The Ontario-Canada Emergency Commercial Rent Assistance (OCECRA) program partners the province with the federal government (through the federal Canada Emergency Commercial Rent Assistance program) in helping commercial landlords and tenants manage the impacts of the COVID-19 pandemic on their respective businesses. 

Details continue to emerge about the OCECRA program.  While many of the specifics remain unclear, many important details have begun to take shape.  Even still, with so many of the specifics of the program left undefined landlords and tenants are well advised not to take action before it is clear if, how, and when they will qualify for the program.

OCECRA Basics

  • The Canada Mortgage and Housing Corporation (CMHC) will administer the program, in partnership with the province, and provide forgivable loans to commercial landlords that cover half of the monthly gross rent owing by tenants for April, May, and June of 2020.
  • Loans will be forgiven if the landlord and tenants sign agreements to reduce gross rent (presumed not to include HST) by at least 75% for the three-month period.  The result being that tenants would remain responsible for 25% of the gross rent, the landlord would become responsible for 25% of the gross rent, and the federal and provincial government would provide the remaining gross 50%.  The agreement must also prohibit the landlord from evicting the tenant during the three-month period, and the landlord cannot attempt to recover abated amounts from tenants. It is presumed that the prohibition on evictions is limited to defaults for non-payment of rent.  It will be important to determine if that is, in fact, the case, and landlords will still be able to take action pursuant to the breach of other lease covenants.  Additionally, if the tenant fails to pay their 25% portion of gross rent (or if pre-existing arrears already exist) it is unclear if the prohibition will still prevent the landlord for taking action or attempting to recover the unpaid amounts.
  • The rent sharing arrangement would be applicable for gross rent (which is presumed not to include HST).  Earlier understandings described the program as forgiving 50% of rent attributable to "fixed costs," excluding rent attributable to "profit" from the program.  The Office of the Premier updated published materials on May 8th, which now refers only to "total rent" and "gross monthly rent," thereby removing the need to consider what is included in "profit."  The final legislation has not been published, but in light of the clarification from the Office of the Premier it is reasonable to conclude that the program will apply to gross rent.
  • Landlords who have not offered rent reductions already will be able to do so in order to qualify for the program, but they must either refund rent as necessary or agree with tenants to credit the requisite amounts towards future rent. It is presumed that if a landlord and tenant previously agreed to an insufficient rent reduction they could subsequently further reduce rent so as to qualify for the program.  It will be important to determine if that is, in fact, the case, otherwise landlords may find that they have inadvertently taken an action that disqualifies them for the OCECRA program (or perhaps the government will require a further 75% reduction of the already reduced gross rent amount).
  • Landlords (rather than tenants) will apply for the program and can do so until August 31, 2020.

Eligibility

  • Landlords must:
    • be the registered owners of revenue generating commercial property.  Properties with a commercial/residential mixed-use are eligible if at least 30% of the property is commercial;
    • have a mortgage loan secured by the commercial property.  Landlords without a mortgage may qualify for alternate rental assistance, but the specifics of such a program are still undefined; and
    • have declared rental income on tax returns.
  • "Small business" tenants must:
    • pay less than $50,000 per month in gross rent.  In the case of tenants with multiple locations this rental cap will be assessed per each property (rather than cumulatively), however the tenant must not generate over than $20 million in annual revenues.  Larger tenants may also qualify for alternate rental assistance, but the specifics of such a program are still undefined;
    • have temporarily ceased operations or experienced a 70% reduction in revenue.  The calculation of this reduction will be a comparison between April, May, or June of 2020 and the same month(s) in 2019; and
    • operate a "non-essential" business.

Important Questions/Considerations

In addition to the questions and considerations outlined above, landlords would be well advised to consider some of the following items in determining how to proceed.

  • Is the landlord responsible for confirming that the tenant qualifies for the program?  What if the tenant misrepresents a fact in order to secure a rent abatement, and ultimately does not qualify for the program?  Will the landlord need to repay the loan?  Can the landlord evict the tenant if the misrepresentation becomes clear during the abatement period?
  • While evictions may be prohibited, will the landlord be able to pursue other remedies provided under their lease or by law?
  • Will the government require the use of a set form of agreement? If not, can the agreement include other amendments to the lease?  If other terms are permitted, Landlords may want to consider additional provisions, such as making the agreement conditional on the qualification for the OCECRA program, or requiring the tenant to provide a guarantor/indemnitor.
  • What are the tax implications of the program?  How will HST be applied to the rent collected, and is the $50,000/$20 Million qualification cap inclusive or exclusive of HST?  It has been presumed that calculations for the program exclude HST, but when will this be confirmed?
  • Can a landlord and tenant reinstate a terminated lease in order to take advantage of the OCECRA program?
  • Will landlords and tenants need to qualify for all three months in order to qualify for the program, or can they apply for one or two months' of assistance?
  • What will happen if qualifying applicants exhaust the funding for the program?  Will funds for the OCECRA program be distributed on a "first-come, first-served" basis? 
  • How will the program apply to subtenants?  What if only one of the head tenant and sub tenant qualify for the program? 

Given the impact of these unanswered questions, most landlords would be well advised to wait for some answers before acting.  The alternative is to accept that their actions, however well intentioned, may disqualify the landlord or tenant from effectively utilizing the OCECRA program.

Landlords should be sure to keep themselves up to date on the latest developments.  To do this, landlords can sign up to receive updates from CMHC, and speak with a lawyer in our commercial leasing department.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.