Why landlords are not applying to the commercial rent relief program
CECRA program relies on both parties to work together
Natalka Falcomer
REM
The most critical element you need to get a “good deal” is integrity. And this element is playing an even more critical role as I assist landlords and tenants navigate the Canada Emergency Commercial Rent Assistance (CECRA) program. The reason is simple: the program relies upon both parties to work together and requires very little by way of substantiating the eligibility of the tenant.
In other words, by participating in the program, landlords may be exposing themselves to significant legal and financial responsibility. While what I outline below is neither intended to provide a full scope of the program nor provide advice on eligibility, it is a brief summary of the questions I’ve been receiving that are not addressed by the government purveyors of the program.
1. Why isn’t my landlord applying for CECRA and what can I do?
Many lawyers are counseling landlords to not agree to the CECRA program if the landlord wouldn’t be financially able to grant the rent reduction without financial assistance from the government. Why? Because the tenant may not provide the required documentation in order to qualify, leaving the landlord holding the bag and exposed to claims from the tenant that the landlord promised to provide the reduction and, therefore, must fulfill this promise. Nonetheless, the CECRA program is retroactive, meaning that landlords can always apply at a later date. If your landlord has not applied, you qualify for the program and you are prepared to provide the documentation to prove it, ask your landlords to commit to seeking the benefit of the CECRA program and to provide retroactive relief upon acceptance into the program.
2. What if I don’t have the documents to support that my business has been affected by COVID-19?
The program is clear: documentation is needed to support the loss of revenues. You, as a tenant, must also provide your registered business name, number of employees, consolidated revenues, lease area and the monthly gross rent for the period of April, May and June 2020. If you don’t have the documentation, such as a rent roll, audited financial statements and so on, then you expose yourself and your landlord to not only failing to meet the application requirements but, worse yet, an audit and the requirement to pay back the monies received. It’s unclear at this stage, but I suspect that any tenant or landlord intending to defraud the government will face financial and other ramifications.
3. What if my tenant has lied in order to qualify for the program?
The program is clear. If your tenant has made false or misleading representations to CMHC or is committing fraud or misconduct in connection with the application, and you, the landlord, become aware of this conduct, you must notify CMHC. If monies under the program have been received by the landlord, then CMHC has full recourse to recover the CECRA funds from the landlord.
CMHC’s recovery rights extend to further remedies available to it, which may include the landlord paying for additional fees incurred by CMHC to recover such amounts. What is more, if fraud occurs, the landlord is also obligated to “use commercially reasonable efforts to recover rent previously forgiven (and shall use such amounts collected to repay CMHC)”. This means that the landlord will have to incur legal fees, administrative costs and may be implicated in a more complex legal battle with CMHC.
Landlords contemplating applying for this program must ensure that their tenants have high levels of integrity and would qualify for this program. It’s also wise, if you are a landlord, to ensure that any rent reduction agreement required for this program include strong indemnification rights and default rights, which includes misrepresentation in favour of the landlord.
4. Is this a windfall for the landlord?
No. Funds are strictly for: “reimbursing impacted tenants for any rent paid above 25 per cent during the eligible period unless the tenant chooses to apply the previously paid rent against future rent any costs and expenses relating directly to the property, including any financing held by the property owner”; and “operation and maintenance and repair obligations (such as costs of common area maintenance, property taxes, insurance and utilities)”.
This means the funds cannot be used for the landlord to pay for a new car or to pocket any profits. The strict nature of the funds may also be a reason why landlords are unwilling to participate.
For example, will participating in the program give rise to an audit? What if the landlord also owns the property management company servicing the property – will paying the property management company qualify for the use of funds? What if the landlord can use the funds to pay for the mortgage and not the repair obligations, which take precedence according to the program? These questions will likely give any landlord cold feet.
5. Does this forgive rent that I owed before April 2020?
Tenants are attempting to use this opportunity to “get off the hook” for past rent owed. Landlords should be wary of such tenants and ensure that any rent reduction agreements make it clear that any rent falling outside the scope of the program is still owed. In fact, as a condition of participating in the program, landlords are wise to request that tenants first make good on any amounts outstanding.
It’s clear: to survive this crisis, tenants and landlords must act with integrity. Without it, neither will be pulled to safety.
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