Retail tenants hopeful over federal relief plan, but landlords reluctant to join

Bill Pratt hasn't paid some $70,000 in rent for his restaurants in Atlantic Canada since April after having to shutter operations due to the COVID-19 pandemic and experiencing a “critical” sales drop.

“There's no way I can make it,” said Pratt, the CEO of Chef Inspired Group of Restaurants and Food Trucks. “I can't pay 100% rent with no income.”

When the federal government announced a new measure aimed at reducing rent for small businesses by three quarters, it sparked hope of survival among restaurateurs like Pratt. However, without buy-in from landlords - some of whom have decided to take a wait-and-see approach due to what they say is a lack of clarity - the program will fail to provide relief to those who need it most.

The Canada Emergency Commercial Rent Assistance program will allow landlords to apply for government funds to cover half of rent payments for small businesses, up to $50,000 a month, with tenants paying 25%. Landlords would forfeit the remaining 25%.

Pratt deals with seven landlords across 10 locations for his 22 restaurants spread out across Nova Scotia, New Brunswick and Prince Edward Island.

He wrote to all of them to inform them he wouldn't be able to pay April's rent, but said most didn't respond. Once April 1 arrived, so did some default letters. Pratt told his landlords he wanted to work out an arrangement other than rent deferral as he can't afford to push the bills into the future.

As he started reopening some locations for takeaway and delivery, the government announced its rent relief measure. Pratt was hopeful he could use the money from the limited sales he's making to pay his share of rent on all his properties _ so long as his landlords agreed to apply.

“So far ... I'm six for six that don't want to do this,” he said.

Other landlords, including big real estate trusts like RioCan, have said they'd be open to considering the program.

“We believe it's incumbent upon us to actively consider participating,” said RioCan president Jonathan Gitlin on a conference call last week.

But RioCan and others in the industry say there's still too little detail to decide yet.

“It's too early to tell how cumbersome it's going to be,” said Michael Brooks, CEO of landlord industry group Realpac.

“No one can make a decision, they're frozen, until such time as we see all of the details, and we just don't have them.”

Some of the unknowns include how landlords will verify that tenant earnings are down, what happens if a tenant doesn't pay their share, and what happens if tenant revenues recover partway through the program. The application process has not yet opened, though it is expected this month according to the CECRA website.

Some landlords will likely also hold off on the program in the hope of recouping full rental fees, said Brooks.

“You're going to have some who foolishly, I think, will think that if they refuse to cut any slack for a tenant the tenant's just going to pay anyway and they'll still be there when the smoke clears. I don't think that's the case.”

Other landlords might choose instead to continue with the rent deferral programs they've already set up, said Brooks.

Raffaele Morana re-opened Bar Volo at a new Toronto location in October 2019, only to close down mid-March due to the pandemic. He's since re-opened as a retailer, selling alcohol and some food, such as spices and fish tins, in an effort to make some money.

He worked out an agreement with his landlord, whom he would not name because he doesn't want to damage their relationship, to pay rent twice a month as opposed to in one monthly sum, but won't qualify for CECRA in part because he re-opened for some sales.

In order for landlords to qualify, tenants must be closed temporarily or have experienced at least a 70% drop in revenue compared to the same time last year, according to The Canada Mortgage and Housing Corporation's website. The CMHC administers the program on behalf of the federal, provincial and territorial governments.

Since Morana's bar wasn't open between April and June 2019, he must compare his current revenues against an average of this past January and February _ two of the slowest months of the year, and a period that saw a two-week closure at Bar Volo for staff vacations.

He falls a few percent shy of the 70% revenue drop requirement.

“They have to change it,” he said, noting he's being penalized for staying open.

Even if the government changed the criteria, it's unclear if Morana's landlord would even apply, let alone qualify.

His landlord's “initial impressions” of the program are that the “eligibility rules are in need of explanation and clarification, and ... there are fundamental flaws that need to be overcome,” according to a letter shared on Bar Volo's Twitter account, dated May 5, that Morana says is from his landlord.

“Accordingly, the landlord is not, at this time, in a position to make a decision of whether or not they will opt into CECRA.”

Morana said he found the letter disappointing, though he is sympathetic to the fact that the program is creating confusion.

One of Pratt's landlords agreed to apply for the CECRA program if Pratt repaid him the 25% in rent that's meant to be forgiven, which amounts to a little over $560 monthly, throughout 2021.

“... I would like to defer this portion of the payments for one year, and have repayments commence January 1, 2021 and ending December 31, 2021,” reads an email from landlord Abe Salloum dated May 7 and provided by Pratt to The Canadian Press.

“This will provide you the opportunity to get the business up and running successfully and give you time to prepare the adjustment to your monthly rent payments.”

The email had a rent deferral contract attached, which Pratt refused to sign. He has also received a default notice for the location.

According to CMHC's website, Salloum's demand that the outstanding 25% of the rent be paid back is contrary to the rules of the program, which state that property owners are “to not seek to recover rent abatement amounts after the program is over.”

Salloum did not reply to requests for comment.

“I said it flies in the face of the prime minister and the premier, you know, the spirit of this program,” said Pratt.

Neither Pratt nor Morana know any restaurant owners whose landlord has agreed to apply for CECRA.

“I've talked to a lot of people. No one's heard anything from their (landlord),” said Morana.

“Well, they've heard from their landlords. They're not doing it.”

Eve Schwarz manages a few properties in Toronto that she and her father own, and has already cut rent for her struggling tenants. She hopes to be able to apply to a government program to ease the loss of income, but with no mortgage she's waiting on details for a promised second program since the main initiative requires one.

She said she doesn't understand landlords who aren't being flexible during these times, and that it's important to think about the longer-term health of local business.

“How is that going to benefit me to have empty space that I can't rent in the next two or three months, because things aren't going to normalize until late summer, early fall.”

She said that delays in rolling out the program, however, are already having an effect.

“Given the fact that so many small businesses haven't survived the first two months, there's going to be a lot of vacant storefronts, so I guess that would be the frustrating part, that it took so long.”