After more than a month of closures due to COVID-19, small business owners and commercial landlords got welcome news from Prime Minister Justin Trudeau on Friday.
Trudeau announced Ottawa had come to an agreement with the provinces and territories on a national commercial rent subsidy plan.
For hairstylist Olivia Braido, owner of Lavish Salon in Sault Ste. Marie, Ont., hearing that was “just a huge, huge relief.”
“For me and a lot of young business owners locally, it’s going to be the thing that makes us, not breaks us.”
The update on the Canada emergency commercial rent assistance (CECRA) program was also welcomed by landlords and small business advocates.
“I think a lot of businesses will actually be saved by this,” said Jon Shell, co-founder of advocacy group Save Small Business. “It’s the first real action on fixed costs.”
As with other economic measures the government has announced, some people expressed concerns with the program.
The main issues being raised are that tenants who need rent relief can only get help if their landlords join the program, that there’s not a national ban on commercial evictions, that too many businesses will be excluded and that the program should last longer.
WATCH | Trudeau questioned about commercial rent relief:
Details on delivering CECRA were finalized just a week after the federal government first announced its intention to provide rent relief for small businesses.
Save Small Business, the Canadian Federation of Independent Business, Restaurants Canada and others have lobbied for rent relief since March.
How CECRA works
To be eligible for CECRA, a small business must have had revenue decline at least 70 per cent from pre-COVID-19 levels or have been forced to close by pandemic restrictions.
Under these conditions, landlords can be approved for rent relief, if they agree not to evict the tenants and cut their rent by 75 per cent for April, May and June.
Then landlords will receive half of the tenant’s rent from the government, paid directly to their mortgage lender.
The tenant is supposed to pay 25 per cent of their rent, though some may succeed in making other arrangements with landlords.
CECRA can be used for commercial rents up to $50,000 a month; non-profit and charitable organizations are also eligible for assistance.
Cost wise, 75 per cent of CECRA’s budget will come from Ottawa, while the provinces and territories make up the balance unless otherwise negotiated.
Rave reviews on some counts
For many small businesses, a 75 per cent break on rent will be a lifeline.
Braido wasn’t sure she’d still have a salon after the first wave of the pandemic had passed. Now she has hope.
“I’m incredibly grateful that it’s going through and we have a landlord who’s on board,” she said.
That landlord is Betty Rushon. For Rushon, CECRA means instead of losing all three commercial tenants in her small town Victorian-style building, she’s only losing one.
“I was expecting the worst. And it all turned out really, really well.”
Many small businesses have been smothered by a heavy blanket of closures due to COVID-19.
A recent survey by industry association Restaurants Canada found that unless conditions improve soon, half of independent restaurants don’t expect to survive.
In that sector, Ottawa’s rent relief program “could be a game changer for the next three months,” said the group’s vice-president, David Lefebvre.
Advocate Shell believes that rent relief will succeed where he sees the federal government’s $40,000 interest free CEBA loan program as failing.
He sees CECRA as exactly what “main street businesses” need. “Think of the ones that had to close, so gyms, daycares, barbershops, tattoo parlours,” he said.
He also believes landlords will buy in.
“They’re not even losing a month’s rent in this deal. They’re only responsible for one quarter of rent for three months in a row, which, given what everyone else is facing that’s a very fair deal.”
Problems with the program
Some issues with CECRA are already apparent for those assessing the program.
One big concern is that tenants can’t apply for rent relief on their own, because the program requires landlords to participate.
Survey results from CFIB members indicate that in the pandemic 54 per cent of small business owners trust their landlord to be reasonable, while 33 per cent do not.
Another issue is the fact that a moratorium on commercial evictions is not part of the CECRA.
A statement from the Prime Minister’s Office on CECRA urged property owners “to provide flexibility to tenants facing hardship in this uncertain time.”
Advocacy groups began calling for a halt to commercial evictions and property seizures in early March.
Shell said, “in the U.K., it was March 24 when they had a national commercial evictions moratorium. In Australia, March 29. And there shouldn’t be any more excuses for us not providing the same protections for our small businesses here.”
So far, however, only New Brunswick has banned commercial evictions under its state of emergency.
According to advocates, the requirement to show a 70 per cent loss of revenue is also a concern.
Shell’s group has launched a website tracking permanent business closures across the country. He points out many small businesses have tiny margins which means smaller drops in sales can still be crippling.
So Save Small Business, CFIB and others are suggesting that the rent relief program include businesses with up to 30 per cent losses in revenue.
A longer road to reopening
Looking at the big picture, small business operators say a plan for rent relief will have to be extended as businesses gradually resume operations.
Matt Fraser co-owns Airhouse, a B.C. chain of sports facilities geared towards freestyle sports, such as trampoline, gymnastics, parkour and skateboarding.
He knows his business will be among the last that can reopen, and expects cash strapped customers will return slowly.
Though the company made $2.5 million in revenue last year, Fraser said margins are razor thin because of labour, insurance and rent costs.
Fraser said the Airhouse can’t afford to open unless it can operate at 70 to 80 per cent capacity.
He estimates that traffic is months away and doesn’t believe it’s a good idea to pay 25 per cent of his rent in the meantime.
“We’re already tight on cash. And I don’t think even we’d be able to survive that.”
He wants the government to cover 75 per cent of rent for small businesses, with landlords paying the rest.
Fraser hopes his landlords accept what the government has on offer, and he won’t pay anything until he can do so without taking a loss.
For him, the math is simple.
“They know there’s no other tenant taking our spot, and a bird in the hand is better than two in the bush.”