Commercial Rent Relief Being Promised Due to COVID-19 [Updated on April 24, 2020]
Alex J. Chang, Associate
Phone: 604-685-1255
Email: ajc@lmlaw.ca
The economic fallout from COVID-19 has put massive financial pressures on businesses that are forced to close for social distancing.
There are programs to help businesses, but unlike BC’s response to residential tenants, there has yet to be any rental assistance for commercial tenants. However, on April 16, 2020, Prime Minister Justin Trudeau announced the Canadian Emergency Commercial Rent Assistance (CECRA) program to provide rent support for small businesses.
On April 24, 2020, the Prime Minister released further details on the agreement in principle with the provinces to provide the CECRA program. Here is what is known:
- The CECRA will provide forgivable loans to qualifying commercial landlords to cover 50% 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 landlord agrees to reduce the eligible small business tenants’ rent by at least 75% for the three corresponding months under a rent forgiveness agreement.
- The CECRA’s rent forgiveness agreement will include a term not to evict the tenant while the agreement is in place.
- The small business tenant would cover the remainder of the rent, up to 25%.
- The forgivable loans would be disbursed directly to the mortgage lender.
- It is unclear at this time if landlords that do not have mortgages will qualify.
- Qualifying small business tenants are businesses paying less than $50,000/month in rent and who have temporarily ceased operations or have experienced at least a 70% drop in revenues due to the pandemic. This CECRA will also be available to non-profit and charitable organizations.
- The Canada Mortgage and Housing Corporation will administer and deliver the CECRA.
- The CECRA is not expected to be available until around mid-May meaning that the benefits for the first two months will likely be retroactive.
The final terms and conditions of the CECRA are still pending. The article will be updated when more details are released.
Until the CECRA becomes available, commercial landlords are being encouraged to be flexible in trying to reach satisfactory interim arrangements with their tenants. The introduction of the CECRA combined with the likely drop in demand for commercial rental space should provide an added insentive for landlords to reach such agreements and thereby preserve their existing tenancies.
However, it is still expected that some landlords will still elect to give their tenants a notice of default. When a commercial tenant fails to pay rent or commits a serious breach of the lease, the landlord has a number of remedies, including (1) terminating the lease and suing for the balance of rent that would be owing over the balance of the lease term; (2) distrain for the arrears (ie. seize and sell the tenant’s property); or (3) affirm the lease and sue for rent owing. Each of these remedies have particular requirements and considerations that were reviewed in a previous article.
Furthermore, landlords may want to consider other options if the effect will be to drive their tenants out of business, particularly if the landlord does not expect to be able to re-let the premises and does not want to leave it unoccupied. Landlords will also need to be mindful of whether they will ultimately be able to collect on any judgements. To that end, landlords should consider whether it has any rights to collect from third parties that have guaranteed the tenant’s performance of the lease or indemnify for unpaid rent.
Landlords and tenants may also want to consider whether the lease may be subject to a force majeure clause under the lease or the common law doctrine of frustration. Both could theoretically offer relief to a tenant from performing its obligations under a lease, including the payment of rent. However, there is very little case law that considers the applicability of force majeure or frustration in these circumstances. Furthermore, it must be proven under both force majeure and frustration that the performance of the contract is impossible – not just difficult or more onerous.
Finally, tenants may want to consult with their insurers, brokers and lawyers if they have business interruption insurance that may mitigate their financial strain due to the pandemic.
WHAT WE DO: Lesperance Mendes would be pleased to assist you with more information or to schedule an appointment with a lawyer regarding a commercial rental property matter. To make an appointment, please contact Alex J. Chang, Associate, or Paul G. Mendes, Partner.
Caution: As the circumstances surrounding the COVID-19 pandemic are rapidly evolving, we encourage readers to monitor official government and court websites and seek current legal advice based on their particular circumstances.
THIS ARTICLE IS NOT LEGAL ADVICE: This article provides general information and should not be relied upon without independent legal advice with respect to the specific facts of your case.