The temptation to rent out a room, a basement, or even an entire condo or house is tempting. Income from short-term rentals can help homeowners pay their mortgage and other expenses, or even justify the purchase of a secondary income property. However, new regulations are on the horizon that will have a significant impact on short-term rental hosts. If you are thinking about renting out all or part of your residential property on a short-term basis in Toronto, there are a number of legal factors to consider. Before you purchase a second property or make renovations to better attract renters, ensure that you are aware of the legal implications.
How Does the City of Toronto Define a Short-Term Rental?
The City defines a ‘short-term rental’ as:
[A]ll or part of a dwelling unit used to provide sleeping accommodation for any rental period that is less than 28 consecutive days in exchange for payment, which includes existing bed and breakfasts.
Short-Term Rentals Are Not Currently Permitted in Toronto
In 2017 and 2018, Toronto City Council approved new regulations with respect to short-term rentals, following in the footsteps of other major Canadian cities such as Montreal and Vancouver. These regulations were quickly appealed by a number of property owners. The most recent appeal before the Local Planning Appeal Tribunal (LPAT) concluded on October 15th, however a decision has yet to be issued. Until the regulations are in effect, the City has clearly stated that short-term rentals are not permitted. This has not put an end to the availability of short-term rentals in the city, however, so the degree to which the restriction is being enforced is questionable.
What Are the Proposed Changes?
If the new regulations pass, hosts can expect a number of changes:
- Hosts must register with the City and pay a registration fee of $50.00.
- In addition to HST, short-term rentals will be subject to a 4% Municipal Accommodation Tax, in line with the tax currently applied to hotel stays.
- Companies who facilitate short-term rentals, such as Airbnb, must pay a one-time license fee of $5,000 to operate in the city. In addition, companies must pay $1 per night of accommodation booked through the facilitator’s site.
- In what might be the most hotly contested aspect of the new regulations, short-term rentals will be restricted to primary residences only. This means that secondary investment properties may not be rented out on a short-term basis. An exception will exist for tenants of a secondary property, who may offer short-term rentals, so long as the property is the tenant’s primary residence.
Supporters and Opponents
The City has argued that more stringent regulations on short-term rentals will increase the availability of affordable and accessible housing in Toronto. In addition, the regulations will help to avoid land-use conflicts and better preserve established residential neighbourhoods.
Many Toronto residents are in support of the changes. They claim that the influx of short-term rentals has contributed to a bloated housing market, the loss of affordable long-term rentals and deterioration of local neighbourhoods. With many properties occupied exclusively by short-term renters, several residents are finding themselves surrounded by temporary neighbours, contributing to a feeling of instability and inconsistency. Perhaps more dire is the loss of affordable long-term rental properties. With higher income potential, some landowners are buying properties aimed exclusively at short-term accommodations. This has the effect of limiting rental options for Toronto residents, who are currently facing skyrocketing rental costs due to the increased demand and limited supply.
Opponents, however, have a different view. Some claim that short-term rentals are a safer option than long-term rentals for property owners. When a dispute arises in a long-term rental, it must go before the Landlord and Tenant Board, which some homeowners find strongly favours the interests of tenants. Additionally, with more frequent turnover and a higher per-night average, the income opportunity presented by short-term rentals can be significantly higher than long-term rentals. Further, some say that the regulations won’t help to improve the affordable long-term rental market and insist the proposal is merely a deflection of the City’s own failure to invest in affordable rental housing.
Wait and See
With a decision expected soon, renters and homeowners alike will soon have a clearer picture of what will be permitted and expected in Toronto’s short-term rental market. In the meantime, it would be wise to carefully consider any purchases of or major investments in properties solely intended to accommodate tourists and business travellers.
The real estate lawyers at GLG LLP in Toronto assist corporate and individual clients with a full range of real estate services, including purchases and sales, financing and leasing. The firm offers exceptional client service as well as a Bay St. experience with more reasonable rates. Call 416-272-7557 or complete the online form to arrange a consultation.