A recent Restaurants Canada survey found three out of four restaurant operators identified rent as a top source of debt and half of independent restaurants said they might not survive the next three months, reinforcing an urgent need for relief during the COVID-19 crisis.
In response, on April 24, Prime Minister Justin Trudeau announced the Federal Government had reached an agreement in principle, with all provinces and territories, to implement the Canada Emergency Commercial Rent Assistance (CECRA) for small businesses. The program, designed as a rent-relief measure to support small businesses struggling to pay their bills as a result of COVID-19 shutdowns, will lower rent by 75 per cent.
CECRA will provide forgivable loans to qualifying commercial-property owners to cover 50 per cent of three monthly rent payments that are payable by eligible small-business tenants experiencing financial hardship during April, May and June.
The loans will be forgiven if the mortgaged property owner agrees to reduce the eligible small-business tenants’ rent by at least 75 per cent for the three corresponding months under a rent-forgiveness agreement, which will include a term not to evict the tenant while the agreement is in place. The small-business tenant would cover the remainder — up to 25 per cent of the rent.
To qualify for CECRA, impacted small-business tenants must be paying less than $50,000 per month in rent and have temporarily ceased operations or have experienced at least a 70-per-cent drop in pre-COVID-19 revenues. This support will also be available to non-profit and charitable organizations.
However, the Canadian Federation of Independent Businesses (CFIB) says, while it appreciates the enormous challenge in designing support programs and getting them out quickly, there are some concerns about the program — including that the program may be too complicated and too reliant on landlords to administer.
“In particular, as landlords don’t have to participate and will be expected to accept some losses under the program, they may choose to ignore it, even if their tenants badly need it,” reads a CFIB statement on Twitter. “Another concern is that the all-or-nothing threshold of a 70-per-cent revenue reduction will leave many hard-hit businesses without the relief they need.”
Many restaurant operators are also unhappy with the program, agreeing it does nothing to help their struggling businesses.
“The rent-relief program provided absolutely no relief whatsoever for any of our properties,” says Nick Di Donato, president & CEO of Toronto-based Liberty Entertainment Group. “The criteria outlined made the program inaccessible and required the landlord to submit the application — not the tenant.”
Di Donato says landlords have little incentive to apply. “The program should have been administered similar to the way in which the U.S. made its relief programs available — by providing business loans based on payrolls of businesses and making those loans partially forgivable based on the amount allocated to payroll and rent in the first two months of receiving the loan from the government. These loans were applied for by the tenant, to allow the opportunity for the tenant to best determine how to keep their business open.”
For Paul Marshall, owner/operator of Love Chix Inc., it’s been a mixed bag. “[CECRA] does help the businesses that have stayed open and have actually been somewhat successful during this time,” he says. “I have three locations, all in very different circumstances, so this affects me in multiple degrees. The one constant between all three of my places is it’s completely in the landlord’s hands. I have landlords that are single ownerships and landlords like Oxford, so it really comes down to what they want to do.”
Marshall says he’s had success with some of his landlords and the opposite with others. “The CECRA program does give some short-term relief, but the problem still remains that, if you’re completely closed, it doesn’t really matter what relief you get, because there’s no income happening.”
Di Donato also feels the rent cap for the program isn’t treating tenants equitably. “It’s capped at $50,000 gross rent, which significantly impacts tenants in high-rent areas where taxes and per-square-foot rents are high. A tenant in the downtown Toronto core, therefore, is being significantly penalized. In this current program, where one has identical operations, the operation in the suburbs or other parts of the country has access to rent relief, whereas the exact same operation in the downtown core (or a high-rent location) may not be eligible.”
Lastly, says Di Donato, limiting the program to the three months when tenants were closed is short-sighted and doesn’t consider the subsequent months when operators will not be back to business as usual and will likely still be unable to cover rent.
Marshall agrees the three months allocated for relief just may not be enough time for the hospitality industry to figure out how to re-open. “With the physical-distancing and slow re-opening of our economy, the restaurant industry will need more than three months of help — it will take much longer than that for us to rebound. With margins already super thin in our industry, there is zero chance of restaurants surviving with 25-per-cent or even 50-per-cent capacity. Restaurants need to be at almost full capacity, consistently, to pay for all the overheads we operate with and I’m going to assume, if landlords see that businesses are operational, they’ll be seeking their full rents.”
Overall, Marshall feels CECRA will help, but “it’s a small Band-Aid for something that needs major surgery. We’re all affected differently and I wonder how long some of the businesses that have major rents will be able to last. This is an unprecedented time in our industry and will definitely give us a re-set. Some — myself included — think we needed a re-set for our industry and COVID-19 will definitely give us that.”
Unfortunately, he adds, that reset will take out a lot of businesses and landlords that have worked hard to get where they are. “The CECRA program has been put in place to help in the short term, but the hospitality industry needs to come together and figure out a long-term solution.”
