Rent Relief and the Difficult Landlord
As most commercial landlords and tenants are now aware, the federal government has announced the Canada Emergency Commercial Rent Assistance (CECRA) program. CECRA provides forgivable loans to qualified commercial landlords that offer at least a 75% rent reduction for the months of April, May, and June for impacted small business tenants. CECRA will cover 50% of the rent, the commercial tenant will pay 25%, and the commercial landlord will forgive 25% of the rent.
A tenant is considered an impacted small business tenant if it pays no more than $50,000 in monthly gross rent per location, generates no more than $20 million in gross annual sales, and has either temporarily ceased operations or has experienced at least a 70% decline in pre-COVID-19 revenues.
Details with respect to the CECRA program can be found here: https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business. CECRA is being administered by the CMHC, which has also released a sample rent reduction agreement. It is the landlord which must apply for CECRA, not the impacted small business tenant.
What if I have already reached a different agreement for a lower rent reduction with my landlord?
The sample rent reduction agreement contains a clause confirming that any prior rent reduction is included in the amount of the total rent reduction. If your landlord refuses to incorporate the existing agreement by reference, and increase the amount of the rent reduction to 75%, there may be an argument that your landlord is in violation of its duty to perform your lease contract in good faith.
Can the parties agree upon other terms?
To date, nothing appears to prevent the parties from tailoring the sample agreement to fit their circumstances. Having said that, it is somewhat unclear what terms a landlord would be permitted to include in a rent reduction agreement. For example, would it be permissible for a landlord to now seek a personal guarantee from a tenant as a term of the agreement?
What should I do if my landlord has not yet applied for CECRA?
First, we recommend that clients formally put their landlord on notice that they are asking the landlord to apply for CECRA. Your landlord must apply for all three months at the same time, and applications are being accepted until the August 31, 2020. It is not too late for your landlord to apply, even if you have already paid rent for these months. Arguably, failure to apply for CECRA before taking enforcement steps under a lease could also be a violation of a landlord’s duty to perform the lease contract in good faith.
Can my landlord evict me or take other steps to address non-payment?
The sample agreement contains a clause which prevents evictions during a specified period. In addition, on June 8, 2020, the Ontario government announced that it was proposing changes to the Commercial Tenancies Act which would temporarily prohibit evictions of businesses that are eligible for federal/provincial rent assistance.
It remains unclear whether commercial landlords who agree to rent reduction can continue to use other remedies (for example the right of distress which allows a commercial landlord to seize items belonging to a tenant).
If your landlord still refuses to apply for CECRA, or takes steps to evict you from the premises, the lawyers at Allan Snelling LLP may be able to assist you. Depending on the facts, we may be able to bring a court application to prevent your eviction known as relief from forfeiture.
Every commercial tenancy is different, and we therefore strongly encourage you to contact our Kanata office for a no obligation consultation today. Early intervention by Allan Snelling LLP may be critical to avoiding a more costly legal problem in the future.