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Focus: Sharing economy means work for municipalities

|Written By Shannon Kari

It is sometimes referred to as the sharing economy, but technology has enabled its leading companies to generate huge revenues, while at the same time resulting in regulatory headaches for municipalities.

Mary Ellen Bench says enforcement of municipal regulations around short-term rentals can be challenging.

Controversy over the app-based ride-booking service Uber sparked a court battle that ultimately proved unsuccessful for the City of Toronto in 2015.

The city instead changed its taxi licensing system and now, with the growing popularity of Airbnb and other short-term rental services, Toronto has announced a proposed regulation and licensing scheme, which could be passed by its city council this fall.

Short-term rentals will be permitted only in a property owner’s main residence or legal secondary suite under the plan announced June 12.

Condominium boards will be permitted to ban short-term rentals. Those who are rent- ing out part of a residence for a short-term rental will be required to be licensed and collect an accommodation tax of up to 10 per cent of the total bill if the city’s proposals are passed into law.

Attempting to license and regulate these new app-based companies is probably the best approach, says Leo Longo, a part- ner and senior member of the Municipal and Land Use Plan- ning group at Aird & Berlis LLP.

“The goal is how do we make them work? They are not going away,” says Longo.

There have been numerous reports by local media in Toronto about complaints that some condominium units in the city’s downtown, as well as some local residences, have been effectively turned into hotels by absentee owners. About 30 per cent of the current listings on Airbnb in Toronto would not be permitted under the new rules proposed, according to a city staff report.

Municipalities in Ontario are unlikely to be able to impose regulations that will shut down these kinds of businesses, Longo suggests.

“Regulations are to determine the best place they can fit in,” he says. “It is not so much about the sharing economy, it is about the use to which a property is being put,” says Longo about short- term rental companies.

Mississauga is another On- tario city that is hoping to move forward with plans to regulate short-term rentals. City staff members are preparing a report that is scheduled to be complet- ed by the fall, says its city solicitor, Mary Ellen Bench.

“We can’t make companies like Airbnb go away. The actual business operates on a platform that is outside of our control. We can try and regulate,” says Bench.

“We have to strike a balance and deal with the technology in a way that protects our residents,” she adds.

While technology-driven businesses have shone a spotlight on companies such as Airbnb, there are past court precedents in Ontario for municipalities to restrict short-term rentals.

Bylaw changes enacted by a small resort and skiing community were upheld by the Division- al Court in 2012 in Rosen v. Corporation of the Town of Blue Mountains. The restrictions applied to rentals of less than 30 days in low-density residential sections of the community.

“The promotion of tourism and economic development can- not be looked at in isolation from other legitimate goals, such as the preservation of the residential nature of certain neighbour- hoods,” the Divisional Court stated in its ruling.

Longo, who was counsel for the town in that case, says it suggests that communities can “act in a proactive way” to deal with short-term rentals.

The proposals in Toronto would cover rentals of up to 28 days.

“Less than 30 days is the bright line that courts have tak- en,” says Longo.

Even with new regulations in areas such as short-term rentals, enforcement can be challenging, says Bench.

“We have no right of entry to check if the location is be- ing rented out illegally,” she ex- plains. “Municipalities enforce on a complaint-driven basis,” adds Bench.

So even if new rules are drawn up, it may still be possible for absentee owners to rent out units regularly. Administrative penalties, which generate less revenue but operate on a strict liability basis, may be a more effective way to deal with viola- tions, says Bench.

In larger cities where there are a number of condominiums, it is up to their boards to take action if they don’t want short- term rentals, says Longo.

“Condominium corporations can enforce the bylaws,” he says.

The city staff proposals in Toronto would require Airbnb to collect any taxes from its customer and then remit them to the municipality.

Even though many of these businesses are headquartered in the United States, there is an incentive to co-operate with municipalities in Ontario and other jurisdictions, Bench explains.

“The main incentive is the damage to reputation in not complying. It is about keeping their market clean,” says Bench. Media reports, for example, about short-term rentals being used as “party houses” may hurt a company’s public image.

Bench would also like the provincial government to take a greater role in overseeing these technology-based service companies. In terms of rentals, she notes that it also reduces the amount of affordable housing stock, which is an area of provincial responsibility.

As well, it is no longer just taxi rides or rental accommodations being offered through these technologies. “There are plumbing and home handyman services and prepared foods,” notes Bench, naming just a few. “This is expanding beyond the power of municipalities.”

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