Ghost hotels are typically condo units rented by tenants who surreptitiously sublet them on short-term rental portals like Airbnb. The COVID-19 pandemic, and City of Toronto regulations that were implemented around the same time, largely killed the practice, but as the city inches closer to the post-COVID world, ghost hotels are beginning to reappear.
“In the last couple of months, as the city has started opening up again, ghost hotels are becoming common again,” said Brett Starke, head of the Starke Realty Team at RARE Real Estate Inc. “As vibrancy and culture come back to Toronto weekend by weekend, and as the weather gets better and better, I can see this happening more and more. I can see the grey or black market for short-term rentals re-emerging.”
Ghost hotel operators have been known to sign as many as 20 leases at a time, their unwitting landlords none the wiser, and clandestinely rent them out on Airbnb. Naturally, when landlords catch wind of the practice, they try to evict the unscrupulous tenants, but if the latter have only signed one or two leases, they’re probably less likely to go quietly.
“We’re trying to protect the landlords as much as possible by having clauses in rental agreements stating that potential tenants cannot rent out the units on Airbnb for business, but we cannot legally prevent them from renting out the units or subletting the unit. It’s a very, very grey area,” said the head of the Balikoti Real Estate Group at RE/MAX Ultimate Realty, Alex Balikoti. “Technically, a landlord cannot stop a tenant from doing that without solid proof and an investigation into the matter.
“We worked for some landlords before who suffered from tenants doing that. They rented out their units and found out the tenant was not actually living there but instead renting their unit out on Airbnb for profit, and the guests weren’t taking great care of the units. Often times, the tenants who run this business rent units at discounted rates because they need to make sure they cover the rent, and the lower prices attract more guests, some of whom don’t take care of the units and they get destroyed very quickly. It’s not the most pleasant experience for the landlord.”
Landlords usually only find out when property management companies notify them of numerous complaints, but the practice is nevertheless accepted in certain buildings more than others. Moreover, it’s well-nigh impossible to know otherwise because sites like Airbnb don’t reveal a lodging’s address until the transaction is complete.
Starke says ghost hotels are commonplace in certain downtown Toronto towers like 300 Front St. W. and 12 and 14 York St., both sprawling high-rises that are prominent on the city’s skyline. There are more, too, on nearby Bremner Blvd.
The practice isn’t always brazen and unscrupulous, though. Starke says tenants sometimes approach landlords and propose managing short-term rental bookings in exchange for a monthly rental rate that’s well above what the landlord would receive on the open market.
“There’s a couple of large operations where this is what people do. They know the risk of it and they factor that into what they’re looking for. We’ve had people make offers on properties we have listed by telling us this is what they’re planning to do. We have been given portfolios and presentation decks that talk about how successful they’re going to be at doing it,” Starke said. “But more often than not, a lot of people try doing it without the landlord’s permission, and that’s where it comes down to vetting the tenant, which is a realtor’s job.”
However, while people with well-remunerated day jobs and impeccable credit scores commonly operate ghost hotels, because they have an easier time signing leases, their polar opposites have also been known to try their hand at running ghost hotels. But Starke says they’re easier to identify with a little sleuthing.
“It’s not very often, but we’ll see fraudulent employment letters -- we saw one of those two weeks ago. People will also make websites that look great, but when you click on them, there’s a certain type of font, or the person says they’ve been with a company for five years but the website has only been operational for one year. Or they say they’re part of a small start-up of four people but there’s a huge management chain on the employment letter. If something seems fishy, more often than not it is,” Starke said, adding that landlords should visit their rentals at least twice a year to make sure everything is as it should be.
Amid a rental crisis, the City of Toronto drew up short-term rental regulations which state that only primary residences can be rented out, and for no more than 180 days a year. But as the city pushes through the dregs of the pandemic and becomes more vibrant by the day, as evidenced by extremely tight conditions in its rental market, Starke wouldn’t be surprised if city council administered new regulations to crack down on ghost hotel operators.
“I can see the city cracking down on these, especially as housing becomes a bigger issue,” he said. “You have zero control of the tenant you rent to, and therein lies the challenge, because it’s no different than subletting a unit without permission, which happens all the time.”