The Legal Side of Basement Apartments: What Ontario Landlords Must Know

Introduction to legal basement apartments

Hey everybody, welcome to another episode of CRESI’s Ontario Landlord Series. Today we’re going to be talking to people who are looking to create a basement apartment. With all the different municipalities wanting more densification, families out there are looking for mortgage supplementation, a bit of help with rental income from the basement, or larger families who’d like a nanny suite so a mother-in-law can have her own separate unit while staying close to home as the aging years come with all these baby boomers out there.

A legal basement apartment is an essential addition to many of our homes in Ontario, offering an opportunity for rental income and extra living space. But what we need to understand — and avoid — are the fines and safety risks. Homeowners need to ensure their basement apartments meet the necessary legal requirements. In Ontario, there are specific building codes, zoning laws, and fire safety regulations we must follow when creating a legal basement apartment.

Today we’re going to be talking to Mr. Rob Di Lisi from Stonegate Legal Services to discuss the legal side of what needs to be done when creating a legal basement apartment you can rent out to somebody else. We’re going to get into building codes and insurance issues in other episodes — for this one, we’re strictly talking about the legal ramifications.

So Rob Di Lisi from Stonegate Legal Services, how are you? Thanks for joining us again, my friend.

Meet Rob Di Lisi from Stonegate Legal Services

Hey Kevin, thanks for having me on again. I’m excited to talk about this topic — it seems to be a very hot topic these days, so I’m glad you’re doing this. Yeah, it’s definitely something we get asked a lot of questions about.

How can we build a legal basement apartment? Do we have to make it legal? Those are questions I get all the time, so I’ll let you start.

Go ahead and share how you think about legal basement apartments from your end, and we’ll get into some comments as we go. Legal basements are wonderful — the key is legal. The one thing I see a lot is that people put tenants in their basements, legal or not.

And if it’s illegal, the city will eventually come to them and say it must be legal. With regard to the Residential Tenancies Act, whether the basement is legal or not has nothing to do with the RTA. So just to be clear, the RTA governs your residential tenancy. If the unit itself is illegal — the doors, entrances, windows, all the fire-rated requirements the fire department wants — that has nothing to do with the RTA.

So sometimes landlords call us saying the city now wants them to either make it legal or remove the tenant so the home reverts to a single-family dwelling. Here’s the problem: if you have a legal tenancy under the RTA, you can’t just tell the tenant to move out. There is no notice that says “I need you to move out” for that reason.

So the only other option is considering a settlement — a cash-for-keys option, which we’ve discussed before.

Can you rent without legalizing? The uncomfortable truth

Right, because it would be the city telling you that you need to remove the tenant due to a bylaw situation, not anything to do with the RTA. Correct.

You’d have to get the tenant out by negotiation, and cash for keys, with a mutual agreement, is the only way we know to do something like that. So that was my first question — I get told all the time: can I rent out my basement without legalizing it?

There are plenty of illegal basements out there that people are living in right now, until a neighbor or somebody says something or the city finds out — most of the time, they do find out. eventually. Often when there’s an argument, right, and someone says, “listen, I’m living here, and now you’ve got to fix it.” What happens when we don’t meet those legal requirements? Really it’s

fines from the city, and having to remove the tenant, then correct it if they want to and turn around and rent it out again. Anything else you’d add there? I can’t get into the legalities of what the bylaws are specifically, since I don’t get involved in that. All I can tell you is, in my personal opinion, if you are going to rent out your basement apartment, it should be legal. It will be a benefit when you want to sell, because now you can call it a legal basement apartment. Some of the costs could be tax deductible.

So that’s something to check with an accountant. There are a lot of pluses. The thing is, it should be done properly before the tenant moves in, because doing it afterward is much more difficult. Especially with fireproofing and everything else, right?

Whether it’s drywall or a window that needs to be a certain size — you’re right, it’s definitely worth legalizing the basement apartment. When people talk to me about it, they say, well, I have to get quotes and permits and all these things that add on to the project. But it’s also going to increase your property value, and you’re likely going to command a bit more rental income because it’s legal. It’ll be a nicer apartment, too, when you think about things like daylight coming in.

And for the landlord, you get that peace of mind knowing everything’s done right, nothing’s going to happen, and the tenant can’t complain. And if there’s ever a fire in the basement, it’s less likely to affect the rest of the home badly.

Essential responsibilities for basement landlords

Now, Kevin, with your permission, I actually wrote down a few points landlords should be aware of. First things first — whether this is a family friend or family relative, always, always have a lease, something in writing. That’s very important. The second thing is that all landlords should understand the Residential Tenancies Act.

and the key responsibilities of a landlord. I’ll give you a few examples. Repairs and maintenance — that’s section 20. Vital services — you cannot cut off heat, hydro, or water.

Privacy and entry — 24 hours’ notice is required except for emergencies. Another thing I see a lot is changing the locks: if they’re changed, the tenant must receive a key as soon as possible. Then there’s preparing and leasing your property.

Remember, if this isn’t a family member or close friend, first impressions matter — make sure the unit is clean and well-maintained before the tenant moves in. Next, set a competitive, realistic price. That’s another thing I see a lot of landlords get wrong.

Finding qualified tenants — use credit checks, employment verification, rental history, that kind of thing. For the lease signing, remember the Ontario Standard Lease is the lease to use. You can only collect first and last month’s rent plus a key deposit, and the key deposit should be the cost of the key.

Now let’s talk about managing tenants and common issues. Personally, what I do for my own properties is a move-in inspection — I document everything that’s wrong with the property. Understand that if a tenant doesn’t pay rent, you need to be able to give them the notice for non-payment of rent.

If you’re going to sell or move into the property, especially with a basement apartment, you need to understand the N12 — make sure you understand it for either personal use or a buyer’s use. Remember that repairs and maintenance are the landlord’s responsibility, and you should respond immediately and efficiently — have a work order system in place.

so that when you’re notified, you can get on it. And the last point I’ll make: run this like a business. I don’t care if it’s your friend, your cousin, your father, or your mother — maybe not your father and mother — but treat it like a business. That means screening tenants properly, using the legal forms, understanding the RTA, avoiding the costly mistakes most landlords make, and using professionals — your realtor, property manager, or paralegal, whatever the case may be.

Those are the points I wrote down. Definitely — let’s go through a few of those right now. You mentioned using a lease, right?

Because people think, well, they’re in my basement, isn’t it part of my house? It’s not the same as living upstairs versus living offsite, right? I’ll let you take that one. It’s the same, right?

If it’s a separate dwelling, then it’s a separate unit. The only time you don’t have to worry — well, you should worry anyways — is if you’re sharing a kitchen or bathroom and just renting out a room, then the RTA doesn’t apply. But you should still have a roommate agreement. Putting things in writing is very important, because if you ever call the police, they don’t get involved in residential tenancy matters.

However, if you can show it’s a roommate agreement, they are there to keep the peace. Depending on where you are, some police get involved and are supposed to when it doesn’t fall under the RTA, but some don’t want to get involved because they don’t want to risk getting in trouble, especially now that a lot of officers have body cameras.

Managing shared utilities properly

Right, so there you go — a basement apartment is a complete separate dwelling where the RTA is in full effect. Once a tenant is in, they’re in. I’ve heard of people moving in family members all the time.

Then a few years later, life changes, something happens, they’re in an argument, and now they don’t want them living there — but the family member is there as a tenant. Even though they were family, cousins, friends, whatever, it doesn’t matter — they’re a tenant, and they have all the rights the RTA provides.

Let’s talk about upstairs and downstairs being a basement apartment — it’s a separate dwelling, but they often share utilities. They don’t have separate metering for everything, so a lot of people split it on a percentage basis or something similar.

But what happens if the basement tenant stops paying their share of utilities? As you mentioned, you can’t shut it off. How do landlords sort out those types of things? It’s very important to put the utility arrangement in the lease.

And when you get the bill, you must give a copy to the tenant. If they don’t pay, you can give them a notice called an N5 for utilities — but it’s very important that you send them a copy of that bill, because you can’t just tell them “I got the bill, give me this amount” without showing them the bill itself.

Another thing to be concerned about with basement apartments — say it’s a single tenant living downstairs — that tenant is allowed to have roommates, occupants, or guests without the landlord’s permission. That could affect utility usage. They can move in a partner, get a dog, and

all these things the tenant is now entitled to that the landlord upstairs or offsite can’t do anything about — these are the tenant’s rights, and they’re allowed to exercise them.

Human rights considerations you can’t ignore

Also, if I may, Kevin — if you’re looking for a basement tenant, remember human rights law still applies. You can’t discriminate based on color, creed, gender, sexual orientation, race, or anything like that. That’s another thing we see a lot, where people say they only want one type of tenant or another. You cannot discriminate based on those protected grounds.

I would never allow anybody to do that myself, but you’re right, that’s something I’ve heard people express — for whatever reason, being more comfortable with one thing or another — but we just have to say we’re looking for a good, qualified tenant who will enjoy the space and be great to work with, and that’s who we’re going to find. As I mentioned at the top, we’re going to talk about basement apartments from all different angles — we’re also going to do this with an insurance broker and a mortgage consultant, so you understand all the different professional angles.

Because this is a great way to bring in supplemental income for everybody, as families look to move up and real estate gets more expensive. This is a great way for people who don’t need that additional basement space to help supplement their mortgage.

or increase their income overall. And like I said, even if you’re just moving in a family member, you should still legalize the basement, because even though it might feel unnecessary since it’s family, the value will still increase when you go to sell the home, as Rob mentioned earlier. Peace of mind and doing things properly should always come first.

I truly believe that. I think that’ll wrap it up for today, Rob, unless you want to touch on anything else. No, I think we covered everything.

Awesome. Thanks as always for listening — I hope you got something out of this, and we’ll be back to talk more about basement apartments. Talk to you soon.

Bye for now. Please remember, while we are professionals, this podcast is for informational and entertainment purposes only. The advice shared may not apply to your unique situation. Always seek personalized advice from a qualified professional before making any investment decisions.

Hey everybody, thanks so much for joining us this week. I hope you enjoyed the episode. If you’re finding it informative and useful, make sure to like, subscribe, share with a friend so that we can keep getting the information out there to Ontario landlords, and keep on joining us. We’ll see you next time.