MORTGAGE SOLUTIONS

The legalities of basement apartments

Buying a home with a second suite, or basement apartment, can be a great move from an investment perspective, but it can come with its share of headaches as well if the apartment isn’t a legal one.

This is a reality that one Ontario homeowner realized when he purchased a property with a basement apartment that was not up to code. The required renovations ended up costing him $50,000 – and changed the disclosure rules surrounding basement apartments.

If you’re looking to purchase a property with a secondary suite, make sure the proper legal legwork has been done before you place an offer. More specifically:

-          Make sure the selling agent has verified the legality of the apartment with the appropriate municipality.

-          Beware of clauses in the offer that says “the seller does not warrant the retrofit status”;

-          Request a land survey before signing on the dotted line.

In particular, make sure that the unit is in line with the local fire code. This typically means that there is adequate fire separation between units; a means of escape (and mandatory separate entrance); appropriate fire alarms and detection; and safe electrical wiring. Missing one of these important codes can end up costing you – in some jurisdictions it can be a fine as high as $25,000 and/or a year in jail.

It also couldn’t hurt to get an accountant involved. While rental income is a great way to shave down your monthly mortgage payments, it’s still income nonetheless and, therefore, must be claimed. An accountant can help you navigate what household expenses you can write off and what you can’t, so that you don’t get in trouble by the Canada Revenue Agency down the road.