Legal

April 1, 2020 Published by Toronto and Area Chapter - By Brian Horlick, Alexander Etkin

In With the Residents, Out With the Transients

From the Spring 2020 issue of the CCI Toronto Condovoice Magazine.

Tribunal Rules in Favour of City of Toronto's Short-Term Rental By-Laws

Condominium stakeholders and short-term accommodation websites such as Airbnb will experience substantial changes after a group of landlords failed in their efforts to challenge the City of Toronto's (the "City") zoning by-law amendments with respect to short-term rentals (the "By-Laws").

On November 18, 2019, the Local Planning Appeal Tribunal (LPAT) upheld the By-Laws. Collectively, the two By-Laws establish a new regulatory framework for short-term rentals and amend various municipal zoning by-laws.

The LPAT ruling provides, amongst other things, that:

• Short-term rentals, defined as all or part of a dwelling unit used to provide sleeping accommodations for any rental period that is fewer than 28 consecutive days, are permitted if offered within a host's principal residence.
• A principal residence is the residence where a person lives for the majority of the year.
• Both owners and tenants can participate as short-term rental hosts.
• Properties in both residential and mixed-use zones are eligible for use as a short-term rental.
• Residents of secondary suites and laneway suites may also participate as hosts, as long as the suite is their primary residence.
• Hosts who rent out their entire house or apartment may only do so for up to 180 nights per year.
• Hosts who rent out three or fewer bedrooms in their residence will not face an annual limit on rental nights.

As a result of the Tribunal's decision, dedicated short-term rentals offered within investment properties (also known as "ghost hotels") are prohibited. The Tribunal concluded that ghost hotels, which are operated out of a residence where the owner or tenant is not ordinarily a resident, constitute a commercial use of land that is zoned for residential purposes.

New Restrictions and Requirements The By-Laws impose new rules for short-term rental hosts. Hosts will be required to register with the City and pay an annual $50 licensing fee. In addition, hosts must pay a 4 percent Municipal Accommodation Tax (MAT) on all short-term rentals. Hosts will also be required to provide the City with government-issued identification to prove that the short-term rental is the host's principal residence. A host's contact information and details of the rental must also be provided to the City upon request. Lastly, any host who advertises a shortterm rental must ensure that the host's registration number issued by the City's Municipal Licensing and Standards body appears on the advertisement.

Airbnb and other short-term rental platforms and brokerages will also feel an impact from the By-Laws. The By-Laws require that short-term rental companies pay a one-time fee of $5,000 to be licensed and an ongoing fee of $1 for every night booked through their platform. Furthermore, these companies will be required to establish and implement a compliance system to ensure that all hosts are properly registered with the City. Furthermore, these companies will be required to keep records of short-term rental transaction activity, which must be provided to the City upon request.

New Enforcement Powers & Penalties
The By-Laws will bring about a new enforcement regime. Of note, audit and investigative powers have been granted to the Executive Director (or his/her designate) of Municipal Licensing and Standards. This includes the power to audit or examine a wide range of documents held by a short-term rental company or host including accounts and transaction records, both in paper and electronic format, that relate or may relate to information that should be in the person's books or records.

Short-term rental hosts and companies must comply with all audit directions given by the Executive Director. This includes an obligation to provide reasonable assistance to the Executive Director undertaking the audit and answering all related questions, either orally, in writing, under oath or by statutory declaration.

In addition, short-term rental hosts and companies must accommodate new inspection powers granted to Municipal Licensing and Standards. These include the authority to inspect "at all reasonable times" any premises required to be licensed or registered to ensure compliance with the By-Laws.

Lastly, the By-Laws come with significant penalties intended to deter the continual operation of ghost hotels. Violators may be found guilty of a provincial offence and on conviction liable to a fine not exceeding $100,000. In the case of corporations, every director or officer who commits or permits the commission of a violation is liable to a fine not exceeding $100,000. Furthermore, there are special provisions allowing a court to impose a "special fine" in addition to the above in an amount deemed appropriate to eliminate or reduce the possible economic advantage that any person may have otherwise received by violating the By-Laws. Lastly, separate from the above, a court may impose a fine not to exceed $10,000 for each day during which the violation continues.

Implementation of the New Short- Term Rental Regulatory Scheme
According to the City's December 2019 announcement, the licensing and registration rules for short-term rentals will be rolled out in phases.

Phase 1 (complaint-based investigation) has already begun. Residents who wish to report issues related to short-term rentals, such as noise, waste and zoning infractions, may call 311 to initiate an investigation.

Phase 2 (licensing and registration) will begin in the spring of 2020. Current shortterm rental hosts will have three months to register. Short-term rental companies are to submit their licensing applications during this period.

Phase 3 (enforcement and MAT) will begin in the summer of 2020. All short-term rental hosts will need to be registered by the end of Phase 2. Unregistered and/or non-compliant hosts will be subject to the above-noted penalties. In addition, hosts will need to begin paying the four percent MAT. Enforcement action will also be taken against companies that allow unregistered hosts to list on their platform or otherwise contravene the By-Laws. New short-term rental hosts may register on an ongoing basis.

Implications for Condominium Stakeholders Condominium stakeholders opposed to the commercial use of their residential communities should be relieved by the implementation of the short-term rental regime. Owners and tenants who do not operate ghost hotels have to date been subjected to an undue burden. Ghost hotel hosts and guests exert an operational and financial strain on condominiums, be it through wear and tear of the common elements, the use of concierge services and recreational facilities, lobby congestion on busy checkin days, and, in more severe cases, through conduct that warrants a compliance letter or court application. Residents also tend to feel less secure when there is constant turnover of their neighbours.

The above-mentioned enforcement powers will benefit condominium management providers and residents dealing with the impact of ghost hotels. For example, aggrieved stakeholders may wish to avail themselves of the City's complaint-based investigation system, which likely will become more robust as the licensing and registration system is rolled out. Condominium management providers dealing with complaints from concerned residents may be compelled to turn over evidence to Municipal Licensing and Standards, in the form of documents or video footage, to substantiate that a unit used as a ghost hotel is not the owner or tenant's principal residence.

Once the regulatory scheme is fully in place, condominium stakeholders keen to preserve the residential fabric of their condominium communities will finally have a powerful tool at their disposal. While the new regime does not impose a ban on short-term rentals, it makes this activity far less commercial. If enforced effectively, the By-Laws will limit the ability of absentee owners and tenants to exploit residentially-zoned properties for commercial purposes. Hosts who have developed business ventures on the ghost hotel model are no doubt wary of the eventual impact on their bottom line.

Municipal Planning Considerations
The LPAT's decision strikes a balance between competing policy objectives, including ensuring that an adequate and mixed supply of housing options are available and ensuring that the city's tourism industry is appropriately stimulated and developed.

Ultimately, the decision to uphold the By- Laws was made in the hope that Toronto's housing stock currently in use as dedicated short-term rentals will be repurposed for long-term accommodation. To date, nearly 6,300 of Toronto's 21,000 Airbnb listings are ghost hotels, with the largest concentrations appearing in the downtown, including the waterfront, and the Yonge Street – Sheppard Avenue area.

If the By-Laws achieve their stated aim, Toronto's vacancy rate (currently at 1.1%, which is below the 3% that urban planning experts consider "healthy") should increase. Whether the new By-Laws can actually produce the changes necessary to lessen the severity of the City's housing crisis is not yet known. What is known, however, is that big changes are in store.