Memo #3: How to Make CECRA Work for Main Street
As COVID-19 takes an increasingly heavy toll on main streets across Canada, commercial rents have been singled out as one of the most challenging fixed costs small businesses face as they manage forced closures and revenue declines. On April 16, the Government of Canada announced the Canada Emergency Commercial Rent Assistance (CECRA), an emergency benefit designed to lower rent by 75 per cent for small businesses affected by the pandemic.
The program, to be operational by mid-May under an agreement with all provinces and territories, has generally been warmly received. Yet, in the days and weeks since the announcement, many small businesses, industry groups and civic organizations have voiced concerns about challenges with the new program.
Canada Emergency Commercial Rent Assistance (CECRA) Program
CECRA will provide forgivable loans to qualifying commercial property owners that cover 50 per cent of three monthly rent payments from eligible small business tenants, for the months of April, May and June. The loans are then forgiven if the mortgaged property owner reduces rent by 75 per cent, with the small business tenant covering the remainder of up to 25 per cent.
To be eligible, small business tenants (also including non-profit and charitable organizations) must be paying less than $50,000 per month in rent; and must have temporarily ceased operations or experienced at least a 70 per cent drop in pre-COVID revenues.
These terms must be part of a rent forgiveness agreement for the term, during which the tenant cannot be evicted.
The Government of Canada expects that CECRA will be operational by mid-May, with further details to be announced soon.
Responses from the Main Street Action Network Members
Since the announcement of the CECRA program design details, stakeholders ranging from small businesses and industry groups to civic organizations and local governments have surfaced concerns largely focusing on three issues:
commercial landlords may choose not to take up the program, resulting in many eligible small businesses losing out on urgently needed support;
program design is too restrictive, with regards to factors like eligible rental arrangements and financial thresholds for revenue decline;
the mid-May launch timing may be too late for many small businesses, who could be evicted before that date for failure to make May rent.
Over the past two weeks, a number of the members of the Main Street Action Network, a coalition of participants in the Bring Back Main Street initiative, have contributed research and analysis, or advocated directly to policymakers for program changes to address these concerns.
Recent surveys shed light on how small businesses are faring financially, and whether they are able to access CECRA.
The Canadian Chamber of Commerce partnered with Statistics Canada to produce the Canadian Survey of Business Conditions, showing revenue declines since the crisis began for anchor main street sectors: 72 per cent of businesses in the accommodation and food services sector, 66 per cent in entertainment and recreation, and 60 per cent in retail trade. Over 40 per cent of businesses surveyed reported that rent payments had not been deferred by their commercial landlord, or that deferral was not offered or requested.
The Canadian Federation of Independent Business (CFIB) released survey results showing only one in ten commercial tenants that qualify for CECRA believe their landlords will participate in the program. Over one third of business owners that need help reported that they would not qualify for CECRA because of the 70 per cent revenue loss threshold. Another 40 per cent qualify but do not believe their landlords will participate.
Two-thirds of small businesses surveyed by Save Small Business, indicated that the rent assistance program was the most important to date, and over half believed CECRA would save them from failure; yet, only 19 per cent of those surveyed believed their landlord is likely to enrol in the program as currently proposed. In an Open Letter[1] to the First Ministers on Friday May 1, the Save Small Business coalition called on provincial and territorial governments to backstop the CECRA in two ways: an immediate moratorium on commercial evictions for the duration of the pandemic, and the mandating that all landlords enrol in CECRA if their tenants qualify.
Others have passed resolutions or presented detailed proposals to governments for changes to CECRA, and for a temporary moratorium on small business tenant evictions while details of the federal/provincial rent relief program are ironed out.
A Council resolution passed by the City of Toronto last week called on the Province of Ontario to work with the federal government to secure amendments to the CECRA, including broadening eligibility to include businesses and not-for-profits with revenue losses greater than 50 per cent (from 70 per cent), including landlord structures common to the non-profit sector such as for community hubs, and seeking that the Province “immediately institute a temporary moratorium on any commercial rent default evictions” to protect tenants that cannot access relief because landlords choose not to participate in the program.
Judith Veresuk, the Regina-based Chair of the International Downtown Association (IDA) Canada, submitted a letter to the Prime Minister on behalf of a national coalition of five hundred business improvement associations/districts and societes des commerce across the country, expressing appreciation for the CECRA program, but offering proposals to fine-tune its design by: limiting program eligibility to focus on local retailers and restaurant small businesses, excluding publicly traded companies; reducing the eligibility ceiling from monthly rents of $50,000 to $30,000; reducing the 70 per cent threshold for pre-COVID revenue decline to 55 percent; allowing both landlords and business owners to apply; working with the provinces on commercial eviction protection legislation; and providing access to tenants that have already negotiated rent deferrals with landlords.
“Our small business owners work on very small margins and really need the support of their landlords to open their doors again. In these trying times, IDA Canada is fully in support of legislation which will prevent landlords from unjustly changing the locks and removing the stock of businesses which have not been able to pay their rent.”
The Retail Council of Canada (RCC) has expressed similar concern about the numerous reports that many landlords have refused to participate in the CECRA rent relief program. Diane Brisebois, President and Chief Executive Officer at RCC said:
“Such an approach is both short-sighted and injurious. Not only would the loss of business premises drive many retailers into bankruptcy, it would also undermine a complex ecosystem involving retailers, commercial real estate, pension beneficiaries, individual and institutional investors.”
The Canadian Chamber of Commerce takes a similar position. According to Patrick Gill, Senior Director, Tax and Financial Policy, at the Chamber:
“Rent is one of the most significant fixed costs a Main Street business has. To give businesses a lifeline while the CECRA program is being implemented, the Canadian Chamber supports a temporary moratorium on commercial evictions at the provincial and territorial level.”
These and many other participating organizations in the Bring Back Main Street initiative are committed to working with policymakers to shape policies that can provide immediate relief for businesses, residents and communities, while also building tools for their full recovery as drivers of community wealth and neighbourhood vibrancy.
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