Deferring rent not sustainable over the long term for small businesses hit hard by COVID-19

Spring break was supposed to be a thriving time for Vancouver gift store La La's. 

Owner Kristina Egyed had her two locations well stocked for the school holidays, Easter and Mother's Day shopping boom.  

But in mid-March, she closed her stores because of COVID-19, and she doesn't know when they'll be open again. 

Her landlord at one of the locations is a small business owner himself. 

After 25 years in retail, Egyed says she knows how financially vulnerable small business owners are and she doesn't want to pass the rent burden onto him. 

"We have a good business relationship, and I understand the challenges that he has," she said. 

She's using some savings to pay her $12,000 rent on April 1 and has a plan for the next three months. 

But other small businesses that are not among those considered essential and permitted to keep operating during the COVID-19 shutdown aren't so fortunate. 

Across Canada, various stay-at-home orders, business and service closures and bans on people gathering are proving ruinous to retail and hospitality industries.  

The Canadian Federation of Independent Businesses (CFIB) says many of the country's small businesses will struggle to come up with their rent this month. 

A survey of 10,000 of the federation's 110,000 members showed a quarter of them won't be able to pay April rent at all. Eighty-six per cent say governments should provide emergency financial support to those hardest hit. 

'Everyone is stressed'

Laura Jones, executive vice-president at CFIB, says the organization has been inundated with calls from desperate business owners who need financial relief, such as a reduction in property tax or emergency funds for rent.

"Everyone is stressed. Everyone's in crisis mode right now," she said. 

Bill Holder is used to acting as a mediator in disputes between property owners and occupants.

But he says these extraordinary times are motivating many parties to do what's best for each other.

Holder is a commercial real estate lawyer at Vancouver firm Clark Wilson and says some landlords and tenants are opting to defer this month's rent. 

"I think most landlords and tenants will likely carve out a situation that they can live with," he said. "It will be something like either paying all at once at a later date or possibly stretching it over time," he said. 

Debt accumulating day by day

But Jennifer Salt, who co-owns the Vancouver Italian restaurant Autostrada Osteria, says that a rent deferral still means bills are stacking up while businesses have no cash coming in.  

The revenue from her restaurant is down about 90 per cent from last year, and while she can pay April's rent, she doesn't know if businesses like hers will be able to get back up and running if federal or provincial governments don't step in. 

"We're accumulating more debt every day," she said. 

She would like to see more government assistance for what she calls "hard costs," such as rent, tax and utilities.

The federal government has already promised billions of dollars in relief to businesses as part of its $107 billion aid package to offset the financial impact of the pandemic, including; 

• A 75 per cent wage subsidy for all businesses with a revenue drop of 30 per cent or more;
• The creation of the Canada Emergency Business Account to provide interest-free loans of up to $40,000 to small businesses, $10,000 of which could be forgivable; 
• An additional $5 billion in lending capacity to farmers through Farm Credit Canada.

There has also been support at the provincial level.

For example, New Brunswickers who own small businesses and have lost income are eligible for a one-off $900 payment. In Nunavut, they can apply for a grant of up to $5,000. In Alberta, deferrals of utility bills for up to three months is being offered to businesses while Quebec has made $2.5 billion available in the form of loans. 

While some businesses are eligible for federal and provincial tax relief, the assistance comes in the form of deferred payments — more debt rather than straight payments. 

CFIB urges property tax cut

Jones from CFIB says one thing that could make a big difference is a reduction in property taxes by at least 25 per cent, with the intention of having the savings passed on to tenants. 

She says some of the federal government's existing commitments, such as the loans from the Canada Emergency Business Account, could also be amended to include a $10,000 forgivable amount for rent and other fixed business costs. 

Some businesses will be eligible for the 75 per cent wage subsidy announced by the federal government this week to encourage businesses to rehire staff. 

But Salt says it doesn't amount to much when restaurants like hers are unable to operate at normal capacity and afford to pay their staff. 

"These little initiatives, they sound helpful. But what we need is a full, long-term strategy that's going to see us through from now until we reopen," she said. 

Delaying rent until 2021

The coffee shop chain JJ Bean is making the most of its ability to provide some takeaway options to patrons.

The chain has 26 stores across B.C. and Ontario, and even with all but 10 of them closed, rent is still due.

Owner John Neatte owes more than $266,000 in rent for the 26 locations for the month of April — a period in which he expects to earn just 10 per cent of his normal revenue.  

He's come to an arrangement with most of his landlords to delay paying the next three months' rent until 2021, when he hopes he'll be in a position to pay. 

"Every business person is trying to get ahead, and almost everybody I know is leveraged. They have huge loans," he said. 

"And that's the thing that's scary."