Ontario court ruling cracks down on Airbnb

If you’re a condo owner and your side hustle is leasing out your place on Airbnb or other similar peer-to-peer homestay sites, it’s going to get much harder to count on that extra cash. In a precedent-setting decision, the Ontario Superior Court has ruled that condominium corporations now have absolute authority to ban condo owners from leasing their units on a short-term basis.

Just to be clear, the decision does not mean that Airbnb cannot operate in Ontario — that’s still being debated. It just gives condo corporations more power to crack down on owners who are leasing out their units on a short-term basis using Airbnb and similar websites.

The 14-page decision released late last week by Justice Robert Beaudoin of the Ontario Superior Court and obtained by the Financial Post, stemmed from a dispute between the Ottawa Carleton Standard Condominium Corporation and an Ottawa-based couple, Douglas Menzies and Norma White, who were offering short-term stays in their condo unit through a private company that they owned, DGM Management Corp.

According to the decision, unit 2601 at 170 Metcalfe in Ottawa, was made available for stays on sites like Airbnb, Expedia.ca, Kayak.com, and others for as short as a single night, and on a repeated basis. “Without the consent of the other condo owners, some owners were basically operating a hotel out of a residential complex.” Beaudoin wrote.

The Ontario Condominium Act states that residential units are to be occupied “only for the purpose of a single family dwelling which includes a home office… and for no other purpose.”

“‘Single family use’ cannot be interpreted to include one’s operation of a hotel-like business, with unit being offered to complete strangers on the internet, on a repeated basis, for durations as short as a single night,” the decision said.

Rodrigue Escayola, lawyer for the Ottawa Carleton Standard Condo Corporation called the win a “game-changer” for condo corporations. “The judge’s decision is significant because it allows for condo corporations to rely on their declarations (a legal document drafted by the condo builder) to ban short-term tenancies,” he told VICE Money. Until last week’s decision, says Escayola, there was no definitive legal precedent that condo corporations could use to justify a ban on Airbnb-type rentals.

Indeed, this decision is a noteworthy one for condo boards who have been on a tear against peer-to-peer homestay sites like Airbnb since they started dominating the short-term rental market in cities like Toronto, Vancouver, and Montreal. “It is the ultimate Condo Owners Protection because it is enforceable by our Superior Court system,” Linda Pinizzotto, founder of the Condo Owners Association told VICE Money.

Pinizzotto, who is on the board of a downtown Toronto condominium building, claims that short-term rental hosts renting out their spaces in condos meant for single-family dwellings only, could face extremely high legal bills if sued—more than any income they would achieve through their nightly or weekly rental.

From the perspective of condo corporations there are two key problems with Airbnb-type rentals. First, some condominiums lease out units or entire floors, and so they obviously view Airbnb as an unwanted competitor. Second is the safety issue that Airbnb-rentals can potentially create for other residents. According to the court ruling on the Ottawa Carleton Corp. case, condo owner Douglas Menzies, a lawyer, used the unit to “lodge out of town witnesses and experts for trial preparation and for the office’s annual Christmas party.” There was at least one complaint from the use of the unit by Airbnb guests.

But some think that the bigger worry for cities and provinces is the way in which Airbnb rentals are eating into the overall rental vacancy rate. According to a extremely detailed report on Airbnb by the Canadian Centre for Policy Alternatives (well worth the read), while Airbnb listings have proliferated in Toronto, rental vacancy rates have plunged.

This is indeed significant; in October 2015, Toronto’s rental vacancy rate, meaning the number of housing/apartment/condo units available for rent was 1.5 percent, drastically below the national average of 3.5 percent. The situation was even worse in Vancouver—rental vacancy rates of 0.8 percent, a statistic that compelled the City of Vancouver to implement a tax on empty homes, and units that are booked full-time on Airbnb.

The relationship between Airbnb listings and rental vacancy rates is this: if you list your place on Airbnb for even a short amount of time, there is one less unit/room/den available in the rental market, for renters looking for long-term leases. With the almost hotel-like rates in which rooms and entire units are being listed on Airbnb, it is potentially more lucrative to rent out a space for a weekend or for three months at a time, or repeatedly throughout the year, than to sign a one- or two-year tenancy agreement. It also lends a certain kind of flexibility in a scenario where you’re stuck with an unsatisfactory tenant.

In cities like Toronto and Vancouver where owning a home as a young person is virtually impossible, maintaining a decent number of homes available for long-term rentals is absolutely essential. But Airbnb argues that they are not eating into the long-term rental marketplace. In fact, they put out a recent study arguing that out of the 9,500 listings on its site, only 760 listings could be competitive with conventional long-term rentals. That basically assumes that owners who put up those remaining 8,740 listings, never had any intention of renting out their spaces on a long-term basis.

VICE Money reached out to Airbnb to respond to last week’s court decision. In an email statement, Airbnb spokesperson Christopher Nulty did not address the ruling, but instead emphasized Airbnb’s priority to “continue a productive dialogue with policy-makers across Canada.”

“Our goal is to support our more than 50,000 hosts across Canada by working with local communities and stakeholders, including condo boards, to support healthy home-sharing communities across the country,” Nulty said.

But in Toronto at least, Mayor John Tory is not playing favourites when it comes to the short-term stay market. In a recent speech to the Toronto Board of Trade, Tory pledged to institute a mandatory user-fee for all Toronto hotels and other short-term rentals like Airbnb, in an attempt to level the playing field between the conventional hotel business and Airbnb-type websites.

Vanmala Subramaniam is VICE Canada’s Money and Economics Editor. Follow her on Twitter.