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When the economic lockdown came into effect, we were flagging that governments needed to address the shock to business cash flows so that they could remain afloat and be able to restart when the lockdown would be eased. Many businesses had their revenues plunge dramatically or go to zero, while many costs would remain in place—a key one being rent.
Yesterday, we highlighted the news that REITs in Canada were reporting that many businesses were in a state of non-payment on their rent. This illustrated the financial strains that businesses are encountering.
So it is very welcome news today that Prime Minister Justin Trudeau announced the new Canada Emergency Commercial Rent Assistance (CECRA) program. Notably, policies related to rent are a provincial responsibility, so the federal program has been negotiated with the support of all provinces and territories.
The CECRA will provide forgivable loans to qualifying commercial property owners to cover 50 percent of monthly rent payments by eligible small business tenants experiencing financial hardship during the months of April, May, and June. The provinces and territories will cover an additional 25 percent of the rent payments, so expect new announcements from each of the regional governments on this topic. The program will be administered by the Canadian Mortgage and Housing Corporation.
The CECRA is for small business tenants who are paying less than $50,000 per month in rent and who have temporarily ceased operations, or have experienced at least a 70 percent drop in pre-COVID-19 revenues. The loans will be forgiven if the property owner agrees to reduce the eligible small business tenant’s rent by at least 75 percent for the three referenced months. The property owner must pledge not to evict the tenant while the agreement is in place. The small business tenant would cover the remainder, up to 25 percent of the rent. The program is expected to be in operation by mid-May.
The Prime Minister said that the government will have more to say on rent for larger businesses in the coming days.
It was a quiet day on the economic data front.
Craig Alexander is the first Chief Economist at Deloitte Canada. He has over twenty years of experience in the private sector as a senior executive and leading economist in applied economics and forecasting. He performed macroeconomic research, regional and sector analysis, and fiscal market forecasting and modelling. Craig is a passionate public speaker and holds a graduate degree in Economics from the University of Toronto.