The following article is a summary of the City’s short-term rental laws. The new system allows short-term rentals in any owner’s or tenant’s primary house in residential and mixed-use zones, subject to several restrictions designed to balance several conflicting policy objectives, including the City’s worries about a lack of private rental housing.
Low vacancy rates, along with busy tourist seasons, have resulted in large growth in short-term rentals in Toronto and other major urban regions. The development of websites like Airbnb and VRBO has made it simpler for owners and renters to interact and enter into private rental arrangements.
With the aforementioned factors in mind, the City decided to create a regulatory framework controlling short-term rentals.
The Short-Term Rental Regime
The City’s short-term rental system consists of three components: (i) zoning by-laws, (ii) a licensing and registration scheme for short-term rental operators and corporations, and (iii) short-term rental operator taxation.
The short-term rental zoning bylaws only allow individuals or businesses to operate “short-term rentals” under certain conditions.
A “short-term rental” is defined as all or part of a dwelling unit that is (i) utilized to offer sleeping accommodations for a rental period of no more than 28 days and (ii) the “principal home” of the person managing the rental. A “primary home” is a “dwelling unit owned or rented by an individual person, either alone or jointly with others, where the individual person is normally resident.” Both homeowners and tenants are authorized to rent out their primary house for a limited time.
Subject to potentially unresolved issues concerning legal non-conforming uses, the requirement that a short-term rental unit be a “principal residence” is significant because it prohibits a person from purchasing or leasing a dwelling unit solely for the purpose of offering it for short-term rental accommodation year-round. It also makes it impossible for a person to have numerous listings on Airbnb or VRBO.
If the rental is for the full home or up to three bedrooms within a primary dwelling, it is a “permitted use.” Short-term rentals are allowed in secondary suites if the secondary suite is the operator’s primary residence. A short-term rental operator may only rent out their full property for a total of 180 nights each year.
Short-Term Rental Licensing and Registration
Anyone who plans to promote or offer their primary house for short-term rental must register with the City of Toronto’s Municipal Licensing and Standards department and acquire a license to do so. Each license will be valid for one year and must be renewed within 90 days of the expiration date.
To register a property for short-term rental usage, the operator must supply the City with some basic information, declare that the rental address is their primary residence, and preserve records of all short-term rental activities, which must be submitted to the City upon request. The operator must also offer emergency information to all visitors, include the phone number of a person who is accessible 24 hours a day, and pay a $50 yearly registration fee.
Companies that provide short-term rentals, such as Airbnb and VRBO, are subject to extra regulations. A short-term rental operator must verify that each of its listings has a valid registration number, create a system to reduce nuisances, and report short-term rental activities to the City. It is important to note that in the city of Toronto, only registered operators can provide short-term rentals. All advertised listings must include a valid City-issued registration number (in the format: STR-0000-XXXXXX). Here at Cactus Law, our real estate lawyers will ensure that this is done correctly so that you are in full compliance and do not run into any problems later down the road. Short-term rental firms must additionally pay a $5,000 one-time license application cost, as well as a $1 charge for each night rented.
If an operator fails to comply with the requirements, they are guilty of an offense and may face a fine of up to $100,000 if convicted. Furthermore, they may be required to pay a special fine that a court determines is higher than any money generated by their business, as well as a punishment of up to $10,000 for each day the crime continues. They may also face a fine under 19 new offenses.
How Short-Term Rental Operators Are Taxed
Short-term rental operators and short-term rental firms must pay a 4% Municipal Accommodation Tax on any rentals lasting less than 28 days. Short-term rental firms with many listings, such as Airbnb, are allowed to reach an arrangement with their individual operators to collect the tax on their behalf.
Other Short-Term Rental Restrictions
The city of Toronto’s by-laws are not the only source of constraints for individuals looking to provide short-term rentals. Tenants are nevertheless bound by the provisions of their lease agreements, which may contain limitations on assignment and subletting, even for short-term rental purposes. Furthermore, short-term rental limitations may apply to condominium owners and renters leasing condominium units under their condominium Declarations or the regulations and by-laws adopted by their condominium corporation.
Section 58(1) of the Condominium Act authorizes condominium boards to enact rules governing the use of units that promote the safety or welfare of the condominium corporation’s owners and property, or that prevent unreasonable interference with the use and enjoyment of the condominium’s units or common elements. Such regulations must be in accordance with the Condominium Act, the condominium Declaration, and the bylaws of the company.
Any regulations enacted under a condominium Declaration must also be in accordance with any applicable zoning bylaws. As a result, while condominium rules cannot be more liberal than municipal by-laws, they can be more restrictive, and Canadian courts have ruled that condominium rules can be used to ban short-term rentals as long as the proposed restrictions are compatible with the condominium’s Declaration. As a result, while considering whether to run a short-term rental from their primary property, condominium owners and renters must evaluate not only the new legislation but also their condominium’s Declaration and rules.
What You Need to Know as a Short-Term Rental Operator
To summarize, short-term rental operators now face a slew of additional laws, licensing procedures, and expenses. The requirement that a short-term rental unit be located in the operator’s primary house, in particular, means that the use of a housing unit only for short-term rentals will no longer be authorized. Furthermore, the introduction of yearly registration fees and the Municipal Accommodation Tax may increase the cost of providing a short-term rental.
Short-term rental businesses, such as Airbnb and VRBO, will be subject to those base charges, as well as a one-time $5,000 application fee for each listing and an ongoing price for each night rented. Several questions, however, remain unanswered, including whether dwelling units that were operating as a short-term rental unit at the time the new by-laws were passed are exempt from the new zoning limitations since they are a legitimate non-conforming use. Condominium owners who want to provide short-term rentals should check the appropriate municipal bylaws as well as any restrictions imposed by their condominium corporation.
Overall, if you are seeking to buy a house with the intention of renting it out or if you want to rent out your present residence, we recommend that you consult with a real estate lawyer at Cactus Law today who can best advise you on how to proceed.
The information presented above is solely for general educational and informational purposes. It is not intended to be, and should not be taken as, legal advice. The information given above may not be applicable in all cases and may not even reflect the most recent authority after the date of its publication. As a result, please refer to all updated legislation, statutes, and amendments. Nothing in this article should be relied on or acted upon without the benefit of legal advice based on the specific facts and circumstances described, and nothing in this article should be interpreted otherwise.
About the Author
Kanwar Gujral is entering his third year at Osgoode Hall Law School in Toronto, Ontario. He has a dedicated interest in real estate, business, and corporate law.