The New CECRA Agreement and Your Commercial Lease
I was certainly very happy to hear the announcement of a Canada Emergency Rent Assistance Program “CECRA” by Prime Minister Trudeau as this will with no doubt help quite a few Commercial Tenants and Commercial Landlords weather this current storm. The materials already available indicate the program will be structured as “forgivable” loans and the terms for forgiveness are said to be in part as follows:
“The loans will be forgiven if the mortgaged property owner agrees to reduce the small business tenants’ rent by at least 75% under a rent forgiveness agreement, which will include a term not to evict the tenant while the agreement is in place. The small business tenant would cover the remainder, up to 25% of the rent.” (emphasis added)
While full details are not out I believe that it is a very good idea to be prepared with a draft of a “Commercial Rent Forgiveness Agreement” CRFA which has been vetted by both the Landlord and Tenant follows the intent of the program while avoiding possible unintended consequences. For example if there is an abatement agreement but the Tenant has diminished but variable revenue they may not qualify for the assistance in one or more of the months covered by the agreement. Unless the Agreement covers this situation the Landlord may have given rental relief for the entire period but in one or more of the months they may be without access to the assistance upon which the giving of that rental relief is based. Similarly, the Landlord would be applying for a loan on the premise that it is forgivable but the forgiveness is based on the revenue stream of the Tenant. It is reasonable therefore for the Tenant to be required to give evidence of their revenue level to the Landlord to support that onward request. If a later review determines that the revenue assertions of the Tenant turn out to have been, either willfully or innocently, understated the landlord may be denied the assistance and unable to collect the incorrectly forgiven rent unless the CRFA addresses this situation. A properly structured agreement can meet the terms of the CECRA while protecting the parties from unintended consequences such as these.
To do our part, we have been working on creating the materials needed to build these agreements for our clients. Please give us a call if you need help with creating a Canada Emergency Rent Assistance Program CECRA, Commercial Rent Forgiveness Agreement CRFA and we would be happy to assist.