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CANADA EMERGENCY RENT SUBSIDY HOLIDAY UPDATE

As enacted on November 19, 2020 by Bill C-9 (An Act to Amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy)), the Canada Emergency Rent Subsidy (“CERS“) has provided a rent subsidy for businesses that experienced a drop in revenue during the COVID-19 pandemic. Under the CERS program, businesses applied for the rent subsidy on a monthly basis for each “qualifying period”. On October 21, 2021, the Federal Government confirmed that the CERS program would not be extended beyond the October 23, 2021 qualifying period. Therefore, the final qualifying period for which businesses may make a claim under the CERS program is from September 26, 2021 to October 23, 2021. The deadline to submit a claim for this final period is April 21, 2022.

This article will address two pressing questions that commercial landlords and tenants in Ontario have about the implications of the expiry of the CERS program on their respective businesses:

  1. Moving forward, will there be alternative rent subsidy programs available to commercial landlords or tenants who are struggling due to the impacts of the COVID-19 pandemic?
  2. How will the expiry of the CERS program affect Ontario’s moratorium on commercial distraint proceedings and landlords’ rights of re-entry?

1.   New rent-subsidy programs:

The Federal Government has the authority, under the Budget Implementation Act, 2021, No. 1, to extend the CERS rent subsidy program to November 20, 2021. Pursuant to its October 23, 2021 announcement, the Federal Government announced it intended to use this authority to continue to support certain businesses in industries that have been hit hardest by the effects of the COVID-19 pandemic. On November 24, 2021, the Federal Government proposed Bill C-2 (An Act to Provide Further Support in Response to COVID-19) which, if passed, will enact the support programs proposed by the Federal Government in its October 23, 2021 announcement1. Pursuant to Bill C-2, support will come in the form of rent subsidies under two new programs: (1) The Tourism and Hospitality Recovery Program (the “THRP“); and ( 2) the Hardest-Hit Business Recovery Program (the “HBRP“). If passed, Bill C-2 would extend these programs to May 7, 2022 and provide the Federal Government with the authority to extend these programs even further through to July 2, 2022.

In addition to the two subsidy programs noted above, Bill C-2 would also enact a program to support businesses in the event of a public health lockdown, and would increase the monthly cap on eligible expenses under the new rent subsidy programs for those eligible for the programs after the expiry of CERS on October 23, 2021.

(a)   The Tourism and Hospitality Recovery Program2

On October 21, 2021, the Federal Government announced it intended to continue to offer support for businesses in the tourism and hospitality industry which were deeply affected by the pandemic and who continue to struggle financially. If passed, Bill C-2 will formally enact the THRP. Pursuant to the proposed legislation, examples of eligible organizations for the THRP would include entities whose qualifying revenue for the qualifying periods was earned primarily (e.g. more than 50%) from:

  1. operating or managing a facility that provides short-term lodging (e.g. hotels, motels, etc.);
  2. preparing and serving meals, snacks and beverages made to order for immediate consumption on or off the premises (e.g. restaurants, food trucks, coffee shops, nightclubs, etc.);
  3. operating a travel agency or a tour operator;
  4. organizing, promoting, hosting, supporting or participating in events that meet the artistic or cultural interest of their patrons;
  5. operating or managing an amusement or theme park; and
  6. operating or managing a facility providing a service that enables patrons to participate in recreational activities (e.g. downhill and cross-country ski/snowboard, amateur sports clubs, etc.).

Note that the above list is not exhaustive of all entities who may be eligible for the THRP. See the link below for the full list.3

To qualify for this program, eligible organizations will be required to meet the following two conditions:

  1. an average monthly revenue reduction of at least 40% over the first 13 qualifying periods under the Canada Emergency Wage Subsidy (the “CEWS“); and
  2. revenue loss for the current month of at least 40%.

Under the THRP, the maximum rent subsidy available would be set at 75% for qualifying periods from October 24, 2021 through March 12, 2022. The rent subsidy rates would then be reduced by half for qualifying periods beginning on March 13, 2022 to May 7, 2022. As was the case under CERS, the rent subsidy rate will continue to be calculated based on current-month revenue losses as compared to a prior reference period. The following table shows the proposed rent subsidy rate structure under the THRP:

Current-Month Revenue Decline Subsidy Rate for Qualifying Period: October 24, 2021 — March 12, 2022 Subsidy Rate for Qualifying Period: March 13, 2022 — May 7, 2022
75% and over 75% 37.5%
40-74% Starts at 40% and increases in proportion to current-month revenue losses e.g. 45% revenue decline, 45% subsidy rate; 60% revenue decline, 60% subsidy rate; 74% revenue decline, 74% subsidy rate; etc. Starts at 20% and increases in proportion to current-month revenue losses ÷ 2 e.g. 45% revenue decline, 27.5% subsidy rate; 60% revenue decline, 30% subsidy rate; 74% revenue decline, 37% subsidy rate; etc.
0-39% 0% 0%

(b)   The Hardest-Hit Business Recovery Program4

Organizations that do not qualify for the THRP but that have been deeply affected by the pandemic may qualify for rent subsidies under the HBRP if they meet the following two requirements:

  1. an average monthly revenue reduction of at least 50%, over the first 13 qualifying periods under the CEWS; and
  2. a current-month revenue loss of at least 50%.

Under the HBRP, the maximum subsidy rate would be set at 50% for qualifying periods from October 24, 2021 to March 12, 2022. Like the THRP, for qualifying periods from March 13, 2022 to May 7, 2022, the subsidy rates will be reduced by half. Also like the THRP, the rent subsidy rate would continue to be calculated based on current-month revenue losses relative to the prior reference period. The following table illustrates the rent subsidy rate structure unde

Current-Month Revenue Decline Subsidy Rate for Qualifying Period: October 24, 2021 — March 12, 2022 Subsidy Rate for Qualifying Period: March 13, 2022 — May 7, 2022
75% and over 50% 25%
50-74% 10% + (revenue decline − 50%) x 1.6 e.g. 10% + (60% revenue decline − 50%) x 1.6 = 26% subsidy rate 5% + (revenue decline − 50%) x 0.8 e.g. 5% + (60% revenue decline − 50%) x 0.8 = 13% subsidy rate
0-49% 0% 0%

(c)   Increasing the Monthly Cap on Eligible Expenses

As noted in our original article explaining the base rent subsidy under CERS, eligible rent expenses that could be claimed under the program were capped. Eligible expenses were capped at $75,000 for each qualifying property in each qualifying period up to an aggregate monthly cap of $300,000. Bill C-2, if passed, will increase the aggregate monthly cap from $300,000 to $1,000,000 (including amounts claimed by affiliates) starting on October 24, 2021, and this new cap would be available to any organization who meets the eligibility requirements for the new rent subsidies under the THRP or HBRP programs. Note that while Bill C-2, if passed, will increase the aggregate monthly cap for all properties, it does not modify the $75,000 cap for each qualifying property. Therefore, this increase will benefit those organizations who have qualifying properties that have not yet been able to claim the full $75,000/property limit due to the $300,000 aggregate cap.

(d)   Support in the Event of a Public Health Lockdown

Regardless of the industry or sector, the Federal Government will continue to provide lockdown support for organizations that are subject to a qualifying public health restriction. If passed, Bill C-2 would provide eligible organizations with support at the subsidy rates available to businesses in the THRP. Organizations will be eligible for lockdown support where:

  • one or more of their locations are subject to a public health restriction;
  • the public health restriction lasts for at least 7 days in the qualifying period; and
  • the public health restriction requires the business to cease activities that accounted for at least approximately 25% of the total revenues of the business during the prior reference period.

Applicants will not have to show a 12-month revenue decline to be eligible for the lockdown support. To be eligible for this program, only a current-month decline of 40% must be demonstrated.

2.   How will the expiry of CERS affect Ontario’s moratorium on distraint proceedings and landlords’ rights of re-entry?

As explained in our previous article, the Government of Ontario enacted O Reg 763/20: Non-Enforcement Period — Prescribed Tenancies (the “Regulation“) under the Commercial Tenancies Act. The Regulation introduced a moratorium on distraint proceedings and rights of re-entry with respect to commercial tenants who were approved for the CERS program for a period of 12 weeks from the date of their approval into the CERS program, provided proof of such approval was provided to the landlord. Those protections would renew for a further 12 weeks after each new approval in each qualifying period under the CERS program.

The Regulation currently provides that the moratorium on distraint proceedings and rights of re-entry will expire on April 22, 2022. Therefore, April 22, 2022 is the latest possible date that the moratorium might restrict a landlord’s ability to exercise rights of re-entry or distraint. As noted above, the moratorium only protects a tenant for 12 weeks following the date the tenant was approved for the CERS subsidy. Therefore, a commercial landlord will still be able to exercise rights of re-entry and distraint for non-payment of rent prior to April 22, 2022, so long as 12 weeks have passed since the date the tenant was approved for the final qualifying period.

As of the date of this article, the Government of Ontario has not commented on whether it will propose legislation in order to extend the moratorium on distraint proceedings and rights of re-entry for businesses approved under the THRP or the HBRP subsidy programs.

Further Updates

Fogler, Rubinoff LLP will continue to monitor developments to the rent subsidy programs announced by the Government to help you keep up to date. In the meantime, please contact Alex Kolandjian or Aida Nabavi if you have any questions about the above or if you have any additional questions about how COVID-19 affects your lease obligations.

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https://www.canada.ca/en/department-finance/news/2021/11/government-introduces-legislation-to-create-jobs-and-implement-targeted-covid-19-support.html

https://www.canada.ca/en/department-finance/news/2021/10/targeting-covid-19-support-measures.html

https://www.canada.ca/en/department-finance/news/2021/11/types-of-business-eligible-for-the-tourism-and-hospitality-recovery-program.html

https://www.canada.ca/en/department-finance/news/2021/10/targeting-covid-19-support-measures.html