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So you want to rent out your basement? Make sure it’s legal to avoid losing out.


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Blog by MacPherson Real Estate Ltd | September 30th, 2020


A recent article from Burnaby Now (click here to read the article) highlights the problems home owners and landlords face if they try to skirt the law and rent out secondary suites, such as basement suites, without the proper approvals and permits.

Yes, there are many people out there renting suites that are not legal. That doesn’t mean you should be one of them. You will have to suffer the consequences of fines, lawsuits, compensation to tenants and various out of pocket expenses if you get caught.

Yes, working with municipalities can be a long, frustrating process, but it is much less painful than the consequences of being caught with an illegal suite.

There are also potential tax implications when you come to sell the property if you have made substantial renovations and/or have partially changed the use of the property. The last thing anyone wants is a surprise tax bill wiping out any profit from selling a home.

Risks of an illegal suite:

  • Fines from city
  • Orders from city regards shut down or required construction work
  • Health and safety risk – if your unit isn’t up to code damage from fire or moisture issues are a real concern
  • No insurance coverage – having an illegal suite may void your home insurance, leaving your home unprotected.
  • Reduction in home value when selling. Buyers may be nervous about buying a home with an illegal suite.

Converting your basement to a suite:

  • Check your municipal regulations to see what is required when installing a suite, for example, will the windows be the allowable distance below grade? Is there enough parking provided?
  • Ensure you get any required permits; building, electrical etc., before commencing work
  • If you are hiring a contractor, ensure they are a reputable company, that have completed similar conversions in the past and are properly licensed and insured for the work they will be doing.
  • Make sure you have the suite signed off and have all required permits before signing a lease with tenants
  • Consult a tax accountant to see what the tax implications are of earning income from a suite in your home and in the future if you decide to sell the property.

 

Renting your suite:

Once your suite is approved and ready to rent:

  • Get a business license – most municipalities require one
  • Are you going to cover utility costs or ask tenants to pay a share?
  • Ensure you follow the Residential Tenancy Act and Regulations and use the correct documents. Note: even illegal suites are still bound by Residential Tenancy Act.
  • Carefully vet your tenants, always check with past landlords about the behaviour and payment history of prospective tenants
  • Remember, once you have a tenant, you can’t give them notice to end tenancy unless you meet the requirements (for more on this, click here,  to visit the residential tenancy branch website and see below). Be sure you are ready and committed to renting your space.

 

Finally, a note on family members as it pertains to landlords use of property and the Residential Tenancy Act. The Act has a very narrow view of what constitutes a close family member. If you want to take back your rental suite to move in a family member, you can only do this if the family member is a parent or child of the landlord or the landlord’s spouse. Brother’s and sister’s, aunts, uncles and grandparents don’t count.