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Short-Term Rentals and the Law

As platforms like Airbnb and Vrbo continue to gain popularity, many homeowners and investors are turning to short-term rentals (STRs) to generate extra income. But what was once an easy side hustle has now become a complex legal minefield.

With an increasing number of municipalities cracking down on short-term rentals through zoning bylaws, licensing regimes, and other enforcement tools, property owners need to understand what’s legal, what’s not, and what the risks really are.

Whether you’re thinking of renting out a basement suite or buying a property specifically for Airbnb use, keep the following in mind to navigate Ontario’s evolving short-term rental landscape.

Why Are Short-Term Rentals Under Scrutiny?

Short-term rentals can affect local housing supply, disrupt neighborhoods, and contribute to rising rents. In response, municipalities across Ontario have started to introduce strict regulations to:

  • Protect long-term housing stock
  • Minimize nuisances (noise, parking, overcrowding)
  • Generate tax revenue
  • Promote safety and insurance compliance

This means compliance is no longer optional and the legal consequences for violations are serious.

Key Legal Considerations for STRs in Ontario

1. Municipal Bylaws Vary Widely

Ontario does not have a single provincial law that regulates short-term rentals. Instead, each municipality sets its own rules. For example:

  • Ottawa: STRs are permitted in urban zones only and often require licensing and insurance disclosure.
  • Toronto: STRs are only permitted in a host’s principal residence, with mandatory registration and a 180-night annual cap for entire-home rentals.
  • Niagara Region & Muskoka: Several townships require licences, inspections, and zoning compliance, especially near lakes and tourist areas.

Before listing your property, it’s critical to review your local zoning bylaw and any licensing or registration requirements. 

2. Zoning Matters

Many residential zones do not permit short-term rentals at all or restrict them to certain property types (e.g., detached homes only). Running an STR in a non-permitted zone could lead to orders to comply, fines, or even court action.

Some cities now explicitly define short-term rentals as a distinct land use, separate from residential dwellings or bed-and-breakfasts.

3. Condo Boards and STR Bans

If your property is a condominium, the Condominium Act allows your condo board to prohibit or restrict short-term rentals via the declaration or rules. Many buildings have banned Airbnb entirely due to security, noise, and liability concerns.

Violating condo rules can result in legal action by the corporation and hefty legal bills.

4. Insurance Gaps

Standard homeowners’ insurance often does not cover short-term rental activity. If damage or injury occurs during a stay, your insurer may deny the claim entirely. Special STR insurance is available but it must be disclosed to your insurer, and some companies won’t offer it at all.

5. Taxes and Reporting

As of 2024, the CRA has implemented stricter enforcement for online rental income. Hosts must:

  • Report all STR income on their tax return
  • Collect and remit HST, where applicable (especially for commercial hosts)
  • Be prepared for CRA audits, especially if their online income doesn’t match their filings

Risks of Non-Compliance

Operating an illegal or non-compliant STR could result in:

  • Municipal fines (ranging from $500 to $100,000 in some jurisdictions)
  • Eviction by a condo corporation
  • Insurance denial in the event of property damage or injury
  • Civil lawsuits from guests, neighbors, or municipalities
  • Tax penalties for unreported income

What Should Property Owners Do?

If you’re considering a short-term rental:

  • Review your local bylaws and zoning permissions
  • Check if your condo building allows STRs
  • Ensure you have adequate insurance
  • Register or license your unit if required
  • Consult a real estate or municipal lawyer to assess your risk and ensure compliance

Short-term rentals may still be profitable in 2025 but they’re no longer the free-for-all they once were. With rising regulation, enforcement, and liability, Ontario property owners must approach STRs as a regulated business, not just a passive income stream.

At Delaney’s Law Firm, we help property owners, investors, and developers understand their legal obligations and avoid costly mistakes. If you’re considering entering the short-term rental market, or if you’re already in it and unsure if you’re compliant, contact us for tailored legal advice.

The content on this post is for information purposes only and is not legal advice, which cannot be given without knowing the facts of a specific situation. You should never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. The use of the website does not establish a solicitor and client relationship.