Many homes advertise “income potential” or “lower level unit” which can be a very attractive incentive for some buyers. Renting out a portion of a property is one approach property owners can enlist to help pay down mortgages and increase investment returns. It is important to plan carefully and become familiar with the relevant codes, laws, risks, obligations and requirements before diving into residential rental property ownership and management.
Alongside the potential to generate income, there are risks associated with renting out a basement apartment in a home that isn’t zoned for one, or that contravenes municipal or provincial codes.
I encourage anyone considering renting out all, or a portion of, a residence to start by visiting the Landlord Tenant Board website and do their research to fully understand landlord’s rights and obligations under the Residential Tenancies Act, 2006. It would also be wise to discuss such a pursuit with a registered real estate professional that specializes in such properties and to seek the advice of a real estate lawyer.
You will need to have your real estate lawyer check that the property has been zoned for multi-unit dwelling and confirm that it meets building, fire, and electrical safety code requirements. Ask your real estate lawyer to check to confirm that the city or town is aware the apartment exists and that both building and occupancy permits were issued for it. Some municipalities issue certificates to confirm the unit is authorized.
Your salesperson should ask the seller’s representative for copies of all city paperwork in relation to the unit, including copies of permits, inspections and approvals the seller should have received when the apartment was created or was upgraded to be compliant. If these requests cannot be met, your salesperson may be able to refer a reputable inspector to verify the legality of the unit.
If you find a home that piques your interest that contains a second unit, however its compliancy cannot be confirmed, it may be worth talking to your representative about the steps you’d need to take to have it meet legal specifications. If you choose this option, you will need to get estimates from relevant electrical, plumbing and construction professionals to help you determine what is needed and how much it is likely to cost. Depending on what you learn, you may decide to have the necessary work completed to make it compliant. If this is of interest, you want to be sure that compliance status is attainable.
I advise against renting an apartment without first ensuring that the unit is compliant. Even if a property is tenanted when you view or purchase it, it does not mean that it meets all of the necessary requirements. If the municipality were to conduct an inspection and discover that it didn’t comply with requirements and local bylaws, you could be ordered to bring it into compliance or dismantle it altogether. This could lead to substantial costs and you could even face the possibility of fines or even jail time.
From liability perspective, by putting in the effort to exercise due diligence prior to renting out a property, you and any future tenants will sleep easy knowing that the property meets safety codes and municipal bylaws.
Contributed By: Joseph Richer is Registrar of the Real Estate Council of Ontario