The problem with penalizing short-term rental operators

The row over short-term rental regulations in Toronto is before the Local Planning Appeal Tribunal largely because curbing efforts are ineffective

The problem with penalizing short-term rental operators

The row over short-term rental regulations in Toronto is before the Local Planning Appeal Tribunal largely because curbing measures are ineffective.

There’s mounting evidence that short-term rentals remove precious units from cities’ rental inventory, and should the regulations pass—which include restricting rentals to principal residences and mandating a 4% municipal tax—it could grind to a halt what has proven a lucrative business model.

 “I was with clients last night who are ready to purchase a property to rent out as a short-term rental, but they’re waiting with their realtor to see what happens at the tribunal. They’re basically in a holding pattern right now,” said Daniel Johanis, a mortgage broker with Rock Capital Investments.

“I think the regulations are probably a good idea,” he added. “There needs to be more enforcement with any sort of vacation rental that’s going to be offered in the city. The condo I live in has had issues with renters being disruptive, fighting, damaging property, and it doesn’t seem like condo board prohibitions have been enough to stop people from renting out their suites. There are no real penalties for it, so it needs to be regulated better.”

Johanis was once the owner of a unit he rented out on Airbnb but stopped after his condo board began enforcing proscriptions on short-term rentals.

“It depends on the condo board,” he said. “I was a super host for one of my condos, but what I’ve noticed of late is a lot of condo boards are prohibiting short-term rentals and coming down hard on unit owners—some will issue cease and desists—so I shied away from it to not upset the board.”

However, many short-term rental operators often flout the penalties anyway.

“It may be in the bylaws,” said Johanis, “but enforcement often isn’t there.”

Haris Zulqarnain of Treadstone Law echoed that sentiment, but says liens could be put against units found to circumvent short-term rental interdictions.

“They do it within 30 to 90 days and the unit owner is also responsible for the legal fees, and if they were to sell the unit they would have to pay that before they’re free and clear,” he said. “If they want to fight the company, they can. It would likely be in small claims court unless it’s over $25,000, and most times you see people pay it off because it isn’t worth the extra effort of going to small claims.”

But even getting to the point of enforcement is onerous. How can the condo board prove the unit owner has, in fact, been renting out the property on a short-term basis?

“If someone suspects it, it’s basically hearsay, at which point it becomes the unit owner’s word against theirs,” said Zulqarnain. “The resources you have to expend to prove something like that makes the whole proposition difficult, unless someone comes into the building and says they’re there for the Airbnb, but even then, the owner can say they expected the guest to stay longer.”

Finally, the condo board might even be too circumspect for financial reasons to go through with enforcement.

“The reality is you can have all the bylaws in the world, but if they don’t make economic sense they’re hard to enforce,” said Zulqarnain. “Most of these buildings try to minimize expenses as much as they can, and that includes management fees and the like, because they want the reserve fund to be higher and the condos fees to be lower. There are so many competing forces that, ultimately, proving there was an infraction is expensive.”

A City of Toronto report estimated that in April 2017 there were 20,000 short-term rental listings, and Airbnb alone rented out 988,378 nights in 2016. Statistics Canada also found short-term rental revenue in Ontario grew from $94 million in 2015 to $909m in 2018.

The City of Toronto first introduced regulations early last year, but LPAT is reviewing them over seven days (beginning August 26) with the possibility of an extension.