Short-term rentals present legal issues

Condominium boards are adopting a variety of approaches to allow or prohibit short-term rentals, as municipalities and courts have also started to weigh in on the issue.

Short-term rentals present legal issues
Denise Lash says the fact that condo bylaws trump any city regulations when it comes to short-term rentals can be a source of confusion.

Condominium boards are adopting a variety of approaches to allow or prohibit short-term rentals, as municipalities and courts have also started to weigh in on the issue.

Some condo corporations, concerned with additional wear and tear as well as the security risks imposed when more people have access to a building, have imposed restrictions on the leasing of units. Just how unit owners are restricted from renting out their units on a short-term basis also varies from building to building, say lawyers.

“This area of law is changing rapidly and it’s evolving,” says Laura Glithero of Cohen Highley LLP Lawyers in London, Ont.  “I think it’s important for condo corporations to remember that declarations are really the central document . . . in terms of what limits are put on the use of the unit.”

She says examining the condo’s status certificate during the early period of acquiring a condo can save owners and their lawyers from complications down the road.

Glithero says the declaration for each property can differ dramatically. Some, for instance, will contain provisions to specifically allow short-term rentals, while others will prohibit them, either implicitly or explicitly.

The onus is on the purchaser to ensure their expectations are consistent with the goals of the board and to pay attention to requirements, Glithero points out.

“As a condo corporation lawyer, I think it would save a lot of hassle for unit owners if that conversation happened when the status certificate was obtained during that initial period where [a person is] reviewing the documents and confirming that intended use is consistent with the restrictions on use,” she says.

A single family-use provision in the condo’s declaration is one of the ways short-term rental could be prohibited in individual units, she says.

While some condo boards have enacted a rule to provide a broader interpretation of family when referring to their single family-use provision, the definition adopted by the courts is narrow and excludes the ability to use the condo for short-term rentals, observes Cheryll Wood, a condo lawyer with Davidson Houle Allen LLP Condominium Law in Ottawa.

In 2016, Ottawa-Carleton Standard CC 961 v. Menzies reinforced the definition of a family as a social unit consisting of parents and their children, whether natural or adopted, and other relatives living with the primary group. It also confirmed that rules requiring leases to be more than four months are valid and enforceable.

A declaration that states the units are to be used for residential purposes also prevents the use of short-term rentals, adds Wood.

Condo corporations are obliged to enforce their rules, so if a unit owner complains that another unit is being rented out nightly when the declaration forbids it, the corporation must take steps to prevent that type of use by the unit owner.

In addition, some municipalities, such as Toronto, have passed their own bylaws regulating short-term rentals. But Wood warns municipal regulations don’t change the approach adopted by the condo board.

The condominium’s right to regulate and prohibit short-term rentals is separate and apart from any municipal regulations that come into force. A municipality’s bylaws don’t change the rights of the condo corporations’ ability to enforce the existing provisions.

That condo bylaws trump any city regulations can be the source of confusion, observes Toronto condo lawyer Denise Lash, who is preparing for the rollout of Toronto’s new rules expected this June.

“Now that the City of Toronto has these regulations, it sort of complicates things, because owners may interpret that as meaning ‘Well, now I can do Airbnb’ in buildings that prohibit it,” says Lash, principal of Lash Condo Law in Toronto. “I’m recommending that condominium corporations now do newsletters, notices, explaining to residents living in buildings what they can and cannot do.”

She suggests condominium corporations and their lawyers be proactive by advising boards of directors to amend their rules to incorporate the City of Toronto’s requirements. But some declarations are designed to allow for short-term rentals. An Ontario Superior Court of Justice was recently asked to change that provision in the declaration of two condominium corporations.

In TSCC No. 1556 and No. 1600 v. Owners of TSCC No. 1556, et al, the boards argued the declarations were inconsistent with the municipal zoning bylaw and restrictive covenants. They sought to reverse provisions in their declarations permitting short-term rentals in the condo units, but they were unsuccessful. In addition to specifically allowing short-term rentals, the declarations also stated that any restrictions were not to be construed to prohibit or restrict short-term rentals.

The alternative to going to court was to seek the necessary 80-per-cent support of unit owners required under the Condominium Act to change those provisions. But Lash suggests that Toronto’s new regulations may help similar condo corporations wishing to change their declarations in the future.

“This condominium that tried to amend it may find the City of Toronto’s regulations helping them a bit,” she says, because investors now, according to the City of Toronto regulations, will not be able to use their units for short-term rentals.

With Toronto’s new regulations, only residential property and condo owners who own their units and have it as their principal residence can rent them out for short-term stays. The intent is to limit the ability to convert long-term housing units into accommodation for tourists and protect the limited number of residential rental units.

According to the city’s staff report that led to the bylaw, the overarching principals in the regulations involve allowing for short-term rentals, minimizing negative impacts on housing affordability and availability, maintaining community stability and minimizing nuisances. Lash wonders about the city’s ability to regulate that.

Lash, however, had another approach for a downtown Toronto condo board wrestling with the issue. There was concern over short-term rentals in a building, where the condo corporation’s declaration clearly permitted them. While some owners wanted the short-term rentals abolished, others wanted to retain the ability to rent out their units. According to Lash, there was no realistic prospect of getting the 80-per-cent vote necessary to have the declaration changed.

The solution? The condo corporation became Canada’s first to enter into an agreement with Airbnb to regulate short-term rentals.

The Friendly Buildings agreement allows for the control and flow of information about which units are being rented, when and for how long to the condo manager, and it also sees the corporation getting a portion of the rental earnings to cover the additional wear and tear of the common elements. Another plus for the condos is that Airbnb’s property and liability insurance covers the corporation and the common elements. The deal also provides obvious benefits to Airbnb.

“It’s a way that gives the condominium corporation the ability to enforce more than they would have in the normal course of enforcing their declaration because now they have a mechanism through Airbnb to deal with people who don’t comply,” says Lash.

“I think we’ve got to work with them because it’s here to stay. And what I found is that there’s certain advantages to working with them on this Friendly Buildings [program].”

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