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When agents face heat for illegal income apartments

How does an interested buyer know if a home's basement apartment is legal? And, what about information about basement apartments must real estate agents provide to buyers?

Mohamed came to my office with an agreement to purchase a two-unit house in Kitchener. The agents involved told him the basement apartment alone could rent for $1,200 a month.

Although the purchase agreement contained no reference to the legality of the basement apartment, the MLS listing described it as an "in-law suite" and an "accessory apartment" – industry code words for illegal unit.

After signing the agreement, Mohamed approached the City of Kitchener and was told that the home's basement apartment did not have the necessary approvals and was illegal. He wanted out of the deal.

I told him about three cases before discipline panels of the Real Estate Council of Ontario (RECO), the industry regulator.

In 2010, a real estate agent was charged by RECO with breaches of its code of ethics. The agent described a property in a  listing as, "magnificent house… with two apartments in the basement ($1,150 income)…Seller and and Agent do not warrant the retrofit status of basement apartment."

The agent told the buyer it would be an excellent investment property, but took no steps to ensure the buyer was informed of its legality and suitability for investment purposes.

After the deal closed, the municipality issued an order against the property because the basement apartment was in violation of the Buidling Code Act. The tenants stopped paying rent, and the owner eventually filed for bankruptcy.

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.

He can be reached by email at, phone 416-364-9366 or fax 416-364-3818.

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