Commercial leases during the COVID-19 pandemic
April 27, 2020 By: Craig O'Brien Read Time: 3 minutes
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These last weeks have been tough for Ottawa’s businesses.

The coming weeks hold limited promise of improvement. My February 1st edition of The Economist carried the headline “How Bad Will It Get?”. They’re now at “The Business of Survival”. Watching, in real time, businesses that were thriving in January being severely wounded in March, some with life expectancy expiring in May or June, is horrifying. They need a lifeline.   

The stability of commercial leases, normally a dry subject, is becoming one of the issues that will decide how quickly our economy is able to recover from the pandemic.  

One of the most rewarding things of being a commercial litigation lawyer happens after the litigation is over. Having helped the client to either advance its claim, or limit the damage when defending a claim, I get to watch the business thrive. I’ve gotten to know the owners, why they started their business, and what drives them to succeed. I’ve learned about the family and loved ones that also depend on the business’s success. I love watching my clients thrive and I live vicariously through the ups and downs of their businesses. 

The stability of commercial leases, normally a dry subject, is becoming one of the issues that will decide how quickly our economy is able to recover from the pandemic.

We are living through a time where the State is actively promoting (for temporarily good reason) online shopping conglomerates while forcing our local retailers and restaurants to close. We’ve seen the government step in with huge support programs targeting employees, and providing businesses with emergency loan assistance, but thus far limited direct assistance to small businesses for what I consider to be the single most important support for the continued viability of local small businesses – commercial lease supports. 

Commercial lease supports are a particularly thorny economic problem for the State to address. Unlike the residential market, many commercial property owners are themselves leveraged, having borrowed from non-traditional lenders.  

Many landlords are small businesses themselves that depend on the small surplus generated from multiple commercial properties for their livelihood. Most such landlords are themselves leveraged with non-traditional mortgages, and the potential simultaneous loss of in rental income from a bunch of their properties could cause a domino effect for them that would put them – irretrievably – in arrears on multiple mortgages.  

For a small or medium sized business that is currently not operating, or operating at a vastly reduced capacity, the revenue side of the ledger is missing, but even with employee supports or without employees, the expense side is stubborn. 

On Thursday, April 16, 2020, Prime Minister Trudeau announced the Canada Emergency Commercial Rent Assistance (“CECRA”) program, which is intended to assist small businesses with rent for April, May and June by providing loans (some forgivable) to commercial property owners. Those owner/landlords are meant to use that support to lower or waive rent of small businesses retroactive to April. Details are limited, and it remains unclear how Ontario, which actually has jurisdiction over commerce in our province, will cooperate, augment, or otherwise address these pressing issues.  

Nelligan Law has, and does, represent both small commercial landlords and tenant businesses.  

Both are hurting right now. 

Landlords loathe the idea of evicting commercial tenants who but for our current health crisis had been paying rent and doing good business. It’s not like there are other tenants lining up to lease right now… 

Tenants don’t know when (or for some frankly whether) they’ll be able to reopen. Taking government loans only to pay rent for a non-operating business is not super palatable. The idea of having to set up a new shop while facing a lawsuit from your former landlord doesn’t sound like fun either… 

We can help. Lawyers normally pitch themselves as having been there, done that, and being able to recommend a course of action based on the law and their prior experience. If you can find one who lived through the Spanish Influenza, please contact me with her number. 

Otherwise, this is a mess only cleaned up by communication and compromise.  

Tenants need to expect to pay at least a portion of their rent. Landlords need to expect to accept less than their full rent. Otherwise the tenant can expect to pay moving costs and potentially face a lawsuit, and landlords can expect a potentially long period with a vacant property followed by a rent-free grace period while a new tenant to sets up shop.  

We can help because we know what the government is currently offering as assistance, for landlords we know what concessions lenders are willing to make on top of government help, and we can help tenants seeking reasonable concessions. We know this is all very stressful, and having someone who can recommend a course of action and negotiate for you without emotion really can be the difference between devising a deal that gets both landlord and tenant through this mess, and having the consequences of 2020 haunt you for years.  

We’ve made our business making your business thrive. While we can’t live up to our normal expectations right now, our current business is making your business survive. We’re here to help.  

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2020 Nelligan O’Brien Payne LLP.

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