Is that basement apartment legal? Better be sure before renting it

It never fails to amaze me how some agreements of purchase and sale continue to use creative language to describe illegal basement apartments.

Over the years, I have seen purchase agreements using terms such as “three plus one bedroom,” “no guarantee of fire code retrofit,” “inlaw or garden suite,” “income potential unit,” “basement suite with separate entrance” and “used as two-family.”

The Real Estate Council of Ontario (RECO) regulates real estate agents and brokerages.

Last month on its website, RECO published a warning to industry stakeholders explaining that due diligence is required before listing a property with a basement apartment.

The warning details a discipline decision from last September in which an agent was found to have failed to determine the legality of renting the basement apartment and incorrectly advertising the permitted use of the home.

Back in 2021, the agent listed a property stating that the buyer would be able to obtain rental income from a finished basement in the house. The basement had not been approved by the municipality, was not legal and could not be legally rented.

But at the time of entering into an unconditional purchase agreement, the buyers believed that the basement was legal and could be rented.

In April 2022, a month after closing, the city issued a compliance order against the buyers requiring them to remove the basement kitchen.

At his discipline hearing last September, the agent admitted that he failed to conduct due diligence to determine the legality of the unit, and that he advertised an illegal use of the property.

He admitted breaching five sections of the RECO Code of Ethics, and in an unsigned decision of the discipline panel, he was fined $10,000.

When an agreement of purchase and sale for a house shows two fridges and stoves included in the purchase price, it is a red flag that there is a second unit in the basement.

Unfortunately, purchase agreements almost always use what I call weasel terminology to avoid calling a unit illegal.

There are many requirements for a basement apartment to be used legally. Among these are fire-rated drywall separations and exit doors, compliance with fire code and building code, minimum window sizes and minimum ceiling heights of six feet five inches, and an operating smoke alarm and carbon monoxide detector. Bathrooms have to have either a window or an exhaust fan. Inspections by the Electrical Safety Authority and the local fire department are required for existing units.

The fire inspection is often called a fire code retrofit certificate, but compliance certificates from the fire department and electrical authority alone do not mean that the apartment is completely legal and properly zoned.

RECO cautions agents to conduct due diligence when researching a property, since misrepresenting a dwelling can have potentially devastating consequences. Purchasers should also do their own due diligence.

Anyone buying a house with two units should insist on proof of legality or be willing to accept the risk of having the city shut down the apartment.

Unfortunately, purchase agreements almost always use what lawyer Bob Aaron calls weasel terminology to avoid calling a unit illegal