With May 1 rents looming, thousands of small business owners across the country are upset that landlords are still not stepping up to offer them relief and help as they struggle to stay alive during the vicious economic downturn caused by the COVID-19 (coronavirus) pandemic.
In fact, a survey by Save Small Business, a grassroots coalition of close to 40,000 small businesses across Canada, found that only one in five small businesses expect their landlord to sign on to the Canadian Emergency Commercial Rent Assistance (CERCA) program announced recently by Prime Minister Justin Trudeau.
Jon Shell, a co-founder of Save Small Business, said the advocacy group is calling on provinces to immediately ban commercial evictions until September 30 to bring landlords to the table.
He said the CERCA program is unlikely to succeed without applying more pressure on landlords to sign rent forgiveness agreements with their small business tenants.
“We were worried about it so that’s why we asked the question in the survey,” said Shell of the query to small business owners about their landlords’ appetite to support the federal program. “I wouldn’t say that we’re surprised but we’re sort of heartbroken. I don’t know if that’s the right term. It’s a real problem obviously. We’re hearing it all over the place.
“People are talking to their landlords about it and they’re either getting a ‘well let’s wait and see approach’ or a ‘this seems like too much work for me, I’m just not going to do it’.”
The Save Small Business Survey, which was conducted on Monday, found that 67 percent of small businesses said the rent assistance program is the most important support rolled out by governments to date, with the Canada Emergency Business Account loan being picked by 24 percent and the Canada Emergency Wage Subsidy by nine percent. Nearly 54 percent said that without a CECRA rent reduction their business will not survive, with another 43 percent saying the program will make their survival more likely. Only three percent of small businesses said the rent abatement had no impact on their ability to survive.
“The federal and provincial governments should be applauded for designing and agreeing to a rent relief program that is urgently needed,” said Shell. “And landlords that have already initiated conversations with their tenants to come to agreements on rent relief should similarly be commended. But any province that lets May 1st pass without a commercial evictions moratorium is effectively saying that they are unwilling to protect their local community businesses.”
Because participation in the program is voluntary for landlords, and they will still be expected to accept some losses under the program, there is mounting worry many will choose to ignore it, even if badly needed by their tenants, added Shell.
“This points to a program that is overwhelmingly needed by small businesses, but that is doomed to failure without more pressure on landlords,” he said. “Provincial governments need to enact moratoriums on commercial evictions to bring landlords to the table, and consider making the CECRA program mandatory for businesses that have been closed to protect their communities. Otherwise, we will see many more community businesses closing permanently.”
Save Small Business is recommending the following actions:
Provincial governments institute an immediate moratorium on commercial evictions, retroactive to April 1 and extending to September 30, to match the end of the CECRA program;
A mechanism be created for small businesses who qualify for CECRA to notify their provincial government of landlords who decline to offer a CECRA agreement;
Monitoring the uptake of the CECRA program, and consider mandating the agreement for all small businesses who qualify if there isn’t significant uptake of the program;
Provincial governments negotiate with the federal government for a second tier for CECRA, applying to businesses whose revenues have declined between 30 percent and 70 percent. This tier should provide a 50 percent reduction in rent, compared to a 75 percent reduction for the highest tier.
“The stat is that only 25 percent of businesses have two months of cash on hand and on May 15 we’ll be two months into this. So we would expect that 75 percent of businesses won’t have made May rent and that’s what every survey says. So we know that this is going to happen,” said Shell. “Something north of 50 percent, probably closer to 70 percent, simply will not pay May rent, meaning that they will all be under threat of eviction.”
Shell speculated that perhaps for many landlords this is an opportunity to kick out tenants so they can pursue a redevelopment on their properties.
“The thing that makes me incredibly frustrated is to hear landlords complain about this deal. I mean if you think of a landlord with $10,000 a month in rent, their total revenue for this year under this deal is $112,500 instead of $120,000. It’s a tiny cut in their income and it won’t affect any of them at all,” said Shell.
“The average landlord in this country will see a $7,500 drop in revenue on $120,000 which is something like less than seven percent. And they’re complaining. That’s why it should be forced. Any province that doesn’t mandate this is in the pocket of landlords.”
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.
Several issues have emerged. Many are saying the program is complicated and confusing. It also does not include those businesses who have seen revenue reductions of less than 70 percent. Also it doesn’t apply to bigger companies and retailers who are paying $50,000 a month in rent.
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.