CONDOCENTRIC: Ask The Pros - External Vents, Balcony Enclosures, Insurance Trustees, and Short-Term Rentals

Question:

Please outline the steps that a condominium board can take to limit, control or even stop short-term rental of units.  We have on unit in our complex that is rented out, fully furnished in much the same way as an executive suite, on short-term stays – three months at a time.  The owner boasts of getting much higher rental rates.  Can we attach restriction as to how long a unit can be rented or leased out? Other owners in this complex are not in favour of this happening at all.

ANSWER:

The use of residential condominium units for transient, “hotel-like” use is a growing concern for many Ontario condominium corporations and is no way limited to urban centres like Toronto. Although this issue was first litigated in 1985, it has really come to prominence over the past two years, spurred on perhaps by the generally favourable economic conditions. If transient use is a concern, and even if it is not immediately considered a problem, the condominium corporation should take active steps to address the issue immediately. If transient use is viewed only as a potential concern, the condominium corporation should consider taking steps to clarify its position on the matter.

In condominium corporations where hotel-like, transient use has been a problem, residents have experienced elevators and hallways strewn with linen and maid’s carts, buses unloading guests for mass registrations in the building’s main lobby, breaches of security, increased staff turnover, the coming and going of escort service employees and the like. Unfortunately, the problem often becomes rooted during development of the condominium, and is already firmly in place by the time the declarant turns the corporation over to its owners.

In the 2001 case of Skyline Executive Properties Inc. v. Metropolitan Toronto Condominium Corporation No. 1280, the court held that: “The choice of location of one’s private residence is one that is influenced by many discreet factors including security, privacy and maintaining the value of one’s investment. It is not unreasonable for the owners to say that the recreational facilities are less inviting when they run the risk of encountering absolute strangers. Nor is it unreasonable for them to say that the transient occupants treat the facilities as if they belong to a hotel. They have no interest in the long-term upkeep, maintenance and repair. They do not know the rules and they have no vested interest, as do owners and long-term residents, in abiding by them.”

There are four main steps that a condominium board can take to control, or even stop, short-term rental of units:

STEP I: The condominium corporation’s declaration should be reviewed for restrictions placed upon the use of units. Very generally, use restrictions are drafted in one of three forms:

1. Use as a private, single-family dwelling only. This is the safest wording, though the meaning of the phrase is currently before the courts.
2. Use as per municipal bylaws. The Courts have held that residential use restrictions in a city’s by-laws do not prevent the hotel-like use of units. However, a rule passed by a condominium corporation can restrict “hotel-like” use and thereby clarify any ambiguity.
3. Use expressly permitting short-term, transient rentals. In this case, there is little that can be done to restrict the short-term, hotel-like use of units with the exception of amending the condominium corporation’s declaration.

STEP II: If possible, the condominium corporation should have a rule passed that would define and prohibit short-term tenancies (e.g., any tenancy of less than six months) but allowing for limited exceptions so any unit owners taking an extended holiday (e.g., snowbirds) would not be prevented from leasing their units. The condominium corporation would be well advised to have its solicitor draft the rule in order to incorporate specific court decisions on this issue in order to make the rule as “bullet proof” as possible to court challenges.

STEP III: The rule, as with all rules, must be consistently and reasonably enforced. Failure to do this may make it difficult to later rely on the rule.

STEP IV:  A condominium corporation should maintain strict control, and keep accurate records, of who comes and goes from the building, and otherwise ensure full compliance with the condominium corporation’s rules.

With regard to any unit owner who may boast of receiving much higher than normal rent, bear in mind that this comes at a price, which is effectively being paid in part, directly or indirectly, by other owners. This “price” may include factors, such as increased common expenses due to the additional wear and tear or other costs associated with increased turnover of transient guests who have no vested interest in the condominium, the payment of property taxes (a short-term, hotel-like rental operation should be required to pay hotel and related business taxes) and the efforts of voluntary board members and professional property management in operating the property.

In addition, condominium owners should also consider the potential loss of property value associated with units in a complex where a hotel-like use is permitted, especially on a wide scale. Practically speaking, the economic interests of long-term unit owners and those offering short-term, hotel-like tenancies are diametrically opposed, in the sense that the latter are likely much more interested in exploiting the condominium complex for short-term income gain versus preserving the capital investment in the long-term.

In recent months, a coalition of condominium corporations has organized to bring attention to this matter, and to generally to offer support to condominium board members on a variety of issues.   Inquiries can be made to Mr. Cam Miller by e-mail (miller.cameron@rogers.com).

Support on this issue has been received at the municipal level through City of Toronto Councilor Pam McConnell, and at the provincial level through George Smitherman, MPP.  Short-term “hotel-like” use of condominium units is also being seen to erode the viability of the hotel industry and the tourism and hospitality industry.  Support has also been forthcoming by both the Hotel Industry and the United Food and Commercial Workers Local Union.  At the City of Toronto level, a team has been established to review this situation as it affects issues such as taxation and zoning.  We also hope to see a private members bill introduced to amend the Condominium Act, 1998 in order to establish parameters on this issue before the end of November 2002.  

Anyone interested in supporting change to the Condominium Act, 1998 to restrict the transient “hotel-like” use of residential condominium units, should contact his/her local area MPP to insist on support of this matter.

Response by Richard Elia, a Toronto-based lawyer who practices primarily in the area of condominium law. He also represents MTCC 1385 (Phase 2 to MTCC 1280) in its ongoing disputes with Skyline Executive Properties, and is assisting in the drafting of the private members bill referred to in the above response.

From “Condominium Manager (CM ACMO) Magazine" - Winter 2002 p.46

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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