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Protecting your property: Insurance and bylaw strategies for short-term rentals in resort communities
Picture this: A guest staying in an Airbnb on your property accidentally starts a kitchen fire that triggers the building’s sprinkler system. Would your strata corporation be forced to pay out of pocket for the expenses incurred from the water damage? And how would this claim affect your insurance premiums?
In recent years, short-term rentals have become a popular way for homeowners to generate extra income, however the growth of this market has raised important questions around insurance coverage. For property owners, understanding the insurance implications of offering their homes as short-term rentals is crucial to avoid potential liabilities, financial loss and legal complications.
In this article Acera Insurance’s Stephen Casey, Client Executive, Real Estate, explores the key insurance considerations for both short-term rental hosts and strata corporations in British Columbia in helping them navigate the complexities of protecting both their property and their guests.
Short-term rental insurance risks for Canadian strata corporations
Strata corporation insurers generally define a short-term rental as a unit that is available for accommodation for less than 30 days at a time. They’ve have seen a steady increase throughout Canada, rising by nearly 60% from 2017 to 2023. In Whistler, short-term rentals make up 35% of all housing units and in Mont-Tremblant, their share was 16.4%.
This has had a significant impact on strata corporations and their approach to building management, prompting them to address the evolving risks that short-term rentals can pose, including:
Property damage caused by guests
Third-party liability and bodily injury
Theft and illegal activity
There’s a general belief among insurers that guests are less invested in property care compared to owners or long-term tenants. However, research shows that tourists in resort communities like Whistler are often high-value guests who are more discerning and respectful of property upkeep.
How short-term rentals affect strata insurance policies in Canada
In British Columbia, most strata insurance programs do not exclude coverage for short-term rentals. However, this might be different in other parts of Canada so it’s important to always review local and provincial bylaws.
While short-term rentals are not usually excluded from coverage, they may come with cost implications due to a reduced pool of insurers willing to underwrite these risks. There is a growing acceptance of short-term rental risks as they become more common, especially in well-managed resort communities like Whistler.
The situation differs for personal homeowners’ policies. Any owner looking to list their property as a short-term rental should inform their personal insurance broker about switching to short-term rental use. Depending on the property, insurers may impose limits on rental days, cleaning and site visit requirements and mandating registration on reputable platforms.
How to draft enforceable short-term rental bylaws for strata corporations
In November 2022, the British Columbia government enacted Bill 44 which prohibits strata corporations from passing bylaws for the purpose of rental restriction. However, the corporation still can restrict short-term accommodations in a strata to less than 30 days.
The exact language of a strata bylaw is very important. Short-term accommodations are technically not considered rentals, so you must be careful with how you word bylaws to make them enforceable.
The recommended approach is to use wording that specifically prohibits short-term accommodations, hotel-like uses, bed and breakfasts and any other type of licensing agreements.
Municipalities can issue fines of up to $3,000 per infraction per day for unauthorized short-term rentals but enforcement effectiveness can vary.
Best practices for communication and education on short-term rentals in resort communities
Short-term rentals have been prominent in resort communities for over 50 years. Resort communities like Whistler were set up to encourage overnight short-term stays by tourists. This was done by implementing a “warm bed strategy” which ensures that a high percentage of beds are available for visitors rather than sitting empty or only being used by owners.
This is achieved through municipal policies and covenants which require owners (based on zoning) to keep their units in a rental pool. Specific areas are zoned for short-term accommodation, whereas zoning in other areas forbid tourist accommodation. The “warm bed strategy” ensures that vacancy issues are reduced dramatically.
Not all resort communities operate this way. That’s why it’s essential for all strata management companies and unit owners to understand their community bylaws, zoning measures and whether their units permit short-term rentals or tourist accommodation.
The importance of both communication and education cannot be overstated in mitigating short-term rental risk. The best practice is to ensure that all information pertaining to a specific community or municipality regarding short-term rentals is available via the strata corporation, the property management company or the rental management company.
Bill 35 BC short-term rental compliance gameplan for unit owners: Licensing, insurance and management
On May 1, 2024, Bill 35 of the Short-term Rental Accommodations Act in British Columbia went into effect. The goal was to help mitigate the housing crisis by restricting the number of short-term rentals in the marketplace to long-term rentals.
In Kelowna, the number of short-term listings dropped by 31% and Vancouver dropped by 22%. This means that unit owners should have a gameplan for short-term rentals that include:
1. Licensing
Register with the provincial short-term rental registry and make sure to properly display registration number on listings.
2. Insurance
Inform your broker of the change in use for the property and follow the insurer requirements.
3. Professional Management
Hire rental management companies familiar with local bylaws and zoning.
4. Education
Stay informed about municipal opt-outs and vacancy requirements.
Key takeaways
The more educated and prepared short-term rental owners and property managers are, the quicker insurance companies will view short-term rentals in a more favourable light.
The key to short-term rental success in resort communities continues to be based on active communication between all parties, including the government, the strata corporation, property management company, rental management company and your insurance broker.
Interested in learning more about commercial real estate insurance? Reach out to Stephen today.
Stephen Casey specializes in real estate risk management and insurance solutions, bringing over 10 years of experience. Stephen works with leading property managers in Vancouver and the Sea-to-Sky Corridor. You can reach Stephen at 604.484.0201 or stephen.casey@acera.ca
FAQ’s
Most strata insurance programs do not exclude coverage for short-term rentals, but a high percentage of short-term rentals in a building may lead to increased insurance costs due to a reduced pool of insurers willing to underwrite these risks.
The unit owner must inform their broker of any change to short-term rental use, as insurers may impose limits on rental days, cleaning and site visit requirements, and may require registration on reputable platforms.
Strata corporations in BC cannot restrict rentals in general due to Bill 44, but they can still restrict short-term accommodations (less than 30 days) if the bylaw is carefully worded to specifically prohibit short-term accommodations, hotel-like uses and similar licensing agreements.
Municipalities can issue fines up to $3,000 per infraction per day for unauthorized short-term rentals, although enforcement effectiveness may vary.
Information and services provided by Acera Insurance, Acera Benefits and any other tradename and/or subsidiary or affiliate of Acera Insurance Services Ltd. (“Acera”), should not be considered legal, tax, or financial advice. While we strive to provide accurate and up-to-date information, we recommend consulting a qualified financial planner, lawyer, accountant, tax advisor or other professional for advice specific to your situation. Tax, employment, pension, disability and investment laws and regulations vary by jurisdiction and are subject to change. Acera is not responsible for any decisions made based on the information provided.
