Hidden Dangers Below: The Risks of Illegal Basement Apartments

By Puneet Shroff

The growing trend of secondary units in homes, such as basement apartments, is a notable investment strategy for many, given the soaring mortgage expenses and rental rates. However, many of these units are run illegally, posing repercussions for both landlords and tenants.

A legal basement apartment is a self-contained living unit located within a detached or semi-detached house. It must meet specific requirements defined by the Ontario Building Code, the Ontario Fire Code, and local municipal zoning by-laws. The house must be smaller than the rest of the house; have separate kitchen and bathroom facilities; and separate entrances and exits.

In most residential areas of Toronto, secondary suites or basement apartments are permitted, provided they are self-contained and situated within detached or semi-detached houses. These units, however, must meet various criteria related to safety, size, and parking. On the other hand, in Waterloo, landlords are required to apply for a rental license for their properties. This policy aims to uphold the safety and quality of rental housing, with the licensing process involving an inspection to ensure compliance with the building code and city by-laws.

Operating an illegal rental property can have significant legal and financial implications. Illegal basement apartments can have dangerous living conditions for tenants as they may lack proper fire safety measures, sufficient egress or adequate ventilation. Tenants living in such basement apartments could also face eviction. Non-compliance with by-laws and regulations can result in hefty fines, penalties, and even legal action against the landlord. In the City of Waterloo, operating a rental without the necessary rental license can attract up to $25,000 in fines for individuals and up to $50,000 fines for Corporations, with significant increased fines for subsequent offences.

Illegal secondary suites can affect insurance coverage, mortgage eligibility, and resale value. The listing agent might include a disclaimer in the listing, such as "Seller and seller's agent do not warrant the retrofit of the basement apartment." This implies that the basement apartment may not be fully compliant with the legal requirements. Potential buyers of properties with secondary units need to exercise due diligence. They should confirm the legality of the secondary suite before purchase to avoid inheriting legal issues.

Legal counsel should be sought to ensure awareness of potential liabilities. Hiring a certified home inspector to identify any potential building code violations is also advisable.