Commercial Eviction Ban During Covid-19

One area in which I have noticed a lot of confusion is the rules around commercial tenancy law. Even before Covid-19, many landlords and tenants were not fully aware of their rights and responsibilities. With the introduction of the Canadian Emergency Commercial Rent Assistance (CECRA) and the ban on commercial evictions, the confusion has been multiplied. This emergency legislation has drastically changed the relationship between commercial landlords and tenants. All parties involved must be careful to avoid significant financial and legal consequences from this legislation and its eventual expiry.

What is CECRA?

CECRA is a commercial rent subsidy for small businesses that have seen a 70% reduction in revenue from 2019 (or January and February of 2020 for newer businesses). Under this program, landlords and tenants must enter into a legally binding rent reduction agreement for the period of April, May and June 2020 that reduces the business’s rent by at least 75%. This agreement must include a moratorium on eviction during the subsidy period. If the property qualifies, the landlord will be provided with a loan from the government covering 50% of the rent that will be forgiven at the end of the year. 25% of the rent will be covered by the tenant and the landlord will forgo the right to collect the final 25% of the rent.

One of the most important conditions to note is that small business owners cannot apply directly for this program. Landlords must apply on behalf of their tenants. Many landlords have refused to apply for a variety of reasons. One reason landlords are refusing to apply is that the Canadian Mortgage Housing Corporation has the right to recover the full amount of the loan in the event of default. Therefore, if the landlord receives money for a property or tenant that is ineligible, they will be responsible for repayment despite having made enforceable agreements not to recover this cost from tenants. Many landlords do not want to take this substantial risk.

What is the commercial evictions ban?

In June, 2020, the Ontario government passed An Act to Amend the Commercial Tenancies Act. This act was passed by the Ford government in response to the refusal of many landlords to sign up for the CERCA. The bill bans commercial evictions of any business that qualifies for CERCA from May, 2020 until September, 2020. The act prevents landlords from locking out their tenants, stops the courts from granting writs of possession and requires landlords to return units to tenants who were previously evicted or pay damages. This bill was designed to put pressure on landlords to sign up for CERCA.

The act crucially does not force any rent reduction. Landlords are free to continue to charge rents according to their agreements. Landlords also have the right to apply for a court order demanding payment of rent arrears. Therefore, barring any further legislation, commercial tenants whose landlords have not applied to CERCA are still responsible for all arrears.

What should landlords and tenants do in response to these emergency measures?

The path forward for landlords and tenants is not clear. All parties should consider their finances, the law and potential further legislative changes before deciding to act. There is no guarantee when the emergency measures will be over or if there will be further extensions of CERCA and the eviction ban.

Landlords should balance the risks associated with applying for or refusing CERCA. Landlords may need the immediate cashflow offered by CERCA to recover rent arrears that may never be repaid. Moreover, landlords cannot use this time to evict tenants and renovate their units to prepare for the eventual reopening. Therefore, landlords should consider negotiating rent deferrals or forgiveness with their tenants even if they refuse to apply for CERCA.

Despite the commercial evictions ban, tenants are still largely at the mercy of their landlords. As tenants are still responsible for rent, they should try to negotiate deferrals or partial rent forgiveness. Tenants should also consider the impact refusing to pay rent may have on their future relationship with their landlord and their credit. The emergency measures will not last forever and tenants who are interested in preserving their long-term relationship with their landlords should not take advantage of the evictions ban. Moreover, eviction, while difficult for tenants, gives the landlord an opportunity to mitigate damages and helps reduce the amount of money recoverable from a delinquent tenant. If a tenant is able to continue to occupy their commercial unit, the landlord has fewer options to mitigate damages. This may ultimately hurt the tenant as they are responsible for a larger debt for their business.

Whether you are a landlord or a small business, we are here to help you. Call us at (647)-494-9599 or email us at info@law365.ca to learn more about Ontario’s emergency measures and how we can help your business during covid-19