Hi there! If you’re buying or selling a cottage in Muskoka with short-term rental potential, STR licensing in Muskoka is now a critical factor in your transaction. The rules have changed significantly, and understanding them can mean the difference between a smooth closing and a costly surprise.
This guide breaks down everything you need to know about mandatory STR registration, what it means for property values, and how to protect yourself whether you’re on the buying or selling side of the deal.
What Is Short-Term Rental Licensing in Muskoka?
Short-term rental licensing refers to the mandatory registration and permitting process that property owners must complete before renting their cottage or home for periods of 28 days or less. This includes platforms like Airbnb, VRBO, and direct bookings.
The Township of Muskoka Lakes implemented its STR Licensing By-law with applications due by December 31, 2025. As of January 2026, any property operating as a short-term rental without a valid license is doing so illegally.
The annual licensing fee is $1,000 per year, and properties must meet specific safety, occupancy, and insurance requirements to qualify.
Why STR Licensing Matters for Property Value, Financing, and Insurance
Impact on Property Value
A licensed, compliant STR property can command a premium. Buyers looking for income-generating cottages want documentation proving the rental operation is legitimate. Conversely, a property marketed as an STR without proper licensing may face value adjustments during negotiations.
Financing Considerations
Lenders are increasingly aware of STR regulations. If you’re financing a purchase based on projected rental income, you may need to demonstrate that the property holds a valid license. Unlicensed operations could affect your ability to secure certain mortgage products.
Insurance Requirements
Licensed STR properties must carry adequate liability coverage. Standard homeowner policies often exclude short-term rental activity. Buyers should verify that current insurance covers STR use, and sellers should be prepared to provide proof of coverage during due diligence.
According to Ontario’s guidelines for short-term rentals, municipalities have broad authority to regulate rental properties, making local compliance essential.
Due Diligence Checklist for Buyers
If you’re purchasing a property with existing STR activity, or planning to start one, here’s what to verify before closing:
☐ Confirm license status: Request the current STR license number and expiry date.
☐ Review occupancy limits: Licensed properties typically allow two persons per bedroom unless septic capacity supports more.
☐ Check compliance history: Ask if there have been any violations, fines, or complaints.
☐ Verify insurance coverage: Ensure the policy explicitly covers short-term rental activity.
☐ Review rental income records: Request documentation of past bookings and revenue.
☐ Understand summer restrictions: New provisions took effect May 1, 2026: confirm all bookings comply.
☐ Inspect safety equipment: Smoke detectors, carbon monoxide alarms, and fire extinguishers are mandatory.
☐ Confirm septic capacity: Occupancy limits may depend on septic system documentation.
For a broader property inspection guide, check out our Muskoka Cottage Checklist.
Checklist for Sellers: Preparing Your STR Property for Sale
If you’re selling a property with an active short-term rental operation, preparation is key to maximizing value and avoiding delays:
☐ Gather license documentation: Have your current license, application records, and renewal dates ready.
☐ Compile income records: Provide at least two years of rental income statements if available.
☐ Document compliance: Show proof of safety inspections, insurance coverage, and any municipal correspondence.
☐ Disclose any violations: Transparency about past issues protects you legally and builds buyer trust.
☐ Prepare a transition plan: Outline how existing bookings will be handled around closing.
☐ Update your listing: Ensure marketing materials accurately represent the property’s STR status.
☐ Address outstanding repairs: Fix any safety or code issues before listing.
Need help determining your property’s market value? Request a free home valuation from our team.
Questions to Ask the Municipality
Before buying or selling, contact the local municipality directly. Here are the key questions to ask:
Is this property currently licensed as an STR? (Municipalities maintain public registries.)
Are there any outstanding violations or complaints on file?
What are the current occupancy limits for this address?
Are there any pending by-law changes that could affect STR operations?
What is the license renewal process and timeline?
Are there geographic restrictions or zones where STRs are prohibited?
What documentation is required for a new license application?
For the Township of Muskoka Lakes, you can access licensing information through their municipal office. Other Muskoka municipalities may have different requirements, so always verify locally.
How to Confirm STR Compliance
Confirming compliance involves more than just seeing a license number. Here’s how to verify everything is in order:
Step 1: Request the license certificate. This should include the property address, license number, expiry date, and approved occupancy.
Step 2: Cross-reference with the municipality. Call or check online to confirm the license is active and in good standing.
Step 3: Review inspection reports. If the municipality conducted a safety inspection, request a copy of the results.
Step 4: Check insurance declarations. The insurance policy should name the property and explicitly cover short-term rental liability.
Step 5: Review the septic certificate. If occupancy limits were increased based on septic capacity, documentation should exist.
Common Red Flags to Watch For
When evaluating an STR property, these warning signs suggest potential compliance issues:
No license on file: The seller claims rental income but cannot produce a valid license.
Vague occupancy claims: Statements like “we’ve had up to 12 guests” without supporting documentation.
Insurance gaps: A standard homeowner policy with no STR endorsement.
Outstanding complaints: Noise or nuisance complaints that could jeopardize license renewal.
Recent by-law changes: The property may have been compliant under old rules but not current ones.
Missing safety equipment: No smoke detectors, CO alarms, or fire extinguishers during your showing.
Septic concerns: A system that hasn’t been pumped recently or lacks capacity documentation.
If any of these apply, consider making your offer conditional on a satisfactory STR compliance review.
Frequently Asked Questions
Q1: Can I operate an STR without a license in Muskoka?
A1: No. As of January 2026, operating an STR without a valid license in the Township of Muskoka Lakes is prohibited. Other Muskoka municipalities may have similar requirements: always verify locally.
Q2: How much does an STR license cost?
A2: The annual licensing fee in the Township of Muskoka Lakes is $1,000. Fees may vary in other municipalities.
Q3: What happens to existing bookings if I buy an STR property?
A3: This depends on your agreement with the seller. Typically, existing bookings are either honored by the new owner or canceled with appropriate notice. Clarify this during negotiations.
Q4: Will STR licensing affect my mortgage approval?
A4: It can. Lenders may require proof of valid licensing if your mortgage application includes projected rental income. Discuss this with your mortgage professional early.
Q5: Can occupancy limits be increased?
A5: Yes, in some cases. If you provide documentation proving adequate septic system capacity, the municipality may approve higher occupancy limits.
Ready to Buy or Sell an STR Property in Muskoka?
Navigating STR regulations requires attention to detail and local knowledge. Whether you’re purchasing a cottage with rental income potential or selling a licensed property, proper documentation and compliance verification protect your investment.
To explore current Muskoka listings, visit our property search. For recent sales data in your area, check our Muskoka sold prices.
Have questions about a specific property or situation? Contact Andrew John Cocks, Broker of Record at Cocks International Realty Inc., Brokerage, for guidance tailored to your needs.
This article is for informational purposes only and does not constitute legal advice. Consult with a qualified professional for advice specific to your situation.
