Commercial landlords want to help small businesses, risk bankrupting themselves: association
Property owners can apply for Canada emergency commercial rent assistance starting May 25
As Canadian small businesses struggle to stay afloat during the COVID-19 pandemic, their landlords say they're suffering too.
"Commercial landlords are facing a very hard, rough ride, just like the businesses they rent to," said Avrom Charach, spokesperson for the Professional Property Managers Association of Manitoba.
"The landlords have bills to pay as well."
More details are expected in coming days about a new federal program aimed at financially helping landlords who rent to businesses experiencing severe profit losses.
Landlords will be able to apply for the Canada emergency commercial rent assistance, or CECRA, program starting May 25, the federal government announced Wednesday. It's still not clear, though, how soon money could begin flowing.
The program offers forgivable loans toward a portion of rent payments in April, May, and June.
Charach, who is vice-president of Kay Four Properties, which owns several commercial properties in Winnipeg, said most landlords want to help their tenants stay afloat, but risk bankrupting themselves in the process.
"The question becomes how much money can you lose and still be in business? Or would you rather take the chance that if this tenant vacates, you'll find another tenant who could afford to pay the rent?" he said.
Margins for commercial landlords are usually five to 10 per cent in the best of times, he said, so offering their tenants relief could leave them losing money. Many landlords have mortgages to pay, along with other overhead costs like utilities, cleaning and security.
Charach, whose company represents residential property owners, said many commercial landlords he's spoken to have already been cutting small businesses a break on rent — but that might not be sustainable.
"Having some part of the rent, but not enough to cover your bills, could almost be worse than having an empty space."
Plus, landlords still don't know how long closures will continue, and how the businesses they rent to will continue to be impacted by restrictions, even if they can reopen.
Some businesses 'on the cusp'
Charach said landlords run the risk of giving their tenants a break, only to have their tenant's business fold in a few months.
"There are some businesses out there that were on the cusp — they were close to closing down anyway, and it's going to be impossible for them to recover after COVID," he said.
CECRA does give commercial property owners a guaranteed payment of 50 per cent of their tenant's rent, wrote Audrey-Anne Coulombe, a spokesperson for the Canada Mortgage and Housing Corporation, which is administering the program.
It's still being worked out whether landlords will have a way to recoup money if they agree to forgive or defer rent payments through the program, and their tenant fails and has to close permanently, she said.
"We are working as fast as we can to ensure that small businesses have the support they need during these difficult times," Coulombe wrote.
Once it's available, the program can be applied retroactively, and landlords can apply until the end of August.
Small businesses need to have lost 70% revenue
CECRA offers forgivable loans to commercial property owners to lower the rent their tenants owe. The federal government gives the landlord a forgivable loan to pay 50 per cent of their tenants' April, May and June rent.
The landlord would have to cover at least 25 per cent, and tenant not more than 25 per cent.
The program is targeted at small business tenants that pay less than $50,000 per month in rent and don't make more than $20 million in gross annual revenue.
The business also has to have experienced at least a 70 per cent drop in revenue, a requirement Charach said penalizes the businesses who have still seen a massive profit loss, but have been working hard to bring in some money.
There's another thing that might pose a problem with the program: the onus falls on the landlord to apply for the program.
A recent survey from the Canadian Federation of Independent Businesses found most business owners don't think their landlord will move forward with the program.
"Some commercial tenants are afraid to call, afraid to admit they're having a problem, or afraid that if they do call, it will be worse for them," Charach said.
"The commercial tenants who've called us … the first thing we said to them is, 'How can we help you?' We couldn't necessarily help all of them the way they want, but we're trying," he said.
- An earlier version of this story said Avrom Charach owns several commercial properties in Winnipeg. In fact, he is the vice-president of Kay Four Properties, which owns several commercial properties in Winnipeg.May 20, 2020 1:15 PM CT