June 30, 2020

Canada Emergency Commercial Rent Assistance (CECRA) is a program administered by the Canada Mortgage and Housing Corporation (CMHC) designed to provide financial relief to small business who have experienced financial hardship as a result of the ongoing COVID – 19 pandemic.

The program offers unsecured, forgivable loans to landlords who agree to reduce the rent payable to them by tenants who have experienced a reduction in revenues during the periods April, May, and June of 2020.  To be eligible, the subject property must be “commercial property” leased by small business tenants. Commercial properties with a residential component and multi-unit residential mixed-use properties would equally be eligible with respect to their small business tenants. There is no requirement that a mortgage be registered against the subject property to be eligible for relief.

An additional condition for eligibility requires the small business tenant to have been opened prior to March 1st, 2020.

To be eligible to receive the forgivable loan, the landlord must agree to reduce the tenant’s rent payable for April, May and June of 2020 by a minimum of 75%.

If the landlord agrees to reduce the rent amount and the tenant meets all the eligibility criteria (as discussed below), the landlord will receive a forgivable loan from CMHC in the amount of 50% of the original un-reduced rent that would have originally been payable by the tenant under the original lease agreement.  The ultimate effect of the program is that the tenant and landlord are each responsible for bearing 25% of the original rent amount with the remaining 50% being covered by the proceeds of the forgivable loan.

The landlord is permitted to use the proceeds of the loan to either reimburse the tenant for any rent paid in excess of the tenant’s reduced 25% liability or alternatively, to fund any expenses relating directly to the property.

To qualify for the program, impacted tenants must meet the following specific criteria:

  • The tenant cannot generate gross annual revenues of more than $20,000,000. The guidance provided by CMHC indicates that gross annual revenues are to be calculated at “the ultimate parent level”.  It is unclear exactly what this means however, the following guidance is provided on the CMHC website:

If the small business tenant or its ultimate owner produces consolidated statements, then the tenant would use revenues reported for the group level of companies.

Alternatively, if the small business tenant does not produce consolidated statements, then it is the specific revenue of the tenant that applies for the $20 million test.

  • The tenant cannot pay monthly gross rent of more than $50,000 in connection with the property.
  • The tenant must have experienced a decline in gross monthly revenues of at least 70% from pre-COVID-19 emergency revenues as determined by comparing the average gross monthly revenues in April, May and June 2020 to:
  • The corresponding months in 2019 or;
  • Where the tenant is a new business and was not in operation during 2019, average revenues for January and February 2020

Given that many tenants will not yet know their final revenues for June 2020, the CMHC indicates that June revenues should be forecasted when determining eligibility.  The following guidance is provided on the CMHC website with respect to revenue forecasts:

Your June forecast must be supportable by the variables at play for your business. The result is to be guided by the average revenue reduction for April and May and the forecasted change given your respective province or territory’s guiding principles for reopening the economy (i.e. where the impacted business falls in the staged approach).

  • The tenant must have investigated other funding sources available to them such as other government assistance programs or insurance and determined that relief was not available through such means.
  • The tenant must not be the subject of any actual or pending insolvency proceedings and have not made any filing for relief or protection under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or any other bankruptcy or insolvency legislation of any jurisdiction.
  • The tenant must meet several criteria regarding the tenant’s integrity. For example, the tenant cannot have been convicted of any crime or penal or regulatory offence in relation to any financial matters such as but not limited to forgery, fraud, bribery, corruption, international sanctions, taxation, or money laundering. The Tenant is required to sign an “Integrity Declaration” attesting to the fact that they meet the applicable integrity criteria in connection with the application.

If the tenant meets the qualification criteria, the landlord and tenant must enter into a “Rent Reduction Agreement” which is a legally binding agreement signed by both landlord and tenant under which the landlord agrees to reduce the tenant’s rent by at least 75% for each of April, May and June of 2020.

During the period during which the rent reduction agreement is effective, the landlord must not serve the tenant with any default notice or seek to evict the tenant where the basis for such default notice or eviction is a lease default in which the tenant has been prevented from performing their obligation under the lease as a result of the COVID – 19 emergency.

If the tenant has already paid rent in excess of the reduced rent as stipulated in the Rent Reduction Agreement the landlord must agree to either:

  • grant the tenant a reimbursement of the excess from the proceeds of the forgivable loan or;
  • grant the tenant a credit for the excess against future rent payable.

The landlord must acknowledge that the portion of the rent that has been forgiven will never be recoverable and that they will not attempt to use any means or mechanisms to recover the forgiven amount.

If the landlord complies with all the terms of the Rent Reduction agreement and provides an accurate and truthful attestation and application, the loan received by the landlord will be forgiven on December 31st, 2020.

Relief provided by the program is also available to sub-landlords who are parties to a sub-lease agreement with an impacted sub-tenant who meets the eligibility criteria.

Relief is also eligible for tenants and landlords who do not deal with each other at arm’s length if there was a valid and enforceable lease agreement in place and the rent under the lease is at market rates.

To make an application under this program both the landlord and tenant (or impacted sub-tenant) must sign an attestation confirming that they meet the eligibility requirements of the program.

Applications are processed through the CMHC website.  Further details on the program and a link to the application portal can be found here:


Calculation of Loan Amount and Rent Reduction Amounts during the July Extension

CECRA has been extended for the month of July 2020. The July Extension is based on existing program parameters for the April – June period. An Impacted Tenant who met the April – June revenue decline will automatically qualify without the need for tenants to re-assess a revenue decline for July. In addition, the calculation of the forgivable loan and required 75% reduction of an Impacted Tenant’s rent will also be based on the April – June period.

If you have already submitted a CECRA application for the period of April – June, you may log back into the Portal and opt-in for the July Extension. No additional documents are required. You will be asked to make certain confirmations and agree to certain terms and conditions.

If you have not yet submitted an application for the period of April – June, when submitting a new application you will have the option of opting-in to the July Extension at the same time.

You can choose which impacted tenants are included in July. When opting-in to the July Extension, you will be prompted to select, one by one, from the list of Impacted Tenants included in your original application, which of them you wish to include in the July Extension. No new tenants may be added. However, a Property Owner may only opt-in to the July Extension once and must include any Impacted Tenants they wish to include in that request.

If you have already received an advance for the April – June period you will receive a second forgivable loan advance for the July Extension.

The forgivable loan amount will be based on the average of the gross rent amounts included in the main application and will not be recalculated based on actual July rents. So, even if gross rent changes for July, the forgivable loan amount and the amount of rent forgiveness will stay the same as they were for the previous three months. For example:

If a tenant’s average April-June contract rent was $10,000, the reduced rent paid by the tenant was $2,500 and the rent forgiveness amount was $7,500. No matter if the July rent is higher or lower, the amount of forgiveness available to the Impacted Tenant for the July Extension remains the rent forgiveness amount of $7,500.

If the actual gross rent for July increased from $10,000 is $10,500, then the tenant’s reduced rent for July will be $10,500 less $7,500 = $3,000.

You will not need to have your tenants sign any new documentation. Rather, the extension will be accomplished by way of a written notice which you must send to each selected Impacted Tenant (and its sub-landlord, if the Impacted Tenant is a sub-tenant).

The prescribed form of the written notice is substantively as follows:

“We are writing to notify you that the April – June application as well as the application for the extension for the month of July 2020 (the “July Extension”) under the CECRA for Small Business Program has been successful. As a result, your rent reduction agreement is considered to have been extended to include the month of July 2020 from the date on which the July Extension was approved.

The monthly amount of the rent forgiveness for the July Extension shall be the average monthly rent forgiveness granted during the period of April, May and June, 2020, which average amount is $X. Accordingly, your rent payable for the month of July is $Y.”

The extensions will be on the same terms and conditions as the original rent reduction agreements.

August Extension

On July 31, 2020, the federal government announced that CECRA has been extended by one month for August 2020.

Those who qualified for CECRA based on existing program parameters will be able to apply for the additional one month based on having a 70 per cent revenue decline for April, May and June, without reassessing whether they continue to have a 70 per cent revenue decline in July or August. Participation in the one-month extension is voluntary.

Existing applicants need to reapply for the month of August and have until September 14, 2020 to do so. New applicants have the choice of applying for the three-month initial period, four months or five months, but need to do so by the original date of August 31, 2020.

For further information and advice, please contact your KB advisor.

Disclaimer:  The COVID-19 Canadian tax policies in the above article are changing rapidly as the governments introduce new measures. Certain details have yet to be published. We will aim to update them as soon as they are available.