Under the Municipal Act, 2001 and the City of Toronto Act, 2006, municipalities have broad powers to pass bylaws (subject to certain limits) on matters such as health, safety and well-being of the municipality, and to protect persons and property.
Both Acts also give municipalities the specific authority to license, regulate and govern businesses operating within the municipality. This includes the authority to pass licensing bylaws covering the business of renting residential units and operating rooming, lodging or boarding houses/group homes.
With this authority to license also comes a human rights responsibility. The Code has primacy – in other words, takes precedence – over the Municipal Act and the City of Toronto Act, and requires that municipal programs, bylaws and decisions such as licensing consider all members of their communities. The Code requires that decisions do not target or have a disproportionate adverse impact on people or groups who identify with Code grounds.
 Before 2007, municipalities could license rental housing only if that housing did not constitute a “residential unit.” Among other things, a “residential unit” was defined as being a “single housekeeping unit.” The Courts found that a “single housekeeping unit” was one where there was collective decision making about control of the premises (Good v. The Corporation of the City of Waterloo (2003), 67 OR (3d) 89 (Ontario Superior Court), aff’d (2004), 72 OR (3d) 719 (Ont. C.A.)) or where there was a use “typical of a single family unit or other similar basic social unit.” (Neighbourhoods of Windfields Limited Partnership v. Death,  O.J. No. 3298 at paragraph 62, aff’d  O.J. No. 1324 (Ont. C.A.),  S.C.C.A. No. 253 leave to appeal to S.C.C. refused, 33210 (June 15, 2009)).
Due to amendments to the Municipal Act, and the creation of the City of Toronto Act, both of which came into effect January 1, 2007, the “residential unit” exemption was removed and municipalities were given more power to license rental housing.
 Municipalities’ licensing activities are also subject to the Charter of Rights and Freedoms. Under section 32(1) the Charter applies to the “legislature and government of each province in respect of all matters within the authority of the legislature of each province.” Municipalities are part of the government structure in the province of Ontario, and are therefore subject to the Charter.