Protection for tenants/borrowers

July 21, 2020 | Jessica Penley, Steven Chaimberg, Kenneth R. Rosenstein

The Ontario government enacted the Protecting Small Business Act, 2020 (the “PSBA”), effective June 18, 2020, which amended Ontario’s Commercial Tenancies Act (“CTA”) and created greater incentive for commercial landlords to participate in the Canada Emergency Commercial Rent Assistance (“CECRA”) for small business program which grants a measure of rent relief for certain tenants.

The PSBA applies not only to landlords who in fact qualify for CECRA, but also landlords who would qualify for CECRA if they entered into one or more rent reduction agreements with their small business tenants.

At a high level, the PSBA provides as follows:

  • It amends the CTA to restrict certain landlord enforcement rights vis-à-vis small business tenants (as defined by CECRA) during a “non-enforcement period” of June 18, 2020 through September 1, 2020 (subject to earlier repeal)
  • The restrictions affect eviction rights, rights of re-entry and distraint rights, generally preventing landlords from exercising these rights subject only to narrow exceptions, and in some cases with retroactive effect to May 1, 2020
  • These narrow exceptions are not available to landlords who are not availing themselves of a loan under CECRA
  • Landlords who had previously exercised the now-restricted enforcement rights have unwinding obligations, being required now to restore seized premises and goods to affected tenants
  • Landlords who fail to comply with the prohibitions are liable for damages suffered by affected tenants or any other aggrieved person suffering damages as a result of non-compliance

In situations where landlords do participate in CECRA, landlords and their lenders should consider the effect of the CECRA loan terms on existing loan arrangements.  CMHC, as an administrator of CECRA loans, has the right to assign the loan to CRA or exercise recourses available to it through CRA. Query what enforcement rights CRA may have if the CECRA loan goes into default.

Considerations

  • Lenders of commercial landlord borrowers need to be aware of how the CECRA loans affect their loans and the ability of their landlord borrowers to enforce their rights against their tenants
  • However, lenders should also be aware of how this affects their tenant borrowers and the protection this affords to them
  • If a default scenario arises, the default and enforcement provisions of the existing loan agreement and related security will need to be considered together with those provisions of the CECRA loan agreement as well as the PSBA

If you would like more information, please feel free to contact any member of the Miller Thomson Financial Services or Real Estate Groups.

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