Short term rentals are a great way for homeowners to get “cash without commitment”. Longer term rentals, which include demise of a premises for 1+ years, require extensive commitment to income generation of the property. A short term rental solves issues of homeowners that may not be sure what their next step forward is, by offering rental income in exchange for relatively low commitment times. Further, long term residential tenancies can automatically convert from their fixed term to periodic. This can prove challenging for owners looking to give vacant possession should they decide to sell. Short term rentals usually have a pre-agreed end date, in which the tenant forefits all further rights to the property.
However, if you’re looking to lease your property for a short period of time, there’s a few things you should know. The City of Toronto has enacted certain Short Term Rental Laws that dictate how owners can list & lease properties short term.
What is a Short Term Lease?
The City of Toronto defines a short term lease as occupation of a premises by a tenant for a period of less than 28 consecutive days. Any situation in which a tenant has possession for more than 28 days is not considered short term by the city.
For tenants, short term leases are effective ways to save on longer temporary stays. Tenants can typically save by using popular apps and sites, like like Airbnb, HomeAway, VRBO, and Booking.com. For a fraction of the costs, its users can stay in a home, and skip the higher costs and obligations of a traditional hotel.
Yet, despite its benefits to the user, these Short Term Rental Sites are causing no end of headache to homeowners and tenants alike. Groups booking these residences are usually there for a “Good time, not a long time”. As a result, the units have a reputation of noisy neighbours, stenches of garbage, and a used-and-abused common area situation.
It is for these reasons that the city of Toronto councilors voted to enact a short term rental by law to govern operators looking to lease out premises for a short term.
What is the Toronto Short Term Rental By-Law?
Passed in 2020, the Toronto Municipal Code Chapter 547 governs licensing and registration of short term rentals. Its intention is to promote the safe operation of short term rental units in Toronto, protecting operators, tenants, and neighbours alike.
Fines for violating this code are enforced under the Municipal Act and could cost residents up to $1,000 for each violation. In the event an owner is convicted in court, fines could be imposed up to $100,000.
If you suspect a resident is operating an illegal Airbnb or short term accommodation in Toronto, call 311 to file an anonymous complaint. The City of Toronto By-Law Standards department will investigate the situation and impose disciplinary action where necessary.
Toronto Short Term Rental Laws
There are a number of short term rental rules and regulations that owners & operators of short term rental units must follow. Here are the top key points:
- You are only permitted to offer your principal residence for short term lease. Your principal residence is the address where you are living & is listed on your drivers license. You must be 18+.
- Any housing type is eligible for short term rentals, (detached home, condo, townhome, etc) provided organization rules are complied with (see below).
- Residents can rent up to three (3) bedrooms in their home on a short term basis for an unlimited number of nights. Residents can rent the entire premises on a short term basis for no more than 180 nights per year
- Residents can only rent a secondary suite (for example, basement apartment or laneway house) if it is their primary residence. If the owner lives in another part of the home, they are not permitted to rent out the secondary suite on a short term basis.
- Residents must collect and remit a 4% Municipal Accommodation Tax (MAT) to the City of Toronto charged on short term rentals.
A Condo building, in the eyes of the Provincial and Local Government, is a corporation. Condos are valid once they’re incorporated. This process of incorporation includes registration of a Declaration (a set of documents outlining condo by-laws) and a Description (usually architectural and other building plans) with the Land Registry Office.
Your Condo Building’s by-laws may legally prohibit short term rentals like Airbnb. Before determining whether you should list your condo on Airbnb, its best to check the by-laws first. Your condominium corporation can deny you the right to list your property short term, even though the new airbnb rules in Toronto permit you to do so. You can do so by inquiring with the management company or, ordering a Status Certificate.
Tenants and Short Term Rentals
Subletting is the process of sub-renting a rented premises to a third party. If you’re a tenant and looking to rent out some or all of your rented space, your landlord may deny you this right.
The Residential Tenancy Act (RTA) governs most rentals in Ontario. The Landlord and the tenant adhere to “Ground rules” in this act. Both parties receive rights in certain situations. The Act addresses “Subletting”, beginning with an express definition of a Sublet as follows:
“For the purposes of this Act, a reference to subletting a rental unit refers to the situation in which
a) the tenant Vacates the Unit
b) the tenant gives one or more other persons the right to occupy the rental unit for a term ending on a specified date before the end of the tenant’s term or period; and
c) the tenant has the right to resume occupancy of the rental unit after that specified date.
The Act permits subletting by the tenant with the express consent of the landlord.
From this definition, its clear that any tenant choosing to list their rented property on AirBnb or similar site, is engaging in subletting. It then goes without saying that, if a Landlord doesn’t want Airbnb, or any subletting in their unit by a tenant, the Landlord can state so.
Tenants – The Catch
The RTA does place certain restrictions with respect to tenants and subletting.
Section 134(3) States:
Unless otherwise prescribed, no tenant and no person acting on behalf of the tenant shall, direclty or indirectly,
(a) sublet a rental unit for a rent that is payable by one or more subtenants and that is greater than the rent that is lawfully charged by the landlord for the rental unit;
(b) collect or require or attempt to collect or require from any person any fee, premium, commission, bonus, penalty, key deposit, or other like amount of money, for subletting a rental unit, for surrendering occupancy of a rental unit or for otherwise parting with possession of rental unit.
While this section of the RTA is left broadly to interpretation, one might consider collecting a nightly Airbnb rate higher than the monthly rate of the rent against the terms of the RTA. This could mean that Airbnb by a tenant could be considered illegal even with the consent of the landlord. It’s best to check with a legal professional, as this is reviewed on a case by case basis. Have legal questions? Why not contact one of our lawyers today for a free consultation on this or many other topics.
What This Means for the Real Estate Market in Ontario
A recent report published by the Urban Politics and Governance Research Group at McGill university illustrates Airbnb’s impact on rentals.
Entire-Home Listings make up most of Toronto’s “short-term” market. These listings represent 83% of revenue generated by all short-term rentals. The report concludes that these new Airbnb rules in Toronto could add another 1.6 per cent of long-term rental units to Toronto’s rental pool. Enactment of Short Term Rental Laws, restricting owners ability to turn condo buildings into Ghost Hotels, may just be what Toronto’s already choked long-term lease market needs.
Whether you’re using Airbnb to meet your mortgage payments, or using it for extra side income, regulations could wreak havoc on your approach. However, reducing the Airbnb pool would mean quieter neighbours, and an improvement in property enjoyment in neighbourhoods.
Our advice? If you are deciding to rent out your property, its nice to check with your neighbours, and lay down some strict ground rules for your guests.