $50,000 or more in rent per month are not eligible; there is no protection for businesses from evictions; and the program is entirely voluntary by landlords.

Karl Littler, Senior Vice President, Public Affairs at the Retail Council of Canada, who made a presentation to the House of Commons Finance Committee on Tuesday, said the reality is that with limited or no income from operations, retailers can’t keep going simply by receiving generous assistance to pay employees.

“Even with taxes and in some cases, utilities deferred, the meter continues to run on their rent even when nobody is coming through the door,” said Littler. “The CECRA program is an important step for severely impaired small retailers but one that is limited by enterprise size, rental footprint and by 70 percent income loss threshold.

SPRING GARDEN ROAD IN HALIFAX. PHOTO: FLICKR

“When CECRA was announced on April 24, the Prime Minister stated – and I quote – ‘we will also have more to say in the coming days about rent support for larger businesses’. Sticking the landing of that policy decision is critical, not only to larger retailers but also to smaller retailers who do not fit within the parameters of the CECRA program.

“Simply put, retailers without income or severely reduced revenues have no ability to pay rent. Not only does this jeopardize their tenure in the very stores that they will need in order to emerge from this crisis, it jeopardizes many of the million+ jobs in the discretionary retail sector.

“Non-payment of rent also ripples through a complex ecosystem involving commercial real estate, individual and institutional investors and pension beneficiaries and upon governments, especially municipalities who are dependent on the commercial tax base. There may be a misconception that large retailers are sitting on a pool of cash. In reality, most entered the crisis with 30 to 60 days worth of cash on hand, most of which has been exhausted.”

Littler said the government is dealing with many distress sectors and there are challenges for many different industries.

“We are not the only entity that has challenges at this stage. So I don’t anticipate that just because we need it quickly that is the only imperative for government. I remain cautiously optimistic that they will move on it. I know that certainly that was their stated intention that they would move to address the issue but obviously with each passing day we get a little more concerned that it may not be timely or that it may not be what we had hoped it to be.”

WHYTE AVENUE IN EDMONTON. PHOTO: LOOPNET

Jon Shell, co-founder of the grassroots coalition Save Small Business, supported by about 40,000 small businesses across Canada, said the fact the program was not finalized by May 1 was really important because now there are tenants who didn’t pay rent who are waiting and exposed.

“Everything I hear is that the conversations between landlords and tenants are on hold. So each passing day adds uncertainty and stress for both landlords and tenants and the closer we get to May 15 the worse it’s going to get,” said Shell. And the more permanent closures we’re going to see.

“People are giving up. This was like the shining solution that many people clung to and I think with all of the uncertainty and with the amount of landlords that are saying well I don’t know anything about it so we’re just going to stick with the deferral, you’re seeing a lot of tenants just give up,” said Shell.

Jones said a CFIB survey found that 75 percent of its members say they need rent assistance for May. Of those that need help, many either won’t qualify for the government rent assistance program or they may qualify but they don’t think their landlord will participate. That’s over 60 per cent.

QUEEN ST WEST, TORONTO. PHOTO: RETAIL INSIDER

She said the survey found that eight percent of CFIB tenant members are worried about being evicted with another 14 percent they’re not sure. But as many as 15 percent in the hospitality sector are worried about being evicted.

Benjamin Shinewald, President and Chief Executive Officer of BOMA Canada (Building Owners and Managers Association), said the organization is hearing gratitude from its members that the government understands that the sector is a lynchpin for so many businesses across Canada, understanding that the government is operating under exceedingly difficult circumstances and anxiety around the need for far more refinement of the details about existing programs and announcements for new programs, including one aimed at larger landlords.

“Just the way that the government wisely invested in businesses to bridge them in order to keep employees on the payroll, landlords need to be bridged in order to keep tenants in good standing. It’s just as critical and the exact same policy proposal,” he said, adding it’s vital to have something in place that meets the needs of landlords and tenants.

“The vast majority of Canada’s economic activity happens within BOMA member buildings. We have the biggest landlords in Canada and the corner store. Commercial real estate accounts for a humongous proportion of where Canadians live, work and play. It is literally the ground beneath the economy, the place where the actual and metaphorical foundation is laid.

“But what this really means is that by helping landlords, you are really helping tenants. Tenants can’t survive without landlords. So, we must ensure that landlords are stable so that the millions of business and billions of economic activity that they house is safeguarded.”

Article Author

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He now works on his own as a freelance writer and consultant in communications and media relations/training.

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