Short Term Rentals vs the Residential Tenancies Act in Ontario

Read the related post: Understanding Residential Short-Term, Medium-Term and Long-Term Rentals

The short-term rental (STR) and its related medium term rentals (MTR) concept has been around for a long time usually involving cottage rentals, destination apartment rentals and even temporary home rentals. Private advertisements as well as platforms such as VRBO or CanadaStays were the main way of connecting owners with guests. With the advent of AirBNB, which simplified transactions as well as building a trust model between owners and guests, short term rentals were energized and have become hugely popular. Many STR operators use multiple marketing platforms beyond AirBNB including Expedia, Booking.com, VRBO, etc. Many also continue to market directly to guests.

What is often not considered with STR operations is the potential interaction with local residential tenancy acts or other forms of legislation. A general definition and overview of short vs long term stays as well as the regulations that control them is given in [1]. This article focuses on the interaction with the Ontario Residential Tenancies Act (RTA)[2] with the sole focus to help STR operators reduce their exposure of a guest relationship being captured under the RTA and essentially having the guest become a tenant under this legislation. As with any legal situation, a legal professional proficient in the RTA should be consulted. This article is only meant to convey our own business experience.

The first thing to understand is that the RTA is a powerful piece of legislation which tends to be much more inclusive than one might expect. There are very specific exemptions in this legislation under which it does not apply as it relates to residential accommodations. Just because you use a platform such as AirBNB, you are not necessarily protected from a guest becoming a tenant under the RTA. Even hotels, which have their own sets of legislation, can have guests become tenants under the RTA! (see [5]).

It is also important to note that in the event of a dispute as to whether the RTA applies or not, the Landlord Tenant Board (LTB) gets to decide this. In most cases, such an action is brought about by a guest who wishes to be deemed a tenant under the RTA. References [8][9] & [10] provide some case examples where key tests were failed and the guest was deemed to be a tenant.

The following list will help you reduce the risk of a guest becoming deemed a tenant under the RTA:

• Making use of and citing specific exemptions. For STRs, exemption 5(a) is the appropriate exemption which simply states, “living accommodation intended to be provided to the travelling or vacationing public or occupied for a seasonal or temporary period in a hotel, motel or motor hotel, resort, lodge, tourist camp, cottage or cabin establishment, inn, campground, trailer park, tourist home, bed and breakfast vacation establishment or vacation home”.
• Continued use of a unit as an STR to help establish long term intent. The purpose here is to support exemption 5(a)
• Guest has a permanent address where they normally receive mail, and it is not the rented unit.
• Stated purpose of their stay which supports exemption 5(a).
• Posting relevant sections of the Inn Keeper’s Act [3] as per the act. At least section 4 is to be posted as is stipulated by section 6. Reference to the Inn Keeper’s Act should also be made in any private agreements. See figure 1 for an example of how this is typically presented.

Figure 1. Section 4 of the Innkeepers act, posted in a building.

When not using a short-term rental booking platform, we create our own lease which documents each of these elements.

Other elements which can help reinforce the unit and operation as short-term rental focused:

• Posting the room rates in the room as is required by the Hotel Registration of Guests Act [4].
• Having a policy which limits the length of a stay as an STR. For example, we have a policy where we will only do STR stays of up to six months. If a stay needs to be longer than 6 months, then we will review it as an exception management case. We have also defined cases where some of our STRs have become long-term rentals and the guest transitioned to the Ontario Standard Lease. In so doing, we are showing that we have a process to proactively transition a guest to an RTA tenant.
• Licensing your business or otherwise establishing a clearly stated business of short-term rental
• Offering maid services or other in-room services.
• Charging HST (as a hotel would). Your accountant should be consulted as to whether HST applies to your business and your personal/corporate circumstances.
• Having insurance specifically for short-term rentals (e.g. in your building’s policy)

Again, this list is just to help reinforce the nature of the business. The more you can support the nature of the business as supporting RTA exemption 5(a) the less likely the LTB will find the nature of the operation as falling under the jurisdiction of the LTB (and RTA).

Some would suggest that the risk is lower if the unit charges a rent much higher than a long-term rental contract. The caution here is that when things escalate to the point where the guest is asking for the LTB to make a determination, there is often a non-payment of rent situation occurring at the same time.

Cautions:

When a situation begins to escalate (e.g. a guest refuses to leave), there is often the temptation to serve the guest with LTB forms (e.g. an N4 – non-payment of rent). In fact, some officials may suggest you do this (e.g. LTB call centre or even the police). In such a situation, your first port of call should be with a legal professional who is knowledgeable in the RTA. In general, use of the LTB process can substantially weaken your case during a determination hearing.

Conclusion

The concept of short-term rentals is not well defined in law and STR operators are generally relying on RTA exemption 5(a) and thus need to be able to demonstrate that they are working within the spirit of this exemption. As with most legal aspects, it is wise to have a lawyer available for consultation as you set up your business, define legal contracts and for when a situation deteriorates. It is also important to remember that all you can do is reduce the risk if an issue should it arise. There is no absolute.

STR and MTR can be very lucrative and personally satisfying endeavours and while we have focused this article on risk mitigation, it is important to know that the vast majority of transactions happen without incident. You just need to be well positioned in the event of an exception.

Resources:

[1] Residential Short-term Rentals vs Medium-term Rentals vs Long-term Rentals: https://aliferous.ca/understanding-residential-short-term-medium-term-and-long-term-rentals/

[2] Ontario’s Residential Tenancies Act: https://www.ontario.ca/laws/statute/06r17

[3] Ontario’s Innkeepers Act: https://www.ontario.ca/laws/statute/90i07

[4] Hotel Registration of Guests Act: https://www.ontario.ca/laws/statute/90h17

[5] What does the Landlord & Tenant Board look at when deciding whether my unit is protected under the RTA?:
https://www.nipissingcommunitylegalclinic.ca/wp-content/uploads/2020/02/Motel_Pamphlet.pdf

[6] Toronto’s Short Term Rental By-law home page: https://www.toronto.ca/community-people/housing-shelter/short-term-rentals/

[7] Ottawa’s proposed Short Term Rental By-law: https://ottawa.ca/en/news/new-short-term-rental-law-designed-help-address-housing-shortage-and-community-nuisances

[8] CanLII 41829: https://www.canlii.org/en/on/onltb/doc/2018/2018canlii41829/2018canlii41829.html

[9] CanLII 75939 : https://www.canlii.org/en/on/onltb/doc/2007/2007canlii75939/2007canlii75939.html

[10] CanLII 113775 : https://www.canlii.org/en/on/onltb/doc/2018/2018canlii113775/2018canlii113775.html