In this article we will canvas some of the important things to think about before listing your property as a short term rental property.
Statutory Building Schemes
Statutory building schemes (“SBS”) are generally in place to maintain the consistency and character of a particular neighbourhood and are typically put in place at the time of the development. SBSs often impose restrictions on the use and appearance of the properties affected by the SBS. If your property is subject to a SBS, it will be listed under the “Charges, Liens and Interests” heading on your property’s State of Title Certificate or title search from the Land Title and Survey Authority of British Columbia.
A SBS may, for example, expressly prohibit you from having a secondary suite on the property (regardless of zoning). A SBS may, and often does, prohibit conducting trade or business on the subject properties. In the event that your property is subject to a SBS, we strongly recommend obtaining and reviewing a copy of the underlying document – this is the only way to truly know the restrictions imposed on your property.
So, what happens if you contravene a SBS? Provided that the SBS has not expired, the terms of the SBS may be enforced by the original developer or any other owner whose property is subject to the same SBS bringing a civil claim against you.
Section 141(2)(b)(ii) of the Strata Property Act, SBC 1998, c 43, permits a strata corporation to restrict the rental of a strata lot by way of a bylaw that limits the period of time for which residential strata lots may be rented.
An owner of a strata lot who contravenes a bylaw put in place by the strata corporation will likely face penalties for each contravention. The amount of the penalty will be set by the strata corporation and usually ranges between $50 to $200 per contravention. It should be noted that one three-day rental may constitute three contraventions depending on the wording of the bylaws.
Many leases contain provisions specifically dealing with the right to sublease the property to which the lease relates. For example, the terms of a lease may require that the tenant obtain the landlord’s written consent prior to subleasing which consent may or may not be unreasonably withheld depending on the wording of the provision. Alternatively, a lease may be silent or expressly prohibit subleasing by the tenant.
Goods and Sales Tax (“GST”)
GST is payable on commercial activities. Unless an exemption applies, the supply of real estate is deemed by Canada Revenue Agency (“CRA”) to be made in the course of commercial activities. Exemptions include, but are not limited to, used residential property and long term residential leases. Short term leases (ie. leases for less than one month and for consideration greater than $20 per day) are GST taxable. Accordingly, the owner of a property used for short term leases may be required to register for a GST number and remit GST to the CRA.
GST is also payable on the sale of property used for commercial activities, including properties used for short term leases. As a result, GST should be addressed in a contract of purchase and sale dealing with the sale of property used for short term leases.
It is imperative that a property owner get tax advice on the use of a property for short term rental purposes as it may impact both the GST status of the property and create income tax implications.
Some short term rental companies (Airbnb for example) carry insurance for the benefit of its hosts. However, such coverage is limited to damage and losses caused by the short term tenants. In addition, the coverage is subject to a cap on damages set by such short term rental company which is not necessarily reflective of the value of your property.
Using your property for short term rentals may void your (or your landlord’s) home insurance policy in its entirety. This means that if you accidentally burn your house down you may have no coverage, even if the damage is caused by you personally or if there is no short term tenant residing in the property at the time of the loss. We strongly recommend that, prior to using your property for short term rentals, you investigate the consequences of such use with regards to your particular insurance policy.
Author: Danielle (Dani) Brito
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of real estate law at the following:
Una Gabie: email@example.com
Jennette Vopicka: firstname.lastname@example.org
Danielle (Dani) Brito: email@example.com