With real estate prices at an all-time high in Ontario, rental properties are in demand. Real estate agents are seeing increased interest in homes that contain income-generating secondary apartment units for rent. Purchasing a home with a rental unit can be an appealing approach to help offset mortgage costs and increase investment returns.
If you are looking to buy a property with a rental unit, I suggest that you plan carefully and become familiar with the relevant local bylaws, codes, laws, risks, obligations and requirements. First you must make sure the unit is permitted and meets all legal codes and requirements. Then you’ll have to understand your rights and obligations as a landlord.
A good place to start learning about the role of a landlord is the Landlord Tenant Board website, where you can read about a landlord’s rights and obligations under the Residential Tenancies Act, 2006. I also suggest you discuss this with a real estate agent and lawyer.
Ask your lawyer to check if the property is zoned to permit a multi-unit dwelling and to confirm that it meets building, fire, and electrical safety code requirements. This is important as you can be held liable if safety codes aren’t met and there is a fire, flood or structural collapse that results in destruction of a tenant’s property, causes injury — or worse.
Have your agent ask the seller’s real estate rep for all relevant paperwork, including copies of municipal permits, inspections, receipts and approvals the seller should have received when the apartment was created or was upgraded to be compliant to codes. If the seller is unable to provide these (maybe because the unit predates their ownership), you, along with your real estate agent and lawyer, should do some research to confirm the unit meets provincial and municipal legislation and codes.
If the municipality were to conduct an inspection and discover that a unit doesn’t comply with provincial legislation and municipal zoning bylaws, you could be fined, and ordered to bring it into compliance or demolish it altogether.
This is why I strongly advise against offering a unit for rent without first ensuring that you can do so legally. Remember, even if a property has a rental unit with a tenant when you view or purchase it, that does not mean it meets all the necessary requirements.
So, if you find a home with a rental unit that you like, but cannot confirm its legality, talk to your agent about the steps you’d need to take to have it meet zoning and code requirements. You can work with the local municipality, and electrical, plumbing and construction professionals to determine the full scope of work and costs before you buy the property.
This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.
The author, Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. https://www.reco.on.ca/