When Prime Minister Justin Trudeau announced last week the Canada Emergency Commercial Rent Assistance (CECRA), it was hailed by many as a saviour for many small businesses who are struggling to stay alive.
But days later after the program has been digested and analyzed, many are questioning and wondering how effective it will actually be as several issues have been raised about the program. And May 1 rent is closing in on thousands of beleaguered businesses across the country.
Basically, CECRA 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.
“The first one is the question about whether their landlord will participate in the program,” said Jones. “And the second one is around the threshold being too high. You have to show a 70 percent revenue reduction. There are many businesses who are in pretty rough shape who have a 50 percent reduction or a 60 percent reduction and they’re not eligible for the program.
“But even for those who are eligible for the program, they’re worried that their landlord isn’t going to participate. It’s up to the landlord. There’s a lot of power right now with this program with the landlord and that’s probably the biggest concern we’re hearing.
“As May 1 looms there’s a big question mark as to what degree this is going to solve the problem. We know from our survey results that in theory business owners like the idea that everyone has a share in this and that the landlord and the tenant and government all help pay for the rent. In theory. But in practice there’s a lot of worry that this isn’t going to work.”
The other major initiative with the program is that it doesn’t apply to bigger companies and retailers who are paying $50,000 a month in rent.
“There’s not a lot of clarity yet in terms of how that will work,” said Jones, adding that the average rent for small business owners in Canada is $10,000 per month. “Many will be covered but there are some that won’t be.”
Jon Shell, Managing Director & Partner of Social Capital Partners in Toronto, and co-founder of the grassroots coalition of small businesses across Canada called SaveSmallBusiness.ca, said the reluctance of the Canadian federal government and its provincial governments to institute a moratorium on commercial evictions is leaving hundreds of thousands of small business owners at the mercy of their landlords.
“In Canada, the decision on whether to impose a moratorium on commercial evictions has been left to the provinces, as this is within their jurisdiction. But only a couple of provinces have done this, leaving the vast majority of Canadian businesses exposed to being locked out of their premises if they can’t make rent,” said Shell in a LinkedIn post.
“At Save Small Business what we’re hearing from all over the country are stories of businesses being threatened with evictions and deals being signed for rent deferrals that are heavily weighted to the landlord. There are some cases of landlords actually reducing rent, but they are very few and very far between.”
In an interview with Retail Insider, Shell said the lack of moratoriums is the biggest problem with the program right now.
“Some landlords are saying this is a pretty good deal so let’s do this. But other landlords are saying I’ve got all the cards here. I don’t need to take any haircut. So I’m not going to. And we’ve certainly heard from tenants who have said that their landlords are refusing to even engage on this deal.
“The deal itself I think is pretty good. The issue is there’s no forcing mechanism.”
The Fitness Industry Council of Canada said it appreciates the Prime Minister’s announcement regarding the Canada Emergency Commercial Rent Assistance Program, but for the fitness industry, this only covers single clubs and studios and does not address the need for a solution for regional and national organizations who have rent more than $50,000 per month.
“The Fitness Industry Council of Canada has been working to push this legislation through by engaging in conversations with the government at various levels,” said Scott Wildeman, FIC President. “We appreciate this significant step in helping to support the thousands of fitness establishments that have been hit so hard during this crisis.”
As of 2019, there are nearly 6,800 clubs across the country, with more than six million members and this represents revenue of nearly $3 billion USD. All fitness facilities in Canada closed as of mid-March, with the majority having cancelled their monthly fees immediately.
The Council said landlords across the country are urged to support this federal initiative and provide flexibility to tenants who are facing these challenging times. Together, through this program, landlords and tenants will be able to assist thousands of fitness business establishments across Canada.
David Lefebvre, Restaurants Canada Vice President, Federal and Quebec, said while full details on the Canada Emergency Commercial Rent Assistance program have yet to be released, the organization is encouraged by what the federal and provincial governments have brought to the table so far.
“This program responds to one of the biggest concerns for restaurants right now, but we’ll need to see the full details to assess whether this program will make a meaningful difference. Restaurants Canada is now in the process of gathering feedback from members and will continue to work with government to address any gaps,” he said.
Landlords are also wondering about specifics of the program. How is rent defined? Base rent or does it also apply to common area maintenance and property taxes.
Also, it appears as if the government is only providing assistance to landlords who have a mortgage on their property.