The Commercial Tenancies Protection Regulation (Alberta) – the uncertainty continues

The ability for commercial real estate landlords and tenants to deal with tenancy issues in Alberta was put on hold in many respects with the passing of Bill 23: Commercial Tenancies Protection Act (the Act) that received royal assent on July 23, 2020. Carve-outs and provisos in the Act that referred to regulations not yet in existence held the industry in abeyance while such regulations were drafted. The Commercial Tenancies Protection Regulation (the Regulation) was brought into force by ministerial order on July 29, 2020 (summary) and although it intended to clarify to whom the Act will apply and link the protections afforded pursuant to the Act to tenants who are not entitled or able to benefit from the federal Canada Emergency Commercial Rent Assistance (CECRA) program (summary), it appears to raise more questions.

What does the regulation clarify?

The Regulation attempts to clarify the application of the Act and provides that:

• the Act applies to a commercial premises if:
  • the landlord and tenant are not eligible for CECRA for the sole reason that the landlord has not entered into a rent reduction agreement with the tenant that includes a moratorium on eviction (entering into a rent reduction agreement that includes a moratorium on eviction is a requirement under CECRA); or
  • the tenant’s rent is less than $50,000 per month, the tenant’s gross annual revenues are less than $20,000,000 per year and the tenant has either: (i) suffered a substantial loss of revenue; or (ii) closed the commercial premises to the public under an order made pursuant to the state of public health emergency declared by Order-in-Council O.C. 80/2020; and
  • the Act does not apply to a commercial premises if the landlord and tenant have at any time participated in CECRA with respect to the commercial premises.  

The Regulation elaborates on calculating a tenant’s gross annual revenues, the effect of domestic and foreign revenues and calculating substantial loss of revenues.  The Regulation notes mechanisms for calculating a commercial tenant’s gross revenues, depending on several factors, such as: (i) whether or not the commercial tenant operates out of a single commercial premises; (ii) the length of time the commercial tenant has operated out of the commercial premises prior to March 17, 2020; and (iii) whether or not the commercial tenant is a subsidiary of a parent entity. 

Whether a commercial tenant has suffered a substantial loss of revenue, and will be entitled to the protections under the Act, will depend on determining the commercial tenant’s gross revenues and whether these gross revenues are at least 25% less than they were during the applicable comparable period (the particular timing will be determined in part by the factors noted directly above).

The Regulation has effect on March 17, 2020, and expires on August 31, 2023.

What remains unclear?

Landlord Access to Tenant Financial Information 

Although the financial parameters for applying the Act as set out in the Regulation are similar to the eligibility requirements for tenants under CECRA, contrary to the CECRA program that requires the tenant to provide certain information by attestation, the Regulation does not include any mechanism or process by which the landlord has access to or is provided with the necessary tenant financial information to determine the tenant’s gross annual revenues or any loss of revenue.

Payment Plans 

The Regulation is silent on the payment plans that the landlord and tenant are required to enter into, pursuant to the Act, for payment of rent, fees and other penalties that the landlord was prohibited from charging and that have not been refunded to the tenant. Notably, the Regulation has not addressed the situation where the landlord and tenant are unable to agree to the terms of the payment plan prior to the emergency end date noted in the Act of August 31, 2020. Similarly, the Regulation does not address what penalties may be incurred by the parties for failure to enter into such a payment plan.

Participation in CECRA 

Although the Regulation notes that participation in the CECRA program is a determining factor regarding the Act applying to a commercial premises, the Regulation does not specify what constitutes “participation.”  Does participation include applying and being rejected from qualifying under the CECRA program for reasons other than the landlord failing to enter into a rent reduction agreement with a tenant that includes a moratorium on eviction? Does registering on the CMHC portal for the CECRA program qualify as participation?

We continue to monitor the situation for any further regulations or other information on enforcing the Act and the Regulation.