CECRA Q&A With Finance Canada

Justin To has worked as the Deputy Chief of Staff & Director of Policy for Finance Canada.

Read Justin's answers below to questions posed by Sheamus Murphy, Vice President, Federal Advocacy at Counsel Public Affairs Inc., regarding CECRA on June 7th.


Question 1

Having heard this week that the 70% revenue threshold will be based on a 3-month average, can we apply for a tenant for only one or two months instead of 3 months?

  • This 3-month average provision will now likely disqualify many tenants across the country.
    • This will incentivize some business to remain closed for longer, so that they can ensure their revenues are below the appropriate threshold required for CECRA eligibility.
  • We and our tenants are now having to guess whether or not tenants are eligible
    • The majority of retailers will be unable to reasonably forecast what their June revenues look like given that most are in re-opening stage and consumer patterns are still highly unpredictable.
    • No Commercial Property Owner wants to willingly put themselves in a position to somehow default on the program. Many would rather wait for greater certainty. Meanwhile, the public message of the provincial premiers is that if a landlord doesn’t apply right away they are somehow being a poor corporate citizen. Commercial Property Owners are trapped in between the premiers and their tenants, while most are supporting their tenants while the CECRA details continue to unfold. It is perfectly reasonable for a property owner to wait to know the June results before applying for CECRA, which would take them into mid-to-late July before they apply. At the same time, this behaviour is being punished by many provincial premiers at the same time.
  • Recommendation: allow Commercial Property Owners to apply for only one or two months instead of only being able to apply based on the 3-month revenue average. Also allow up to 2 applications if June revenue end up being under the revenue threshold amounts.

Answer

It applies to all three months, cannot go month by month. The Tenant Attestation says that the Tenant must simply estimate “to the best of their knowledge” whether they are down an average 70% for the three months, including a projection on June. If they are wrong, they are wrong and CMHC will not come down hard on those who have made reasonable efforts to estimate the loss in revenue to the best of their knowledge. (as an example of that, a business that was shut 100% in April and May but even had 90% sales in June, would still be on average down 70%)

To be clear the Property Owners should be trusting their tenants and their attestations unless they have reason to believe the tenant is attesting to a falsehood. But they are not expected to, nor should they be undertaking investigations on their tenants. Specifically in the landlord attestation is the following language (underlined for emphasis), “The Property Owner has no knowledge, acting reasonably and without investigation, of any falsehood or misrepresentation contained in the Tenant Attestation(s) submitted by Impacted Tenant(s) in connection with the Agreement.”

Also, in the Loan Agreement it does say this, but it is within the context of “without investigation” – “If prior to any advance under the Loan, the Property Owner becomes aware that the Attestation of any Impacted Tenant is false or misleading in any material respect, the Property Owner must promptly report the same in reasonable detail to the Administrator and provide the Administrator with an updated Application removing such Impacted Tenant from the Loan Amount calculation”).

Should a tenant every be found to have falsely attested to the 70% decline, CMHC would work with the landlord so both the landlord and CMHC make reasonable efforts to recover the forgiven rent from the tenant – the 25% owed to the landlord and the 50% owed to GoC. We would not hold the landlord responsible for the 50%.

In my view, if the property owner wants to help their impacted tenants, then this should not be a material concern – they do not face a liability if their tenant is telling the truth to the best of their knowledge.


Question 2

Where a property has a mortgage, does the property owner’s lender need to approve our CECRA application per building? Our house banker (one of big 6 Schedule I banks) suggested this week that they have to sign off on every CECRA application, unbeknownst to us.

Answer

I can’t answer this question as it may be a covenant between a property owner and their bank. As far as I understand, there is no requirement by CMHC that a property owner must also provide a waiver from their financial institution as participation in the program.


Question 3

Further clarification and details on what the eligibility process looks like for subtenants would be appreciated.

Answer

I’m not sure I understand this question as subtenants are fully eligible for the program. In fact the Tenant Attestation is actually titled “Tenant’s and Sub-Tenant’s Attestation”

From the website:

Impacted small business tenants are businesses — including non-profit and charitable organizations — that:

  • pay no more than $50,000 in monthly gross rent per location (as defined by a valid and enforceable lease agreement)
  • generate no more than $20 million in gross annual revenues, calculated on a consolidated basis (at the ultimate parent level)
  • have experienced at least a 70% decline in pre-COVID-19 revenues

NOTE: Eligible small business tenants who are in sub-tenancy arrangements are also eligible, if these lease structures meet program criteria.

Question 4

# 9 of the Rental Reduction Agreement states that if the 2020 CAM & Tax reconciliation of the actual hard, fixed maintenance costs results in a credit owing to the Landlord, the Landlord must allow a full 75% reduction of such credit, yet there is currently no mechanism for the Landlord to recover the 50% government commitment in the original arrangement at the time the 2020 reconciliation is completed (early 2021). Is this something that could be addressed? In other words, where a credit is found to be owing to the Landlord, and it is reduced by 75%, can the Landlord submit to the government for 50% of that credit owing? Alternatively, can the credit only be reduced by the 25% loss committed by the Landlord when agreeing to participate in the program? Also, there is no mention of what happens with a credit to the tenant – it should be adjusted the same way, reduced by 25%

Answer

Not sure how to answer this question other than to state it should all be reflected in section #4 of the Rental Reduction Agreement when the property owner submits the value of the “gross rent” submitted within the application. If the gross rent is accurate then this should be addressed. I’m not sure how any reconciliation would be corrected in the property owner or the tenant’s favour if an adjustment should occur. You’d have to talk to CMHC officials on that one.


Question 5

Whether the sales figures used to determine qualification are for the Tenant’s whole business (multiple locations), or just the sales for the location being applied for (our property)?

Answer

Sales for the location only, not consolidated business


Question 6

Omission in #11 of Tenant attestation the $20 million revenue max): should add “on a consolidated basis at the ultimate parent company level” which is what the portal indicates is the qualifier. 

Answer

I’ll check into that


Question 7

What if as part of a multi-tenant building application with multiple tenants applying for assistance one or more of the tenants is deemed not to qualify, how does that impact the balance of the application?   Would the loan still be approved for those that qualify in the same building or does that building owner need to re-apply?

Answer

The property owner should only be applying on behalf of their tenants that qualify, meaning there may be some tenants, the ones that do not qualify, are left out of the application. If the property owner applied for let's say 3 of its tenants in one building but one was later found to not qualify, then, as per the Property Owner Attestation and the Loan Agreement, the property owner should contact CMHC, the loan will be adjusted and reasonable efforts should be made to recover the rent from the tenant that did not qualify.


Question 8

Does the application need to be on behalf of the bare trustee given they will be reflected on title or can the beneficial owner make the application?

Answer

As I understand it, the application should be filed by the entity listed on the lease agreement.

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