Tiny Township Wins Big on Short-Term Rental Regulation: Court of Appeal Upholds Municipal Authority to Regulate STRs

Introduction 

A recent Court of Appeal for Ontario decision in Tiny Township Association of Responsible STR Owners v. Tiny (Township), 2026 ONCA 408,[1] upheld the validity of the Township of Tiny’s short-term rental (“STR”) licensing by-law. The decision affirms municipalities’ broad authority under the Municipal Act, 2001 to regulate STRs through licensing schemes—including licence caps, temporal restrictions on rental days, and conditions on property use—without crossing the line into prohibition. It is significant for municipalities across Ontario that are grappling with the regulation of STRs and similar activities affecting community well-being. 

Background 

The Township of Tiny borders Georgian Bay in Simcoe County and is a popular summer vacation destination. Prior to 2022, property owners were essentially unconstrained in renting their premises. Complaints emerged about the behaviour of STR renters and their broader impact on the community. In 2015, Council initiated a review of potential STR regulations and, over the next seven years, undertook extensive consultation—including staff research, public feedback, a planning consultant, an STR Task Force, deputations, and special meetings.[2] 

On 11 August 2022, Council passed By-Law 22-017 (the “STR By-Law”), effective 4 October 2022.[3] Key provisions include: an annual licence requirement (fee of $1,500, later raised to $1,750); a cap of 300 licences; a maximum of 92 rental days per calendar year; a minimum six-consecutive-day rental period during high season (15 April to 15 October); a maximum of 10 renters (two per bedroom); an emergency contact person available within 60 minutes; and a code of conduct requirement. Licences are non-transferable and must be renewed annually. The Tiny Township Association of Responsible STR Owners (the “Association”), a not-for-profit formed in response to the By-Law, applied to quash it under s. 273(1) of the Municipal Act. 

Application Decision 

Justice Leibovich of the Superior Court of Justice dismissed the application in its entirety.[4] He found no evidence of bad faith—the By-Law was the product of years of investigation, consultation, and review. It was not a disguised zoning by-law, as it regulates the business of running an STR rather than its location. The application judge rejected claims that the By-Law effectively prohibited STRs, including an unsupported assertion of a 97% reduction in rental income, finding it rationally connected to legitimate municipal objectives. 

Appeal Decision 

Writing for a unanimous panel, Gomery J.A. dismissed the appeal on all grounds. 

Valid Licensing Power 

The Court held that a municipality’s licensing power is not limited to regulating “businesses.” Under ss. 8(3), 11, and 151(5) of the Municipal Act, a licensing scheme may be enacted for any purpose for which a municipality may validly pass by-laws, including health, safety, and well-being.[5] In any event, STRs qualify as “businesses” under s. 150, which broadly includes “the sale or hire of goods or services on an intermittent or one-time basis.” Renting premises for money is commercial activity regardless of whether the owner profits or operates full-time.[6] 

Regulation, Not Prohibition 

The Court confirmed that the By-Law’s restrictions are rationally connected to legitimate municipal objectives. The 300-licence cap was the result of years of study and represented a compromise; at the time of hearing, only 293 applications had been received, meaning the cap had not even been reached.[7] Drawing on the “hookah lounge” cases, the Court reaffirmed that economic impact on business owners does not transform regulation into prohibition—any economic harm is incidental to the by-law’s purpose, not determinative of it.[8] The Court also held that temporal restrictions (the 92-day annual cap) are permissible under s. 151(1)(f), which grants broad power to “license, regulate or govern real and personal property used for the business.” A temporal cap is no more restrictive than a prohibition on the very activity that is a business’s raison d’être.[9] 

Property Rights Considered 

The Court rejected the argument that the Township failed to consider property owners’ vested rights. The record reflected extensive efforts to balance competing interests over many years, and the licence cap was expressly a “compromise between those community members who sought a complete ban on STRs and those who sought no restrictions.” Under the Auer/Vavilov framework, the court’s role is limited to assessing the reasonableness of the municipality’s interpretation of its statutory powers.[10] 

Licensing Cap Valid Under Well-Being Power 

The Association argued the licensing cap was ultra vires the Township’s power respecting “economic, social and environmental well-being” because the By-Law’s preamble did not refer to that purpose. The Court disagreed: in assessing validity, a court must consider both the stated purpose and actual substance of the by-law. The record showed the Township was concerned about the impact of unchecked STRs on competition and affordable housing.[11] 

Implications for Municipalities 

Tiny Township provides important guidance for municipalities seeking to regulate STRs and similar activities. Several key takeaways emerge from the decision. 

Broad Licensing Authority 

The decision provides a strong endorsement of the breadth of municipal licensing authority under the Municipal Act. Municipalities can rely on their general licensing powers under ss. 8(3) and 11, their specific business licensing powers under s. 151, and their authority over matters of health, safety, well-being, and consumer protection. The Court’s confirmation that licensing schemes need not be confined to the regulation of “businesses” as narrowly defined is particularly significant—under s. 151(5), a licensing scheme may be enacted for any purpose for which a municipality may validly pass by-laws.[12] This provides municipalities with significant flexibility in designing regulatory regimes for emerging activities that affect community welfare. 

Process Matters 

The thorough, multi-year consultation process undertaken by the Township was clearly important to the outcome. Both the application judge and the Court of Appeal emphasized that the STR By-Law was the product of years of investigation, community engagement, and careful policy development. A takeaway is that robust consultation processes, as a well-documented record of public engagement and policy rationale can serve as a powerful shield against legal challenge. 

Temporal and Numerical Restrictions are Permissible  

The decision confirms that municipalities may impose temporal and numerical restrictions on business activities—such as caps on the number of licences and limits on the number of days a property may be rented—without crossing the line from regulation into prohibition. Economic impact on regulated businesses, even significant impact, is incidental to and not determinative of a by-law’s purpose. This is consistent with the Court of Appeal’s prior decisions in the hookah lounge and body rub parlour cases.[13] 

Presumption of Validity and Deference 

The Auer v. Auer framework governs judicial review of municipal by-laws. Under it, by-laws are presumptively valid, and challengers bear the burden of demonstrating that a by-law cannot be supported by any reasonable interpretation of the municipality’s statutory authority. Courts will not second-guess policy choices embodied in by-laws enacted in good faith pursuant to statutory authority, particularly where, as here, the enactment followed extensive investigation and public consultation.[14] 

Landowners, developers, municipalities, and other stakeholders should be mindful of the implications of this decision in any future discussions concerning the regulation of short-term rentals and similar activities. 

[1]Tiny Township Association of Responsible STR Owners v. Tiny (Township), 2026 ONCA 408 [Tiny Township]. 

[2]Tiny Township, at paras 1–10. 

[3]By-Law 22-017 is entitled “A By-law to Licence, Regulate and Govern Short-Term Rental Accommodation.” See Tiny Township, at paras 11–18. 

[4]Tiny Township Association of Responsible STR Owners v. Tiny (Township), 2025 ONSC 1578; Tiny Township, at paras 21–24. 

[5]Municipal Act, 2001, S.O. 2001, c. 25, ss. 8(3), 11, 151(5); 2211266 Ontario Inc. (Gentlemen’s Club) v. Brantford (City), 2013 ONCA 300, at paras 12–13. 

[6]Municipal Act, 2001, s. 150(c); Tiny Township, at paras 48–51. 

[7]Tiny Township, at paras 58–62; Toronto Livery Association v. Toronto (City), 2009 ONCA 535, at para 73. 

[8]232169 Ontario Inc. (Farouz Sheesha Café) v. Toronto (City), 2017 ONCA 484, at para 15; 2386240 Ontario Inc. v. Mississauga (City), 2019 ONCA 413, at para 23. 

[9]Tiny Township, at para 67; York (Regional Municipality) v. Tsui, 2017 ONCA 230, at para 100. 

[10]Tiny Township, at paras 72–75; Auer v. Auer, 2024 SCC 36, at paras 3, 37, 56. 

[11]Tiny Township, at paras 76–79. 

[12]Municipal Act, 2001, S.O. 2001, c. 25, ss. 8(3), 11, 151(5); Tiny Township, at paras 42–45. 

[13]232169 Ontario Inc. (Farouz Sheesha Café) v. Toronto (City), 2017 ONCA 484, at para 15; 2386240 Ontario Inc. v. Mississauga (City), 2019 ONCA 413, at para 23; York (Regional Municipality) v. Tsui, 2017 ONCA 230, at para 100. 

[14]Auer v. Auer, 2024 SCC 36, at paras 3, 37, 56; Katz Group Canada Inc. v. Ontario (Health and Long-Term Care), 2013 SCC 64, at para 25.