COVID-19 Update For Businesses – April 20

Canada Emergency Commercial Rent Assistance (CECRA)

What is it: This program was just announced and there are only minimal details currently on the CRA website. The intention of this program is to provide loans and/or forgivable loans to commercial property owners who will, in turn, lower or forgo the rent of small businesses for April, May and June.

This will require a partnership with all 3 levels of government because rent is governed by provincial and municipal governments.

There is no timeline listed for this program.

Canada Emergency Business Account changes:

Eligibility criteria have changed so that businesses with a total gross payroll of $20k or more in 2019 can apply. 

Updates HOT OFF THE PRESS Canada Emergency Wage Subsidy (CEWS):

• • The eligibility criteria for March has changed. Businesses need to show a 15% (previously this was 30%) drop in revenue as compared to March 2019. April and May need to have a 30% revenue reduction to qualify. 
  • Sales comparison can be EITHER: 
    • Comparing the same month last year OR 
    • Rely on the average of Jan and Feb 2020 as the baseline. 
  • IMPORTANT: Whatever method you choose as the sales comparison must be consistent for the whole time that the subsidy is available.

Homeroom will be contacting you before the end of the month via email to explain your options

Time periods for the purpose of calculating the wage subsidy:

March 15-April 11 

April 12-May 9

May 10-June 6

Each employer will need to establish eligibility for each claim period. IMPORTANT: If you qualify for one time period, you automatically qualify for the next time period. This creates consistency and ability for forecasting for the employer

Key Points:

• Employees do not have to work during the time/claim period. If they don’t work then these employees are essentially on leave with pay.
• Employers will also receive a 100% refund on employer contributions to EI, CPP if their employees are not working.
• If your employees are working, then you still need to pay the employer portion of CPP and EI
• The subsidy is not available for those employees who were without pay for 14 or more consecutive days in the applicable time period
  • What does this mean: If your employee didn’t get paid for 14 days, therefore they got the CERB ($2000), therefore their wages cannot be subsidized.
  • Common sense element: employees could pay back CERB so that the employer receives the 75% subsidy
• Severance cost does not qualify as eligible remuneration

There is potential in the legislation for the subsidy to be extended to additional periods up to Sept 30

How much $ do you get:

• 75% of remuneration paid up to a max of $847/week
• Non-arms-length scenarios eg owners and spouses of owners: 
  • If you or your spouse have consistently been receiving wages prior to March 15, your wages will be subsidized. 
• What does consistently mean? There has been conflicting information about this. Some sources are saying that the CRA could review payroll from Jan – march 2020 for non-arms-length employees to determine eligibility. 

What is the interaction with CEWS and the 10% wage subsidy we have already been calculating for our clients? 

• What you have deducted for the 10% wage subsidy would reduce the amount that you will claim for the CEWS
• Work Share: same as above… EI benefits received by employees will reduce the amount you receive from CEWS

Some of our clients will be in a grey area with respect to how much they can receive especially if the non-arms-length scenario applies. Due to the lack of concrete information currently available to help us navigate this grey area Homeroom will not be able to make wage subsidy recommendations to business owners who fall under this category.  

How to apply

• • • Applications will remain open up to October 2020
    • You can apply in the CRA web portal via My CRA Business account
    • No paperwork is required, but your records MUST be kept to support a future audit. Homeroom is keeping these records for you if we are processing your payroll.

Application is imminent – we will keep you posted.

Thank you for your patience as we create a system that we can provide to our clients that will be compliant with the rules. We know you are anxious to get this subsidy, and we are working hard to stay on top of this constantly changing situation.

Penalties:

• If a business is posting artificial transactions to reduce revenue so as to be eligible for CEWS the penalty is: 25% of the value of the CEWS plus repayment of the subsidy
• Other note: The Minister of National Revenue has the authority to publicize the name of any person who has applied for the CEWS

In addition to the latest government updates:

Here are some notes I made from a webinar with a commercial leasing lawyer re Legal issues arising from commercial leasing landlords and tenants. 

The bottom line is that rent needs to be paid no matter what. So here is the recommended process for those who are in a bind financially:

1. Start a conversation with your landlord.
   • There is common ground with both landlord and tenant because landlords want the location to be rented and they will likely not be able to find a new tenant in this market.
   • Be honest. Communicate where you are at with your cash flow both short and long term
2. Negotiate if possible and don’t be afraid to come up with creative solutions.
   • Can you agree on a deferral? Which is a postponement of the rent obligation and a more common solution. You will need to discuss:
     • • When the deferred rent will be paid?
         • Paid at the end of the lease?
         • Paid over time (add an amount each month)
         • 3 months after things pick up again? etc.
   • Could you offer some collateral to postpone rent?
     • You could sweeten the offer to the landlord by providing some “security” of tenant’s goods/leasehold assets or a guarantor.
   • Maybe your landlord will forgive the base rent but you could pay for their ongoing share of the operating costs.
   • Maybe they will offer you an abatement: reduction of the rental payment. You don’t know unless you talk to them. 
3. If you can’t come to an agreement and continuing the lease is not possible then aim to negotiate the surrender of the lease. 
4. Get all agreements in writing.
5. Continue the dialogue. Things are changing rapidly. Revisit on a monthly basis.

What option does a tenant have if the landlord doesn’t agree to deferral or abatement?

There will be a dispute resolution process. However, courts are only open for emergency type situations at this time so the landlord could not take you to court in the immediate future.

If they do take you to court your lawyer may attempt the following avenues both these are not easy to make happen

• Your lawyer will look for the – Act of God clause in your lease. Note that this is not a standard clause in a lease. 
• Doctrine of frustration – court would ask parties to relieve the contract. This is a last resort.

What could the landlord do if the tenant refuses to pay?

• Terminate your lease and take court action to collect the remainder of the lease and any damages. The resolution time for this route will be longer than normal due to the courts being closed. 
• They can take you to mediation – this would offer a quicker solution and can be conducted remotely

Note there is currently no protection for commercial tenants against eviction at this time.