Hotel lobby

Pan Am and the sport of short-term rentals

Expert advises condos to prepare for big tourist draws like this summer's Games in Toronto
Thursday, August 13, 2015
By Michelle Ervin

Editor’s note: The following article originally appeared in the May/June 2015 issue of CondoBusiness. Even with the Parapan Am Games winding down, it remains relevant amid the rise of short-term rentals. Toronto hosts many tourist-drawing events through the year, including the forthcoming Toronto International Film Festival in the fall.

Every week, Samsonshield, a condo security company, reports to property managers at its client sites on the suites in their buildings that are advertised on short-term rental websites. On average, said CEO Quintin Johnstone, the company gets about three or four hits per building, which are mostly high end and located in Toronto’s downtown core.

Forty-five days out from the Pan Am/Parapan Am Games, those hits started to climb into the double digits at sites located near event venues. Johnstone, a retired Toronto cop, believed the games would have the most dramatic impact on Toronto’s burgeoning short-term rental market of any event to date — and, from what he was hearing in the weeks leading up to the event, not everyone in the condo industry was prepared.

Before preparing a plan, though, condo boards need to consult with their corporation’s legal counsel to find out if their governing documents restrict short-term rentals.

“Where it’s provided by the law, that’s quite legitimate,” said Johnstone, “but where you have the prohibition, like in most condos in the downtown core, you have a problem.”

Check rules and zoning

Condo lawyer Denise Lash advises condo boards to check their declaration for provisions either expressly allowing or in any way restricting short-term rentals. Restrictions may take the form of term lengths for tenancies and permitted uses of units that are subject to site specific zoning bylaws, which may prohibit transient use.

“Where the declaration is silent on transient or short-term use of units, we always recommend to corporations — even if they don’t have these issues — that they pass rules to clearly set out what restrictions there are on rentals,” she said.

The duty to manage and maintain the common elements for the safety and security of residents gives condo boards an impetus to prevent and mitigate the potential consequences of short-term rentals.

“People who tend to occupy hotel rooms don’t treat it as if it’s their own home, so noise and damage are common problems,” said Lash. “A good portion of those condominium properties that have transient activity have experienced numerous problems which have impacted on the common elements and their residents.”

Even if the declaration expressly permits short-term rentals, condo boards still have tools at their disposal to curb the practice. Provisions that make short-term rentals so onerous as to discourage them might include requiring owners to register key fobs and provide tenant information in advance of the tenant’s stay, offered the condo lawyer.

Whatever a building’s rules, the obligation to act honestly and in good faith demands that condo boards enforce them. If the condo board wilfully ignores any breaches of the rules, said Lash, directors may expose themselves to personal liability for failure to act.

If a unit owner continues to breach a rule after receiving notice from management, the condo board would typically instruct its lawyer to send a letter. Telling the unit owner that he or she will be held responsible for the corporation’s legal costs is often enough to obtain voluntary compliance, said the condo lawyer.

“I think what they [boards] have to do is educate the owners, because Airbnb is becoming more and more popular, and owners may not be aware that there are restrictions,” said Lash, “Many owners aren’t aware of rules until they breach them.”

Educate everyone

Education is central to FirstService Residential’s response to the rise of short-term rentals in condos. One tip the firm gives its property managers is to talk to core groups of real estate agents selling in their buildings, said Tania Haluk, vice president of startup operations. The idea is to encourage agents to confirm that short-term rentals are permitted in buildings they’re showing clients that they know intend to engage in that activity.

Haluk cautioned that if a condo board decides to introduce a new rule restricting short-term rentals, it faces the possibility of a challenge from an owner who bought in based on what he or she saw as an investment opportunity. Even if a rule goes unchallenged, it takes 30 days to become effective.

In buildings that prohibit short-term rentals, the firm’s property managers make board directors aware of their responsibility to enforce declaration rules setting minimum lease lengths. The firm’s property managers also engage owners and tenants.

“We’re trying to educate everyone in the building of what their obligation as a community member is, and to protect them,” she said. “Some tenants aren’t aware that they can’t sublease; some owners aren’t aware that they are ultimately responsible if the tenant does sublease and if any damage or incidents occur.”

To communicate this information, the firm’s property managers use on-site notices, town hall meetings and e-blasts, which, importantly, reach off-site owners.

Though the firm educates its site staff on building rules, it asks staff to defer to the management office for enforcement. When the firm’s property managers identify illegal short-term rentals in buildings, either by on-site activity or online listing, they contact the owner to advise the owner of the breach and its potential consequences. Emails are easy to delete or ignore; Haluk finds that phone calls are more effective.

“It’s difficult from the property manager perspective, because they already have a plate full of tasks that they need to keep on top of, and this is just an additional burden to try and be proactive about it,” said Haluk. “We know Airbnb is a $10-billion business and growing … and especially with the Pan Am Games coming, it’s a concern.”

Create a Games plan

Compounding concerns about illegal short-term rentals is the growing trend of tenants subleasing their units unbeknownst to their landlords, the unit owners.

“What happens is they’ll have a cash transaction that takes place, they don’t get proper identification, they’ll hand off the fob and keys and say, ‘Enjoy the weekend,’” Johnstone explained. “They’ll come back and find that their place is completely trashed; sometimes, unfortunately, property gets stolen.”

Property damage threatens to void not only the unit owner’s and tenant’s insurance, but also the corporation’s insurance.

With a view to mitigating these risks, Johnstone teamed up with a condo lawyer and commercial insurance broker last fall to develop a security plan ahead of the Pan Am Games.

That plan starts with understanding laws and rules that apply to short-term rentals in a specific building. Next comes communicating to the community those laws and rules — as well as the board’s intent to enforce them. And the board needs to follow through on its vow to enforce the laws and rules by immediately responding to illegal short-term rentals.

One response might include turning away would-be short-term guests at the security desk based on advice from the corporation’s lawyer.

In cases where the guests make it past the security desk, staff and residents can be enlisted as allies in identifying and reporting illegal short-term rentals. And in cases where short-term guests are causing disorder, such as noise and overcrowding or suspected criminal activity, communities can turn to police for assistance.

The key, said Johnstone, is to have a plan in place before vacationers show up in the lobby with their luggage and potentially become unwitting victims of illegal short-term rentals themselves.

“If you have a major event like the Pan Am Games, all the hotels are full and then you have them prohibited access at the front desk,” he said. “They’re from out of town, they’re in town, there’s no accommodation available anywhere, and you’re virtually rendering them homeless.”

Michelle Ervin is the editor of CondoBusiness.

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