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Illegal Basement Suites - Two Potential Risks For Homeowners

According to a recent survey conducted by Square One Insurance Services, 11 per cent of house owners across Ontario, B.C. and Alberta rent out some portion of their property to non-family. Most do it for extra income or to help out with the mortgage. But there's a problem: 17 per cent of these units are considered illegal - and if discovered, owners could face financial consequences on two fronts.

The Risk Of Legal Noncompliance

Back in the 90's, most municipalities prohibited homeowners from renting out secondary units. But as in-home rentals became more popular, regulations began cropping up.

Homeowners who currently rent or who plan to rent out a unit need to be aware of the rules, which differ from municipality to municipality and can touch on such areas as:

  • The maximum number of rental units allowable in a single property
  • Restrictions on the size of a unit
  • Building codes
  • Zoning regulations
  • Licences required to operate a rental unit

Homeowners who are caught operating an illegal suite could face fines or be ordered to cease their activity until they bring the unit into legal compliance.

Insurance Woes During Calamity

Another possible risk may never happen. But if it does and an unexpected peril causes loss, homeowners could find themselves unable to collect on insurance coverage for the rental unit.

Most policies require that homeowners inform the insurer of improvements that increase the value of a home and of changes in the use of the property - such as an income-earning rental unit.

Failure to keep an insurer apprised could mean that the home is underinsured for loss or liability. A fire, flooding basement or tenant slip-and-fall could put the homeowner on the hook to pay out of pocket for repairs to the excluded unit or to cover the cost of injuries.

The wise course for landlords: know what the law says about rental units and be upfront with your insurance provider to ensure adequate coverage.

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