Basement Apartments
What You Need to Know

How do I ensure the basement apartment in the house I'm interested in buying is legal?

Every homeowner likes the idea of living mortgage-free. Aside from slaving every day for 25 years to save some extra cash, which is growing more and more difficult, unless you win the lottery, the next best way to become debt-free is to generate additional income by way of a secondary rental unit in your house. Though it's far from ideal to have other potentially noisy occupants in your home, this sometimes viable option means that a tenant can pay off your mortgage for you much sooner.

But before you leap into an offer to buy a house with a basement apartment, or for that matter, any house with an existing secondary rental unit (or if you plan to add a self-contained rental unit to your house), it’s wise to protect yourself by ensuring that the apartment is (or any future addition would be) compliant with local bylaws and fire and electrical safety codes.

If you're represented by a licensed real estate agent, ask them if they've had any experience dealing with such properties. Many don't, particularly if the property is a duplex or triplex, which is a completely different class of property. (Check out my page on investing in real estate for more information on multiple-unit buildings.) If you're not so represented and going it alone, I urge you to drop into the local municipal offices to inquire. Or, of course, you could seek advice from a lawyer familiar with the area.

Before offering on the property, to ensure that the property suits your purposes with proper zoning for a secondary unit, and compliance with various bylaws and codes, explain your wants and intentions to your agent. Your real estate lawyer may be able to advise you on local building codes and by-laws. Keep in mind, though, that if viewing properties in several areas, by-laws relating to secondary units can vary between municipalities. In fact, some municipalities, upon request, will issue a certificate stating whether such units comply.

If the property has the appropriate zoning, then check that the basement apartment meets all the requirements of the building, fire and electrical safety codes. Your home inspector may be able to assist in this regard.

What the Seller Can Do to Help Assure You Regarding the Basement Apartment

Ask the seller to provide copies of permits and approvals they should have received before adding the unit. If it was built or converted without permits, I recommend seeking legal advice regarding the potential costs and implications with bringing the unit into compliance, if it's even possible. Having said this, if the apartment has existed for many years, it's possible that it could pre-date the implementation of the current by-law. Thus, it might have a legal non-confirming status. So, find out when it was constructed.

If you prefer to secure your interest in the property while you further investigate, make sure to include an appropriate condition in the Agreement of Purchase and Sale. Your offer should be conditional upon you being satisfied that the property is fully compliant. Or to avoid a condition, you could require the seller to provide written proof that appropriate permits were obtained, or to warrant that the apartment is both zoning and code compliant.

There are risks associated with renting a non-compliant apartment. As a landlord, if bylaw enforcement becomes aware of your non-compliant rental apartment (maybe by way of a neighbour complaint), you could be ordered to bring the unit into compliance or to completely dismantle the apartment. Or you could be fined and/or even jailed. Another potential consequence could be that you're vulnerable to liability and potentially significant damages.

For example, if there's ever a fire at your property. Think about the insurance issues and possible expensive lawsuits from your tenant. Once they learn about the non-compliant basement apartment, your insurance company could conceivably deny your claim. You could be held personally liable for not only your property damage losses, but also those of your tenant!

Another consideration is if you want vacant possession on completion of the Agreement of Purchase and Sale of a house that has a rented secondary unit. Under The Residential Tenancies Act of Ontario (and conceivably under its counterpart in your part of the world), a buyer lacks the legal right to directly evict someone else's tenant. Therefore, it becomes the existing landlord's responsibility to act as your agent to deliver the appropriate Notice to Vacate to the tenant.

As with any transaction in the buying and selling process, it’s important that you make informed decisions before offering on a house with a basement apartment. Researching and asking the right questions can save you a lot of grief down the road.

Fore more information, visit The Real Estate Council of Ontario (RECO).

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