Rent Relief Is ‘Make or Break’ for Small-Business Survival

When the COVID-19 lockdown began in mid-March, Laura Jones of the Canadian Federation of Independent Business expected April to be “scary for small business to pay rent” as the shutdown threatened to shatter sales for stores across the country.

A CFIB survey of 9,678 of its 110,000 members found that by March 30 the average pandemic cost to the businesses was $160,000. It also found 46 per cent were partially shut down; 31 per cent fully closed; 21 per cent remained open; and 32 per cent were unsure whether they would reopen.

“I described making May rent as a nightmare on Main Street, and I honestly feel like I’m out of words for June,” said Jones, executive vice-president of the small business advocacy group.

Another CFIB survey, conducted over the Victoria Day long weekend, found that 55 per cent of member respondents (80 per cent in the arts and recreation sector) believed that rent relief would make the difference between their business surviving the pandemic or their having to shut down.

Half said they would not be able to pay their June rent without further assistance, a finding that swelled to 70 per cent for those in the hospitality sector.

The CFIB has called on the federal government to expand the Canada Emergency Commercial Rent Assistance program, a joint initiative with the provinces and territories that’s run by the Canada Mortgage and Housing Corp.

Under the current rules, if a landlord applies for the CECRA, they receive half of the monthly gross rent owed by tenants from April to June. The landlord then is expected to cover 25 per cent of the remaining rent themselves, with tenants on the hook for the other remaining 25 per cent.

If landlords do not apply for CECRA, the CFIB would like Ottawa to allow tenants to be able to do so. If so, tenants would be responsible for half of the rent, with the other half coming from the CMHC-run government program.

The federal NDP backs the idea of allowing commercial tenants into CECRA or creating a separate rent-relief program for them.

In a May 25 letter to Finance Minister Bill Morneau and Small Business Minister Mary Ng, NDP finance critic Peter Julian and Gord Johns, the party’s critic for small business, cited “many complaints from small business owners” about the disinterest expressed by their landlords or property management companies in the program.

A May 14 survey of more than 2,200 Canadian business owners by the grassroots coalition Save Small Business found that while 85 per cent of them had discussed CECRA with their landlords, only 15 per cent felt their landlords would apply to the program. Sixty-seven per cent of respondents said that rent relief was the most important factor to keep their businesses alive.

Save Small Business co-founder Jon Shell, managing director of Toronto-based Social Capital Partners, said landlords should be required to sign up for CECRA.

“The problem with the NDP approach and the CFIB approach is that it’s kind of giving up — landlords don’t have to contribute anything,” he said.

In their letter, MPs Julian and Johns wrote “Commercial tenants who close their doors due to the advice of [a] public health authority should not be penalized by absorbing up to 100 per cent of the rent because their landlord refuses to apply for CECRA.”

“If the federal government realized, while drafting the CECRA policy, that so many landlords might be unwilling to participate, alternative mechanisms would have been in place to allow tenants to apply on their own and far more commercial tenants would be benefiting from the program,” they said.

Johns said in an interview that either tenants “will walk away” or landlords “will lock the doors” if small businesses aren’t given more government assistance to cover their commercial rent.

The Tyee sought comment from both Morneau, whose office did not respond to an interview request, and Ng, who was unavailable.

However her press secretary, Ryan Nearing, said in a statement that “while the tenant-landlord relationship is ultimately the responsibility of the provinces and territories, we have stepped up to partner with them with the tools that we have, such as the Canada Mortgage and Housing Corp., so that small businesses can get the rent relief that they need.”

“We’re strongly encouraging property owners apply for our rent assistance program to support small businesses experiencing severe hardship. This is not just about doing the right thing — it also makes financial sense for the landlord. If their tenant declares bankruptcy and is evicted, they’d lose that steady stream of income, and face additional costs as they search for new tenants.”

Nearing’s statement said the provinces can also do more. “We have also already seen provinces stepping up with complementary measures to this program, such as commercial tenant evictions freezes — and we encourage all provinces to explore all options available.”

British Columbia joined Nova Scotia and New Brunswick, whose freeze just expired, in instituting a pause on commercial evictions. The Quebec government plans to introduce legislation to temporarily ban commercial evictions.

“Preventing landlords who are eligible for CECRA from evicting tenants can encourage landlords to apply for the program and give some temporary relief to businesses who have been hardest hit by the pandemic,” B.C. Finance Minister Carole James announced on Monday.

“Eligible businesses whose landlords choose not to apply for the federal CECRA program will be protected from evictions due to unpaid rent payments through to the end of June 2020,” said the B.C. government news release.

In their letter to Morneau and Ng, Julian and Johns, who represent B.C. ridings, also called on the federal government to negotiate with the provinces and territories to create a “nationwide moratorium on evictions so that commercial landlords have to come to the table in negotiations with their tenants.”

The Australian model

Save Small Business’s Shell, a former small business owner, said that Canada should look to Australia, which has imposed a national freeze on evictions.

Late last month, the Australian government announced a countrywide six-month hold on commercial evictions and established a “mandatory code of conduct” for landlords and their small- and medium-sized enterprise tenants that features several principles, including one of “proportionality.”

One example offered is that if a small business tenant’s revenue dropped by 100 per cent, at least 50 per cent of rent is waived, while the rest is deferred.

Where there’s a dispute, binding mediation is available but “must not” be used to “prolong or frustrate the facilitation of amicable resolution outcomes.”

Shell said that Australian banks are also on board, offering mortgage payment deferrals to landlords on the condition they not evict their tenants.

“If there’s a moratorium on evictions in Canada, it will force more landlords to consider CECRA more closely because they won’t have the threat of eviction to extract 100 per cent of rent from their tenants in the form of deferral agreements, or by the tenants getting a loan they may never be able to pay back,” he explained.

“You have to level the playing field.”

‘Things don’t just bounce back’

Johns said the federal government can help prevent commercial evictions in Canada.

“The government’s doling out billions of dollars to the provinces and has a pretty big stick to negotiate with them to impose a national moratorium on evictions,” he said, noting that three-quarters of the 50-per-cent government funding in CECRA comes from Ottawa.

“They’re supposed to be designing programs to help people that are falling through the cracks. Instead, they’re creating these complicated programs full of barriers that don’t allow the people that need the help the most to access them.”

The issue is personal for Johns, who owned a small chain of natural clothing stores in B.C. before entering federal politics in 2015.

His cousin, Nicole Salthouse, 43, and her husband, James Salthouse, 45, own and run Mango’s Boutique, a menswear store on Johnson Street, home to a string of local high-end shops in downtown Victoria.

Due to provincial government-imposed COVID-19 business closures, Mango’s was shuttered on March 18 and reopened on May 19, one of a few businesses on their block to do so.

“Things don’t just bounce back — everybody shops cautiously,” said Nicole.

And minimally, as it has turned out. In the 1,500-square-foot store that sells items and accessories that can outfit a man from head to toe, “most people are only buying $15 face masks,” said James.

Johnson Street “is the most expensive street on the Island, and we do need help with rent,” he said, which in the Salthouses’ case is nearly $7,000 a month.

James said his landlord, whom he’s never met over the decade Mango’s has been in business at its current location but who lives not far from the shop, has — to the couple’s relief — applied for CECRA.

“My heart is so happy,” said Nicole, who got the news on Tuesday, which happened to also be her birthday.

‘Administrative nightmare’

Commercial rent-relief is “make or break for small businesses,” said Jones, whose organization also supports a moratorium on evictions and has called on the federal government to broaden the forgivable portion of the Canada Emergency Business Account from $10,000 to between $20,000 and $30,000 of the maximum $40,000 loan.

She explained that the “bumps” following the rollout of CEBA in late March have been relatively minor compared to the “administrative nightmare” surrounding CECRA, which was launched last week.

The CFIB’s Jones, an economist based in Vancouver, believes the quickest and most efficient way of helping tenants cover their rent payments would be to increase the amount of money available to them through CEBA.

“Even businesses that stayed open are reporting huge revenue losses,” said Jones, who said that only about 40 per cent of CFIB-member small businesses have reported reopening across the country.

“It’s one thing to be open; it’s another thing to be making sales anywhere close to where you were pre-pandemic.”

She added: “There are two big bills that businesses pay: wages and rent. The wage piece got sorted out relatively quickly.

“On the rent piece, provinces have been slow with eviction protection, and the federal government got fixated on this idea that landlords have to take a hit. If you gave relief to the tenants, whose revenues are down, they could negotiate directly with their landlords.”

An April CFIB survey found that 36 per cent of small businesses didn’t qualify for relief under CECRA because they didn’t meet the 70-per-cent revenue-loss criteria required before their landlords could apply.

Forty per cent of small businesses that qualified for CECRA were unsure if their landlords would participate in the program.

The federal Conservatives have proposed providing a sliding scale for businesses with less than a 70-per-cent loss “so that those experiencing significant revenue decline get some relief” under CECRA, James Cumming, the official Opposition’s critic for small business, said in a statement.

He also called on the federal government to make the program “more flexible and allow landlords to negotiate the unsubsidized half of the rent with their tenants.”

On Monday, Green party MP Paul Manly raised the rent issue during the meeting of the Commons Special Committee on the COVID-19 Pandemic.

He said that CECRA is “not helping enough small businesses,” many of which don’t meet the 70-per-cent income-loss threshold under the current structure and would apply, without landlord participation, if the program were broadened to include commercial tenants.

“Many did their best to keep employees engaged and tried hard to not lose clients, as the government urged them to do [and] are, in fact, being penalized for that effort,” said Manly, who represents the B.C. riding of Nanaimo-Ladysmith.

“Will the government push the provinces to include an eviction moratorium during the pandemic and make this commercial rent assistance program more flexible to ensure small businesses can survive?”

In his reply Morneau said that “we are seeing a significant number of landlords and tenants coming forward with this and taking this up,” and that he “would encourage landlords to use this program, which is supporting them.”

But the finance minister echoed Ng’s position that commercial rent is “an area of provincial jurisdiction,” though he said he’d discussed the idea of “restricting evictions” with his provincial counterparts over the “last couple of months.”

Jones said small business owners are sharing their struggles with some CECRA requirements in weekly webinars the CFIB has been running. “What about July, what about August? If my business is down, will the program be extended?” she offered as one of the questions posed.

“What if my revenues were down 70 per cent in April and May, but don’t know about June yet? What do I do?”

According to CMHC, there are “two scenarios by which to calculate” a 70-per-cent reduction in revenues: “Small businesses can compare gross revenues in April, May and June of 2020 to that of the same period in 2019 to measure revenue losses. If the small business was not open during April to June 2019, they can compare their average gross revenues for April, May and June to the average of their gross revenues earned in January and February of 2020.”

Compounding confusion is that the program is so far an “administrative nightmare,” said Jones.

“We’re hearing one horror story after another about long wait times on the phone,” she explained. “One business owner waited for four hours to get answers to questions.”

According to CMHC’s online CECRA portal, “while thousands have already registered, we know many are still having technical issues and are frustrated with the call wait times, which can range between 2 and 3 hours.”

In an email to The Tyee, CMHC spokesman Len Catling said as small business has only been able to apply for CECRA since May 25, “it’s early yet for us to report on the program’s exact take up.”

The Globe and Mail reported Tuesday that landlords for 16,000 out of nearly 1.2 million small-business tenants across Canada have applied for CECRA, according to uptake numbers provided by Finance Canada.

Jones said hurdles are a serious problem. “The capacity of business owners to deal with administrative hassles and red tape is the last thing they need. One business owner told me the application process took 16 hours.”

“It’s easy to make landlords the cartoon villains — and there are some out there who fit that profile. But there are many others who have legitimate concerns with the program and many in our membership have extended relief to their tenants.”

Meanwhile, time is running out for small businesses hoping to survive during the pandemic.

“We’re hearing a lot of businesses are pulling from their retirement savings and using their credit cards to pay for rent,” said Jones. “The question they’re facing is whether they keep paying this big bill where they may or may not have a sustainable business model or make the tough decision to declare bankruptcy or wind down their business. That is why it’s make or break — and the stories we’re hearing are heartbreaking.”

The CFIB asked its members last week to use one word to describe how they’re feeling.

“Stress” or “stressed,” in both official languages, were the top choices, followed by “anxious,” “fear” and “scared.”