Ottawa

The long wait for rent relief, and what went wrong with Ottawa's business rescue plan

The rent program, which has been weeks in the making, has faced much criticism, confusion, and exposed the perils of pandemic policy making

Two weeks after Prime Minister Justin Trudeau unveiled a rent relief program designed to bail out small businesses across Canada, there was still no application portal and several provinces offered slightly different stories about the status of the agreement they’d hammered out with Ottawa.

Trudeau’s announcement came on April 24. By May 8, a source in P.E.I.’s government with knowledge of the negotiations told Maclean’s the province was waiting on the feds for a final agreement to take to cabinet in Charlottetown. A spokesman for Alberta economic development minister Tanya Fir said he couldn’t comment because “negotiations were ongoing.” A New Brunswick official said details were “still being finalized.” Meanwhile, a senior government source on the Ontario side said on May 9 they expected the program, which had already received cabinet approval at Queen’s Park, to launch within the week.

The lack of unanimity on when exactly the program would roll out spoke to the speed with which the Canada Emergency Commercial Rent Assistance initiative was hatched and developed by Finance Minister Bill Morneau and his Department of Finance in Ottawa—a process that involved an unusual amount of deference from the provinces, since the program encroaches on provincial jurisdiction, and policy tinkering in real time. All the while, commercial tenants were appealing to their landlords for mercy, and in some cases closing for good before they could get their hands on any relief.

By mid-May, a senior Finance official told Maclean’s, the Canada Mortgage and Housing Corporation (CMHC), which will administer the program, would swing open the doors to landlords willing to take a deal: landlords will cover 25 per cent of their tenants’ rent if they agree the tenant would pay the same share—and two levels of government will split the remainder. (A few days after that conversation, the feds shifted the launch date to “late May.” On May 20, Prime Minister Justin Trudeau announced applications would open on the CMHC website on May 25.)

It is a program that initially appeared to make more enemies than friends as it came together. Some landlords said they were confused about what was on offer. Tenants complained they qualified, but their landlords weren’t keen to sign up. And small business advocacy groups continuously sounded the alarm about a crisis of shuttered shops that might not be saved in time. Where the Canada Emergency Response Benefit was celebrated for how quickly and efficiently it buoyed Canadians’ bank accounts, the rent relief program has exposed some of the perils of pandemic policy-making—especially when the feds get mixed up in landlord-tenant matters typically left to the provinces.

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With less than two weeks to go before thousands of Canada’s small businesses owed their landlords April rent payments, many were forced to close up shop as the coronavirus pandemic sent provinces into lockdown mode. Only a week before April 1, Ottawa was rolling out its first wave of emergency support: $2,000 monthly payments to unemployed Canadians, a 10-per-cent wage subsidy and $40,000 loans for qualifying businesses.

With every main street across Canada hanging in the balance, countless business owners were disappointed in what they were seeing. The Canada Emergency Response Benefit helped their laid-off workers, but the wage subsidy—eventually increased to 75 per cent—was no help if they couldn’t remain open. The Canada Emergency Business Account, the government’s name for the new loan program, wasn’t an option. They simply couldn’t afford to take on more debt, even if it was interest-free for a year and partially forgivable.

And those April rent payments weren’t going to pay themselves.

Business advocacy groups sprung into action. The Canadian Federation for Independent Business (CFIB) and the Retail Council of Canada raised the alarm on behalf of their thousands of members. Meanwhile, a grassroots coalition of the smallest, most vulnerable entrepreneurs popped up overnight. They called themselves Save Small Business.

Jon Shell, the fledgling coalition’s co-founder and spokesman, says none of the group’s leaders had much experience advocating for themselves in Ottawa. Lobbyists they were not. But they had strength in numbers. Only 24 hours after launching a website that asked small business owners to tell their urgent stories, 2,500 distressed entries filled the database. That ballooned to 23,000 by April 1. Their demand: offer rent relief. Now.

On March 30, Maclean’s asked Trudeau outside Rideau Cottage if his government would consider rent relief for small businesses. The PM reiterated the support programs he’d already announced, but left the door open. “We are always going to look at: are there more things we need to do? Are there other ways that we can and must help people get through this difficult time?” Behind the scenes, federal officials were already looking at rent relief.

Adam Vaughan, the parliamentary secretary for housing, was hearing constantly from businesses in his community. He’s on the phone regularly with BIAs, which include ventures as large as Maple Leaf Sports and Entertainment, which owns most of the professional sports clubs in Toronto, and those as small as corner stores.

The Liberals’ first step on most emergency measures was to design broadly and maximize eligibility incrementally. “We draw a big circle around the problem and start to solve some of the big commonalities,” he says. “Then we start to see where the cracks and gaps are, and we move to plug those.”

Vaughan, a restaurant owner for several years, says his party isn’t driving blind—and it starts with his caucus. “You don’t have to go too far to find someone who’s opened a business,” he says. “I know that feeling of going to bed not knowing if you’re going to make payroll, hoping you have a good Friday and Saturday night so that Monday the cheques don’t bounce.” Vaughan also calls into daily technical briefings for MPs and senators, hosted by the Public Health Agency of Canada, and regularly takes ideas raised back to policymakers.

Hearing from other MPs on those calls offers “really good intel into what Canadians are thinking,” he says. “Right now, no good idea can go untested.” Vaughan is in constant contact with opposition critics. “If they have a question or idea, I’ll listen to them all day long.”

But when April 1 came and went with no federal action on rent relief, the lobby groups continued to voice serious concern.

The CFIB plugged into its network of small businesses. On March 13, the same day the PM went into self-isolation at Rideau Cottage, the lobby group sent a survey to its members. More than 8,700 businesses responded, with 40 per cent already reporting revenue declines of more than 25 per cent.

Two weeks later, 86 per cent of respondents—drawn from a community that “takes no joy in needing this kind of help,” says CFIB executive vice-president Laura Jones—supported emergency funding to cover fixed costs.

Every week, the CFIB put another survey in the field on Friday and gathered results over the weekend. Each Monday, the organization invites municipal, provincial and federal government officials to a briefing—a call that has sometimes grown to 175 attendees, including deputy ministers. The next day, the CFIB typically publishes its latest results online.

“We know, anecdotally, through some leaks in the sieve, that documents are getting through and making their way into cabinet submissions, and our survey results are playing a very prominent role,” says Jones.

The Retail Council of Canada (RCC) offered recommendations in the early going, advocating for its large retailers who might be too big to be considered “small business” but were still struggling to cover fixed costs. The government officials on the receiving end “tend to be pretty circumspect in return,” says Karl Littler, the RCC’s senior vice-president of public affairs.

The Save Small Business coalition, which eventually grew to 37,000 members, circulated a petition and letter-writing campaign meant to illustrate the scale of the crisis. The group eventually submitted a rent abatement strategy that called for the feds to reimburse two-thirds of commercial rent waived by landlords, up to $10,000 for three months. Any business with annual revenue of less than $5 million would qualify. Getting the attention of policymakers wasn’t easy. “None of us has ever done advocacy before,” says Jon Shell.

Meanwhile, policy wonks at the Department of Finance only turned their attention to rent relief after putting the finishing touches on emergency benefits for workers and the wage subsidy. By early April, they started to design what would become the CECRA.

As Ottawa faced pressure to act, federalism was the elephant in the room. Landlord-tenant relations are governed by the provinces. Critics of the pressure groups lobbying the feds claimed their fights weren’t in the nation’s capital, but in all the other seats of government across Canada. If anyone could send commercial renters a lifeline, it was them.

And ideas were floating around provincial capitals. Several provinces temporarily banned evictions. B.C. offered a “rental supplement” of $500 to tenants. On April 5, the Ontario NDP pushed Premier Doug Ford’s government, to no avail, to adopt commercial rent subsidies that covered up to $10,000 per month for three months.

The feds knew they needed swift intergovernmental sign-off to get money out the door, and they wanted to present the provinces with a ready-made program that could be administered from Ottawa, cost-shared between two levels of government and enforced by the provinces. By mid-April, they had consulted the lobby groups on their thinking and were taking their plan to the provincial counterparts.

The conversations that ensued were, according to a senior government source, pretty quick. All the players shared a sense of urgency, and the main sticking points were on the cost-sharing split. Some provinces had more capacity than others to contribute.

A statement from the B.C. ministry of finance says the province “participated in early discussions,” and other provinces welcomed weekly calls with Morneau, but ultimately there was no doubt who was running the show. CECRA was a “federally designed and administered” program.

By April 16, Trudeau was out in front of his Ottawa home. He was ready to announce tentative good news for commercial renters worried about the first day of May. Help was coming, but not yet. “I hope to have more details to share very soon,” he said.

Carla Qualtrough, the minister of employment, workforce development and disabilities, says Trudeau and the premiers, and all the ministers who report to them, have recently accelerated the pace of their collaboration to an “extraordinary” degree. Typically, federal-provincial talks are a “long process, with a lot of protocols and a lot of layers,” says Qualtrough. “We’ve had to cut through all of it.”

A normal year includes one meeting with her provincial counterparts. Qualtrough told Maclean’s they’re now chatting every seven to 10 days. “I suspect we’re going to work very differently coming out of this, and I would suggest for the better,” she says. “I wouldn’t say we always agree. But the shared goal of delivering for citizens has really trumped anything else.”

Maéva Proteau, Morneau’s press secretary, hailed the “historic coordination” between the country’s finance ministers. Eight days after Trudeau’s preliminary announcement, the PM had more good news. All the provinces and territories were onside with a new program called Canada Emergency Commercial Rent Assistance.

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The CECRA program came under scrutiny almost immediately after Trudeau outlined the contours of eligibility on April 24. The program was voluntary, which meant tenants whose landlords opted out were out of luck. Small businesses only qualified if they’d watched their revenue drop by 70 per cent. Advocacy groups criticized that threshold for leaving out too many tenants who’d still suffered catastrophic declines. And the federal-provincial deal only covered businesses that paid up to $50,000 in monthly rent. The Retail Council of Canada, which spoke up for its larger tenants, took issue with that ceiling and called for relief for companies that bring in more than $20 million in gross annual revenue. (On May 20, Trudeau said the feds were developing “new support for larger retailers,” and promised more details “soon.”)

There was also some confusion about which landlords could apply for the CECRA. The federal press release appeared to say only mortgaged property owners could have their loans forgiven—an apparent oversight that was never corrected on that release. Ontario’s own announcement included the same requirement, but was later updated to say an “alternative mechanism” would be implemented for landlords without mortgages.

There was also initial confusion about which costs were eligible for relief. The Ontario website at first claimed the relief would only cover the landlord’s “before profit costs,” not total rent—but that notice was updated to align with requirements eventually listed on the CMHC website.

On May 19, a day before Trudeau unveiled the launch date for CECRA applications, the CMHC website updated again to outline the process for submitting applications—which, similarly to the Canada Emergency Response Benefit, will be staggered across several days.

Conservative MPs have called for tweaks, including “a sliding scale for businesses with less than 70 per cent revenue loss, so that those experiencing significant revenue decline get some relief.” Tory MP James Cumming also pushed the government to allow landlords more flexibility to “negotiate the unsubsidized half of the rent with their tenants.”

NDP MP Gord Johns was also critical of the program after Trudeau announced new details. “We’ve told the government repeatedly that many landlords simply won’t play ball,” he said in a statement. “Many businesses are helpless to save their livelihoods because their landlords won’t apply.”

But the Ottawa-designed program appears to be set after some tinkering. The senior source at Queen’s Park gives the province credit for flagging certain flaws. The flub on the rent calculation, for example, showed a “misunderstanding of how rent works, which we explained to them.” But the source gave Ottawa “credit for being flexible” in modifying the CECRA.

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The revenue loss threshold will disqualify some businesses that didn’t bleed enough money but won’t have enough to stay afloat. Nobody can force their landlord to apply, and wherever evictions aren’t banned—Alberta’s moratorium already expired on May 1—there will be anxious tenants desperate for mercy.

Jon Shell, of the small-business coalition, said the voluntary nature of the program and the lack of a moratorium on evictions across Canada leaves a power imbalance that heavily favours landlords who will insist on full payment—and not the combined 75 per cent they’d receive from governments and their tenants. “Landlords can hold out for deferral agreements instead, where they get all the rent over time,” he says. “I think a lot more landlords would say it’s not worth fighting for a deferral if I can’t evict for six months, so fine I’ll take the 75 per cent.”

Policymakers are hoping the CECRA, once it’s up and running, will be attractive to enough good-faith landlords that it’ll prevent as many bankruptcies as possible as Canada slowly reopens its economy. After all, the federal government, already facing historic deficits, only has so much fiscal capacity. Trudeau had a simple message for landlords on May 20, as yet another month of rent payments drew near: “Please apply.” The logic at the Department of Finance appears to be simple: every “open” sign helps stave off the next crisis.