What the short-term rental crackdown means for home insurance

With the federal government cracking down on short-term rentals, property and casualty insurance providers are urging clients who rent their properties short-term to contact them to verify whether or not they are covered for property damage or liability for third-party lawsuits.

“From the moment your first guest arrives, your standard home insurance coverage no longer applies, specifically third-party property damage or bodily injury,” says LowestRates.ca expert and licensed insurance broker Steven Harris. “In most cases, damages caused by renters will leave policyholders on the hook for any repair costs.”

There are 235,800 active short-term rentals across Canada, and only a handful of insurance providers will recognize them as legal and provide coverage, Harris says.

If clients wish to rent out their properties, they will most likely have to work through some kind of online platform to be considered for insurance coverage. But be aware the insurance offered by home-sharing platforms such as Airbnb and Vrbo may limit coverage through terms and conditions.

“There is a limited number of insurers that will insure a standalone short-term rental,” Harris observes. “Those that do will likely require the policyholder to rent through a rental network such as Airbnb or Vrbo, or through an independent professional property management company…

“Platforms such as Airbnb offer limited host liability insurance that covers policyholders if they are found legally responsible for bodily injury to a guest (or others), damage to or theft of property belonging to a guest, and damage caused by a guest to common areas, including building lobbies and nearby properties.

“Platforms such as Airbnb offer host damage protection for damage caused by guests or their invitees, which covers damage to the home, furnishings, valuables or belongings; damage to parked cars, boats or other vehicles; unexpected cleaning costs, and lost income for bookings cancelled due to damage.”

Harris strongly recommends that before they rent out their properties, clients check with their insurance providers first to confirm whether or not their rental properties are legal.

In its 2023 Fall Economic Statement, the federal government committed $50 million over three years to support municipal enforcement of restrictions on short-term rentals, starting in 2024-25.

“This will support municipalities with strict regulatory regimes that are having a significant and measurable impact in returning short-term rentals back to the long-term housing market,” the government states.

The feds cite the provinces of British Columbia and Quebec, and regional municipalities such as Toronto, Montreal and Vancouver, as having taken measures to crack down on short-term housing rentals. In Toronto, Montreal, and Vancouver alone, 18,900 homes were used as short-term rental properties in 2020, says the 2023 Fall Economic Statement.

“These are not spare bedrooms in someone’s home — they are entire houses and apartments that are being used for tourists to rent — in many cases, only for a few days a week,” the federal government says. “Canada needs more long-term housing for Canadians to live in, and the federal government is taking action to crack down on these short-term rentals which are keeping homes for Canadians off the market.”

The feds also intend to deny income tax deductions when short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.

Denial of income tax deductions would apply to all expenses incurred by short-term renters on or after Jan. 1, 2024.

Feature image courtesy of iStock.com/catalby