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Selling homes with basement suites a legal landmine

|Written By Kenneth Jackson

Selling homes with basement apartments is an area filled with landmines given the plethora of illegal income properties in cities across Ontario, according to Toronto real estate lawyer Bob Aaron.

Even though they’re illegal, it doesn’t seem to stop people from buying them, says Aaron. “Everybody seems to go, ‘Wink, wink, we know it’s illegal but we’ll buy it anyway because we can get a lot of money every month and it will help pay the mortgage.’”

Agents are just as guilty of this as the buyers and sellers, says Aaron. They get around the issue by putting “seller does not warrant retrofit status” in the purchase agreement. That basically means they’re selling an illegal apartment but they’re not responsible for it.

“It’s code for an illegal apartment,” says Aaron.

The buyers take all the risk of getting caught by city inspectors. They could force them to kick out the tenants.

The sellers and agents believe putting in the clause will protect them.

Aaron, however, sees things differently.

He says a retrofit only refers to the Fire Code. “It doesn’t refer to zoning or building codes or parking or any of the factors that impact the legality of basement apartments.

I have yet to see a real estate agent put in the agreement of the purchase and sale the basement apartment is illegal. They try to fudge it.”

Aaron says buyers could potentially turn around and sue the selling agent and sellers if city inspectors shut their apartment down.

Toronto Real Estate Board president Richard Silver recently issued a letter warning agents of this long-standing practice.

Silver said legal basement apartments in the Greater Toronto Area involve several areas of consideration: bylaw permissibility; compliance with the building, fire, and electrical safety codes; and registration.

“In short, if a listing indicates that a property has a retrofit basement apartment, it must meet municipal bylaw requirements, have a certificate of compliance to verify that it has passed fire and electrical inspections, and be registered with municipal property standards,” said Silver.

“Additionally, if it is newly constructed, it must meet Building Code requirements.”

According to Silver, finding out whether a municipality’s bylaws permit basement apartments and whether any special conditions apply are the first steps in the process. Failure to comply could result in fines and other penalties.

“I think Richard Silver, who I applaud for his initiative, is saying to real estate agents, ‘You’ve got to be more upfront of the legalities of basement apartments and it’s no longer sufficient to just say there’s no retrofit compliance,” says Aaron.

In Kingston, Ont., whether homeowners can have secondary suites depends on where they live in the city. There are pockets in the city where it’s OK while others are more restrictive, says Coun. Jim Neill.

It comes down to whether the city’s infrastructure, such as sewers, can handle the additional units. Neill says that as some neighbourhoods don’t have extra capacity, the city doesn’t allow secondary suites there.

That doesn’t stop people, however.

“What happens is they create illegal secondary suites,” says Neill. “To be a legal basement apartment, you need to be 60 per cent above grade.

Otherwise, it’s not a basement, it’s a cellar. There’s all kinds of illegal cellar apartments. They are illegal under the Ontario Building Code and they’re illegal under our bylaws.”

Agents in Kingston regularly advertise houses with illegal basement apartments as homes with a potential income property, often by renting them to post-secondary students. Homeowners can fetch up to $600 per room simply by throwing up a bit of drywall and a small bathroom with a kitchen.

They often don’t meet any code.

But Neill says it’s just not realistic for the city to check every single home for an illegal apartment and that complaints drive the system.

The debate on secondary suites heated up a couple of years ago in Kingston when a homeowner had to evict her tenants. A neighbour complained the homeowner was renting portions of her house.

Municipalities have had the authority to enforce their bylaws with respect to basement apartments since 1995, said Silver. Units that existed prior to November 1995 are exempt from meeting local bylaw requirements.

“Once bylaw and code requirements have been met and certified, homeowners can register the basement apartment with municipal property standards,” said Silver.

“Bear in mind that if your clients are planning to construct a basement apartment, they must also apply for a building permit and comply with today’s Building Code.”

In addition, a Fire Code inspector must look at the unit.

But Aaron says he doesn’t foresee a change to the way agents deal with illegal apartments any time soon.

“Many of these people are my friends and clients, but there’s just a reluctance and a hesitation to change the old ways,” he says.

  • Robina McCracken
    Is there any case law where the Seller was held responsible despite the clause in the agreement that the "seller does not waarrant retrofit of the basement apartment.". How has Courts analyzed this statement? .
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