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Will Toronto’s Proposed Airbnb Regulation Help Condos?

Last week, Toronto’s Executive Committee approved a draft plan to regulate Airbnb. Amongst important changes, Toronto proposes the creation of a new zoning by-law and the adoption of new licensing and registration requirements.  It also proposed to limit short-term rentals to principal residences. Will this help condos regulate short-term rentals?

What is Airbnb?

Airbnb and other short-term rental platforms provide owners with the opportunity to lease their homes (or part of their homes) to strangers for short-term periods (often only for a few nights). This model usually offers a good deal for the guests who get comfortable accommodations at a reduced price. As importantly, it is usually very lucrative for the “hosts” renting his/her home.

Airbnb and other similar platforms have often made the news, attracting both praises and criticism, depending on the side of the coin on which you stand. Many horror stories made the news and, certainly, countless fairy tales don’t. Still, for condominiums, the leasing of units on short-term basis raises questions of safety, security, nuisance and liability for the neighbours who feel forced to share their common elements with strangers. It also attracts liability on the corporation, who is deemed to be the occupier of common elements for the purpose of the Occupiers Liability Act.

Toronto had been promising to regulate this industry for numerous months. It felt this was required in light of the growing number of short-term listings.  The Globe and Mail reports that Airbnb listings in Toronto have tripled between 2014 and 2016, with more than 15,869 active listing in 2016.

What other jurisdictions have done?

Many jurisdictions have attempted to regulate this “new” way of business:

  • Vancouver and cities such as Denver, LA, NY, Philadelphia, Portland and San Francisco have limited short-term rentals to principal residences only (hitting on investors who own multiple dwellings for the sole purpose of operating short-term rentals);
  • San Francisco, New Orleans, Portland and LA have also proposed putting a cap on the number of nights that can be offered for short-term rental on any given month or year. The difficulty with this Control method is having to monitor numerous platforms to ensure that hosts don’t maximize the number of nights with multiple providers;
  • Other jurisdictions such as Austin, Chicago and New Orleans have limited the areas where short-term rentals could take place and have required hosts to obtain a licence to operate.
  • Quebec has opted to tax the activity and imposed licensing fees to the operator and the hosts.

Toronto’s solution

Toronto proposes to regulate short-term rentals as follows:

  • It will create a new land-use zoning called “short-term rental”. Hosts will only be able to offer short-term leasing on properties where the zoning allows it.  This is no different than zoning industrial, commercial or residential use.
  • It will limit short-term rentals to principal residence.  This is likely the biggest change;
  • Operators (such as Airbnb) and hosts (offering their homes) will have to be licenced.  A fee is expected to be imposed.   The proposed fee is much lower than the one in Québec;
  • A registry will be created for anyone who operate short-term rentals.

The city of Toronto is of the view that this model:

  • Permits people to rent their homes for short-term periods;
  • Minimizes the negative impacts on housing affordability and availability;
  • Enables greater diversity in tourism accommodations;
  • Maintains community stability (including in condos);
  • Minimizes nuisance; and,
  • Creates a regulation and taxation system which is fair to everyone.  This can’t come as a surprise since a budget provision for a new hotel tax of $5M had been set in the City’s 2017 Operating budget for the fourth quarter of 2017.

Who will this apply to?

The city of Toronto has specifically defined “short-term rental” as any rental period that is 28 consecutive days or less. The City’s proposed 28-day rule essentially regulates any leasing which is not monthly. (February is safe!)  Incidentally, this definition is for periods which are far shorter than the usual Short-term Rule adopted by condominium corporations.  Most Corporations impose minimal lease duration of 3 to 6 months.

Toronto’s proposed rule will only apply to short-term rentals in exchange for payment.  Couch surfing (you read that right) and other short-term accommodation where there is no payment will not be covered by this.

This rule will apply to existing B&Bs but will exclude hotels and motels.

As indicated above, the greatest change is likely the fact that this new regulation will specifically prohibit short-term leasing of properties which are not the hosts’ principal residence.  Investors and “professional Airbnb-ers” will not longer be able to lease secondary homes.  This brings Airbnb back to its more “bohemian” beginnings, which was to allow  people to lease their extra-space.  A “principal residence” will need to be designated as such in the owners’ income tax filing or other government records.  The city of Toronto could seek proof of this, which would have to be provided within 10 days.

Under the proposed rule, hosts will be able to lease either the entire unit or up to 3 rooms to different guests.

It is interesting to note that Toronto’s proposed regulation is set to apply to both owners or tenants of homes who wish to lease their home on a short-term basis.  The reference to tenant is of particular interest as the Residential Tenancy Act does not allow tenants to sublease their apartment for more than the amount of the lease charged by the owner.

Hosts will have to comply with all municipal, provincial and federal laws. They will have to provide emergency contact information and will have to provide a diagram of all fire escape routes and 911 emergency contacts.

Will this regulation solve the problem for condos?

From the condo perspective, there are numerous shortcomings with the proposed regulation.  To begin with, it is unlikely to resolve the challenge that short-term leasing poses to condos.  Indeed, limiting short-term leasing to principal residences is only likely to affect 30% of the existing listings.  More than 70% of the city’s listing already are in people’s principal residence. It will not prevent owners from leasing their unit when they travel, when there is an important tourist event in the city or when the owner is posted or studying elsewhere.

The proposed regulation does nothing to ensure that guests are made aware of the corporation’s rules and regulations.

It also does nothing to prevent ongoing nuisance. If there is going to be disturbance and nuisance, by the time the dust settles, guests are long gone.

This proposed regulation also ignores the fact that some corporations were actually set up (and approved by the city) as multi-uses complexes.  The declaration of some condo corporations actually specifically allow short-term leasing (on a furnished or unfurnished basis).  Some even go as far as to allow hotelling. The city approved the creation and building of these condo complexes.  They were marketed as such and owners purchased units based on this and with the expectation that they would be permitted to lease on short-term basis.  Will these be grandfathered?

Finally, the onus will continue to be on condominium corporations to monitor and police these short-term rentals.

When all is said and done, some Torontonians will find that the proposed rule goes too far, while other will conclude that it falls short and doesn’t resolve much.

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