Legal Basement Apartments in Ontario: Permits, Insurance & Financing

Introduction & Expert Panel

Welcome to the special compilation episode of the CRESI Ontario Landlord Series podcast. I’m your host, Kevin Breitner, and today we’re diving into everything you need to know about basement apartments — from planning the construction to legal considerations, insurance, and financing strategies. Creating a legal basement apartment can be an excellent way to generate rental income, house family members, or increase your property’s value. There are many aspects to consider to make sure it’s done properly and safely.

To help us navigate this, I brought together four industry experts: a friend of mine, Mark Noonan, who’s been on before, a general contractor specializing in basement renovations and construction; Robert Di Lisi, who you know from Stonegate Legal Services, addressing the legal aspects of the basement apartment;

Azita Fathi, a licensed insurance broker from Prime Service Insurance, who’ll discuss coverage and protection for the basement apartment unit; and Sylvia Ho, a financial landlord consultant who helps landlords maximize their return by sharing strategies through tax and mortgage implications. Let’s begin by exploring the essential first steps for considering a basement apartment, from permits and planning to the legal framework

that governs these units.

Getting Started: Permits & Planning Process

There are lots of illegal basement apartments out there. I’m not saying every basement apartment you’ll ever see or live in is going to be legal, but that’s the standard we’re coming at things from today. And we have to talk about things in general terms, because we’re talking to landlords across Ontario — you have to remember there’s Ontario law, there’s municipal law, and everything has to meet the specific code and specifications for the area you’re working in.

Let’s bring in Mark right away and start with the main thing we’re talking about — the permit. How do you get started? You’re going to need a permit to build your legal basement apartment. I’ll let you take it from there.

Kevin, that’s exactly right. Projects like this are pretty serious — we’re taking our most prized asset and turning it into an income property. So we want to make sure we’re covered.

The construction part is critical — you need a good relationship with the city or municipality wherever the property is located, and you have to have permits. You need to go through their guidance and guidelines and build to the proper standards. It’s not only for tenant safety, it’s for the safety of the homeowner too. The first step is to find out what the municipal guidelines are — each municipality is a little different.

To get your permit, you need to submit certified drawings to the city that cover everything they’re looking for in the space to be renovated, complying with the bylaws and building code. So you’ll want to start with an architect or a design firm — there are firms that specialize strictly in basement design and know all the particulars. They’re efficient and effective, and they’ll design a great space that covers all the bases for permit requirements the first time.

Those drawings then get submitted to the municipality. There’s a waiting period while they review and approve them — sometimes they’re sent back for modification, you make adjustments and resubmit. Once you get your permits, you’re good to go,

and you have to build to the content of those permits. But the good thing is, once you’ve got the permits, you’ve got a baseline — the scope of the project is clearly defined, which anybody can understand.

At that point, you can put the project out for bids from two, three, or however many contractors you want to engage, based on research and recommendations. They all have the exact same drawings, so they’re comparing quotes apples to apples, which is really the right way to go about any project.

You’re not necessarily going to pick the cheapest price — through the process of meeting with each general contractor, going through the drawings, and listening to their perspective and solutions, you’re going to get a better spectrum of ideas, and you’re also going to find out who you’re comfortable with. At the end of the day, the contractor you’re most comfortable with is the one you want to move forward with.

Legal Framework & RTA Implications

This is something we get a lot of questions about — how can we build a legal basement apartment, and do we have to make it legal? So I’ll let you start out — how do you think about legal basement apartments from your end? Legal basements are wonderful. The key word is legal.

The one thing I see a lot is people putting tenants in their basements, whether legal or not. If it’s illegal, the city will eventually come to them and say it must be made legal. In regard to the Residential Tenancies Act, whether you have a legal basement or not has nothing to do with the RTA. The RTA is about your residential tenancy.

If the unit itself is illegal — the doors, entrances, windows, fire-rated requirements the fire department cares about — that has nothing to do with the RTA. So sometimes landlords call us saying the city wants them to either make the unit legal or remove the tenant so it’s back to a single-family dwelling. But here’s the problem: if you have a legal tenancy, you can’t just tell the tenant to move out. There’s no notice that says “I need you to move out” for that reason. The only other option is a settlement — a cash-for-keys arrangement.

Because it would be the city telling you to remove the tenants due to a bylaw issue, not anything to do with the RTA. So you’d have to get the tenant out by negotiation, and that cash-for-keys, mutual-agreement route is the only way to do it.

So that was my first question — can I rent out my basement without legalizing it? There are many illegal basements out there that people are living in right now, until a neighbour or someone tips off the city, or the city finds out some other way, which usually happens eventually.

What happens when we don’t meet those legal requirements? Really, it’s fines from the city, and having to remove the tenant, and then correcting it if you want to rent it out again. All that I can tell you, since I don’t get into the specifics of bylaws myself, is that

in my personal opinion, if you’re going to rent out your basement apartment, it should be legal. It’s a benefit when you want to sell, because you can call it a legal basement apartment, and some of the costs could be tax deductible — 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 going to be difficult.

Especially with fireproofing and things like drywall thickness or window sizing. It’s definitely worth legalizing the basement apartment — when people ask about the costs and permits that will add on to the project,

it’s also going to increase your property value, and you’ll probably be able to get a bit more rental income because it’s legal — a nicer apartment, more daylight, and so on.

And for the landlord, you get peace of mind knowing everything is done right, the tenant can’t complain, and if there’s ever a fire in the basement, it’s less likely to badly affect the rest of the home.

Insurance Essentials & Common Mistakes

One of the most common things I see today is the increasing popularity of basement apartments. With mortgage rates where they are and the rising cost of home ownership, it makes sense for more people to turn their home into a revenue-generating property. Whether that’s right or wrong isn’t for me to judge — I just want to make sure it’s done

properly and that people get themselves protected. What I mostly see happening is people turning their basement into a separate unit for relatives, without thinking much of it because it’s family. But right there, the purpose of the property has changed — it’s now a separate unit for another family.

At first you might not be charging your relative rent, but they might be contributing toward utilities, and that alone changes the purpose of the property. You have to let your insurance company know you now have another person living in your basement — whether it’s legal or illegal isn’t relevant at that point.

Whether it’s legal or illegal isn’t relevant to the fact that the purpose has changed once somebody is living in the basement. Does that make sense?

Yeah, for sure — because someone’s living in the basement, whether the basement itself is legal or illegal is irrelevant to the fact that the purpose has changed. That’s interesting about the family member — even without a lease in place, how do you prove what’s going on, whether they’re staying as a permanent guest or something else?

You’re absolutely correct — the landlord and tenant agreement doesn’t necessarily come into play there. But if you have someone living in your basement, related or not, and they have content of value stored there, and something happens — a total loss — the adjuster will find out someone else was living in the basement, and if you didn’t disclose that, remember that when you get your home insurance, there are specific questions on the application.

One of those questions is whether someone, related or not, is living with you, and whether you need additional insurance for that person. If you didn’t disclose that on your application, the oversight is that the claim may be denied, or the contents may not be covered — the property itself is covered, but their contents aren’t. Those are the things we have to

think about when we have someone living in our basement apartment.

Financial Strategies & Tax Optimization

I’m really excited to share some strategies that can literally save basement landlords tens to hundreds of thousands of dollars over their investing career. Mistake number one — the biggest mistake I see when it comes to financing a basement apartment for the purpose of renting it out — will probably surprise many listeners, because these aren’t small oversights. They’re fundamental errors

in how people structure their financing, and it can dramatically impact their bottom line and delay their mortgage freedom by years. Let’s talk about mistake number one.

Mistake number one, which I see regularly from new and even experienced landlords, is using their own personal cash to fund the renovation. I see this all the time — please don’t use your own savings to fund an investment, because that money is after-tax dollars. It’s money you’ve already paid income tax on.

Please don’t do that, because the wealthy don’t do that — that’s why the wealthy stay wealthy. For us middle-class individuals, we tend to do things backwards, using after-tax dollars to buy an investment.

What the wealthy do is borrow to invest. Whenever you borrow to invest in a basement apartment, and there’s a reasonable expectation you’re going to make money — which is the rental income — you can deduct those interest costs. It’s a fundamental CRA rule: whenever you borrow to invest with a reasonable expectation of making money, you can deduct the interest costs.

So if you’re looking to put in a basement apartment and rent it out to make money, borrow the money instead. A big part of real estate investing is leverage — how can we leverage something to do something else? That’s exactly it.

The other thing is the famous term OPM — use other people’s money. When you’re buying a new property, you only need about 20% of the actual cost; you’re borrowing and leveraging the rest, and that’s how you want to approach an investment — always maximizing it.

So that’s mistake number one. What would be mistake number two that you see people making a lot with basement apartments? Mistake number two is when aspiring landlords borrow the money —

they do that step correctly, but they borrow it incorrectly. What they do is go into their bank branch and say, “Hey, I have a $500,000 mortgage, I need $40,000 to put in a basement apartment,

could you refinance and do a brand-new mortgage for $540,000?” What this landlord has done is merged their own personal debt with the debt for the basement apartment. What we want to do instead is

not do one mortgage for $540,000, but have two standalone mortgages. A lot of banks will allow two standalone mortgages, but only if you actually ask for it, because they won’t necessarily recommend it, even though it’s in their product lineup, because the people at the branch aren’t necessarily taught advanced financial strategies.

They’re more like order-takers — you say you want this, and you get this. Early in my career as a mortgage agent, I used to be an order-taker too.

But over 24 years as a mortgage agent, I’m not that anymore — I’m a strategist. So we’ve covered the fundamental considerations for getting started with a basement apartment project — permits, legal frameworks, proper insurance disclosure, and smart financing approaches. Now let’s look at the specific technical requirements you’ll need to address during renovation, including plumbing, laundry facilities, and proper documentation. We’ve got heating, ventilation, plumbing,

different types of exits, fire code safety, and more to look at. Let’s start with the plumbing aspects — how does that work in a basement apartment?

A lot of it will be roughed in already, if we’re lucky. What if we have to create it from scratch in an older home? How do we start with the plumbing?

Technical Requirements: Plumbing & HVAC

There’s a couple of things there, Kevin. Some new homes can’t have basement apartments built right away — some municipalities want the house to be five years old. A lot of people who buy a new home have the builder rough in plumbing in the basement pre-construction.

Don’t waste your money on that. Builders charge a significant amount for it, and it’s never in the right location — when you go to do your final build, it usually has to be dug up and relocated anyway.

So just buy the empty space and leave it as is. When you’re ready to do the project and, with your designer’s help, determine where the plumbing should go — kitchen, bathroom, laundry room — you want to position those close together to keep costs down. You don’t want to run pipes and venting halfway across the basement when it’s not necessary.

So we design with common sense for economies of scale — positioning things close to the stacks and drain points. The requirements for a basement apartment: you need a full bathroom, which includes either a tub or a shower, a sink, a vanity with a faucet, and a toilet — that’s the minimum for a complete bathroom. The kitchen also needs a sink and a faucet, properly vented, drained, and supplied. And for laundry, tenants need access to either an independent or a shared laundry room within their space.

We always try to figure out how to give a property laundry up and laundry down, so tenants don’t have to deal with a shared situation — it’s always best when you can manage that. When you get stuck with size or space constraints, sometimes it’s not worth building a secondary laundry, and you just figure out a schedule —

Mondays, Wednesdays, Fridays for one tenant, other days for the other, so tenants aren’t bumping into each other. Then there are utilities to consider — how they’re going to be separated when you have a shared laundry situation.

There are still some units with no laundry at all, requiring tenants to go off-site — that comes with different rental implications. A lot of people these days want laundry on-site; you actually can’t go off-site with a basement apartment.

It’s a bylaw requirement — you have to have laundry on-site, either shared or independent. That’s something I didn’t know.

There you go — always learning when we do these episodes. It’s not just for the audience — I learn all the time talking to our experts too. I always say you only know what you know, and you don’t know what you don’t know. That’s why it’s important to build yourself a team of professionals who genuinely understand their profession, especially for a project like this. Thanks, Mark — that’s awesome.

There’s actually an easier way to handle laundry these days. Conventionally, a laundry room needs 220 volts for the dryer and venting drilled through block or foundation, which can be expensive.

But nowadays, appliances offer an all-in-one washer-dryer machine — LG and a few other companies make some great equipment. Everything’s done in one machine — it takes longer per cycle, but there’s no venting required.

It’s a 115-volt plug-in, and you just need a typical inch-and-a-half drain to exhaust the water. They’re very simple to rough in and install, don’t take up much space, and can even be incorporated into a kitchen. So there are some cost-effective solutions nowadays — as long as it’s all disclosed to insurance so the proper information is shared.

We’ll get into the generalities of insurance in more detail here. Let’s say a family is living upstairs and going to rent out their basement — it’s been converted, the contractor’s come in, it’s all legalized and done. Now they call you and say, my insurance is going to change. What happens?

How does that all break down for them? Great question. As soon as a client calls an insurance broker and says the purpose of the property has changed — it’s now a rental property or a separate unit that’s rented — we don’t ask whether it’s legal or illegal; that’s not the first thing we need to know for insurance purposes.

Of course, the assumption is that the property is safe — you have smoke detectors, a fire exit, and so on; otherwise it wouldn’t be safe to rent. The two things that change are: your liability increases, because there’s more foot traffic coming and going,

so you should increase the liability portion of your home insurance. You have to add rental-income protection to your home insurance. And you have to ask the tenant or whoever’s living in the basement to have their own separate insurance to protect their contents.

From a liability perspective, the added cost might be around $600 to $700 a year, roughly $50 to $250 a month, depending on the situation. That’s to make sure you’re covered if anything ever happens or goes wrong. Insurance is one of those things we all hate paying for, but it comes in handy when you need it.

Absolutely. We just had a client with a relative living in the basement — this happened in Scarborough over the past couple of weeks with all the freezing, thawing, and snow melting. There was a flood in the basement, and the landlord happened to be away.

The tenant called the insurance adjuster for his own property, and that claim got subrogated to another insurance company. That’s how the homeowner’s insurer found out someone was living in the basement. The landlord’s claim was denied because they hadn’t disclosed it, but the tenant, who had proper tenant insurance, got his contents covered.

Home insurance will typically cover accidental or sudden bursts of water, but not seepage. In this case, it would have been covered under the home insurance if it had been disclosed at the beginning. So, again —

always disclose, let everyone know what’s going on, and have the proper insurance in place. The out-of-pocket cost in that case was around $20,000. Now, Kevin, with your permission, I actually wrote a few points landlords should be aware of.

First, whether it’s a family friend or relative, always have a lease — something in writing. That’s very important. Second, all landlords should understand the Residential Tenancies Act and the key responsibilities of a landlord —

a few examples: repairs and maintenance fall under Section 20; vital services, meaning you cannot cut off heat, hydro, or water; privacy and entry, requiring 24 hours’ notice except for emergencies;

and if locks are changed, the tenant must receive a key as soon as possible. Then there’s preparing and leasing the property — if it’s not a family member or close friend, first impressions matter.

Make sure the unit is clean and well-maintained before the tenant moves in. Set a competitive, realistic price — that’s another area where landlords sometimes go wrong. Find qualified tenants —

use credit checks, employment verification, and rental history. For lease signing, remember the Ontario Standard Lease is the required lease form. You can only collect first and last month’s rent plus a key deposit, and the key deposit should reflect the actual cost of the key. Now, on managing tenants and common issues —

personally, I do a move-in inspection and document everything that’s wrong with the property beforehand. If a tenant doesn’t pay rent, you need to give them the proper notice for non-payment. If you’re selling or moving into the property, especially with a basement apartment, you need to understand the N-12 —

make sure you understand the N-12 for personal use or a buyer’s use. 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 act on it.

And the last point: run this like a business. It doesn’t matter if it’s a friend, a cousin, or a family member — 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, whether that’s a realtor, property manager, or paralegal.

Now that we understand the technical specifications and requirements for a legal basement apartment, let’s shift focus to some practical considerations during and after construction — exits and safety features, inspections, tenant relationships, and financial strategies that can maximize your investment. Exits and fire safety are big ones we come across a lot. Obviously fireproofing and drywall have to go in between the two units, whether they’re up and down or side by side —

in this case, it’s a basement apartment, so up and down. Let’s talk about exits, fire safety, and things we have to worry about.

Fire Safety & Exit Requirements

Every basement apartment needs its own independent exit from the unit to the exterior. On a side-split or back-split, we’re all familiar with that side entrance where there are a couple of stairs going up and then the rest going down to the basement — that space is perfect.

That can be used as an independent entry and exit point for the tenant’s space. The door at the top can be locked if needed so the homeowner can access their part of the house, and the tenant can still use it as an emergency exit. If that layout exists, you’re good to go.

If you don’t have that, you’re not allowed to have a rental unit where the tenant walks through the homeowner’s common space and then down the stairs into the apartment — that’s not allowed. So you need another form of exterior entry, and it can’t be at the side or front of the house within

two metres of any property line. That can add some cost to a renovation, since you have to dig down, form it, cement it, and drain it — there’s a lot involved. That could add $15,000 to $20,000 to a renovation, but it might be necessary.

Then the question is whether you need a roof or weatherproofing over it — that comes up during the design process, and your designer will put the right access points into the drawings.

Once you’re in the space with access through that independent stairwell, you also need egress — a certain size of window in each bedroom and in the common area. In a bedroom, the opening needs to be a minimum percentage of the overall floor space,

with an unobstructed opening large enough for someone to climb through into a window well, stand up, and get away from the home in an emergency. There’s a similar minimum for the common area, expressed as a percentage of the overall square footage of glass needed to bring light in, alongside the egress requirement for each bedroom. Every individual bedroom must have its own egress window. Simply put, you have to have a way that someone my size — 6’3” and 280 pounds — can get out that window, as well as someone smaller, like a grandparent, being able to get out and climb the ladder.

Earlier we talked about permits and different types of inspections that come along the way. Can you speak to that process?

Absolutely. When you pull a building permit, there are multiple aspects to it — you’ll likely have a framing inspection, an insulation inspection, and an electrical inspection, which your electrician takes care of as part of an electrical permit that they pull alongside your overall building permit. Of course, you also need an HVAC inspection for whatever venting and equipment you’re installing. Then there’s a final inspection at the end.

Once everything is done and wrapped up, the building department comes back and signs off on the permit. That closes your permit, and you get your occupancy permit after that. There is a process to it, but it’s fairly straightforward these days.

Every municipality has a website — you log on, enter what you need, and get feedback on inspection scheduling. They show up, they’re in and out, and if there are no deficiencies, it’s a fairly quick process. It’s efficient — there’s not a lot of waiting once things are in process, though the original permit itself can take a while to obtain.

Inspection Process & ESA Certification

Since this episode is about protecting homeowners and landlords, I just have a few checkpoints for landlords to keep in mind when placing a tenant or renting a unit. Number one: increase your liability insurance. Number two, something that’s often overlooked: if you have a unit — basement or otherwise — with a 30- to 60-day overlap between tenants, and it’s vacant longer than that, the purpose of the property changes again, and you have to let your insurance company know.

Some people think, “it’s only 60 days, it’s only 30 days, I’m not going to worry about it.” But if something happens while it’s vacant — vandalism, water damage — the claim could be denied. So let your insurance provider know when the purpose changes. Number three: get the tenant to have tenant insurance, and make sure you’re named as additional insured on that policy,

so that if the insurance is cancelled, you’ll be informed. If it’s a separate dwelling, it’s a separate unit. The one case where the RTA doesn’t apply is if you’re sharing a kitchen or bathroom and simply renting out a room — but you should still have a roommate agreement in writing.

Putting things in writing is important, because if you ever call the police, they don’t get involved in residential tenancy matters. But if you can show it’s a roommate agreement, they’re there to keep the peace. Depending on where you are in the city, some police do get involved,

and they’re supposed to when the RTA doesn’t apply, but some officers avoid it because of the risk of getting into trouble, especially now that many wear body cameras. So a basement apartment, being a complete separate dwelling, is fully covered by the RTA — once tenants are in, they’re in.

I’ve heard of people moving in family members, and a few years later something changes and they don’t want them living there anymore — but the family member is still a tenant, with all the rights the RTA provides, regardless of the family relationship. Let’s talk about a shared-utilities situation between the upstairs and downstairs units — a basement apartment as a separate dwelling but sharing utilities without separate metering.

A lot of people split it on a percentage basis. But what happens if the basement tenant stops paying their share of utilities — since you mentioned you can’t shut it off, how do you sort through that?

It’s very important to put the utility arrangement in the lease. 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 the utilities — but it’s important that you send them a copy of the bill first, because you can’t just say, “I got the bill,

give me this amount,” without showing them the bill. Another thing to be concerned about: say it’s a single person living downstairs — that tenant is allowed to have roommates, occupants, or guests without the landlord’s permission, which can affect utility usage.

They can move in a partner, get a pet — all things a single tenant might not have had before — and the landlord upstairs or offsite can’t do anything about it, because those are the tenant’s rights.

If you’re looking for a basement tenant, remember that human rights protections still apply — you can’t discriminate based on colour, creed, gender, sexual orientation, or any other protected ground. That’s another area where people sometimes get it wrong, saying they only want a certain type of tenant. Make sure you understand you cannot discriminate.

Advanced Legal Considerations

Mistake number three costs landlords the most money, and it’s running your landlord business incorrectly. I’m not talking about $10 or $20 — I’m talking about tens to hundreds of thousands of dollars over time, directly affecting how quickly you achieve mortgage freedom. Let me explain what’s going wrong.

99% of landlords deposit the rental income into their regular bank account and pay all the rental expenses from that same account. Let’s say, for example,

we’re not even talking about a basement apartment — just a standalone rental unit. Most landlords deposit the rental income, say $1,800, into a bank account,

and pay all the rental expenses for that unit from the same account — mortgage payment, property taxes, condo fees, house insurance. That’s a typical setup, but it’s totally wrong. Instead, they should apply an advanced financial strategy called rental cash damming.

What is rental cash damming? As someone known in the industry as the cash-damming queen, I’ve helped hundreds of landlords transform their rental properties from cash-flow challenges into wealth-acceleration engines. Rental cash damming is an advanced financial tax strategy the wealthy use, that middle-class individuals typically don’t know about. It maximizes your tax deductions, which eventually results in paying off

your owner-occupied home mortgage eight to twelve years earlier than planned. If you’re a landlord collecting rent regularly and you have a mortgage on your owner-occupied home, applying rental cash damming can pay off that mortgage eight to twelve years sooner. Here’s how it works.

When you get your rental income, you put it into a bank account, and from that account, you take that $1,800 in rental income from the basement apartment and use it to prepay your personal home mortgage. Remember that $500,000 mortgage —

you take the $1,800 and make a lump-sum payment against your personal home mortgage. Then the question becomes: how do I pay for that separate $40,000 basement-apartment mortgage portion?

You use your line of credit — re-advancing it to pay for that $40,000 mortgage portion and any other expenses associated with the basement apartment. By doing this, you’re effectively converting non-deductible interest on your personal $500,000 mortgage into tax-deductible interest tied to your rental property, which accelerates paying off that mortgage.

The best part is it doesn’t change your family’s lifestyle or budget — it stays the same. All you’re doing is reallocating how you run your landlord business. Now that we’ve covered the practical aspects of creating and managing a basement apartment, let’s explore some advanced topics to help optimize your rental unit —

heating and insulation solutions, tenant insurance considerations, and how property management can affect your insurance premiums. CRESI Property Management is always here to help with that. On heating and electrical in the basement — we touched on shared

utilities earlier; in a perfect world you’d separately meter the units, which helps classify the property more like a duplex, but there are definitely basement situations with shared utilities. If we’re looking at heating and electrical down there, how do we best set that up for efficiency?

Basements are naturally a little colder than the rest of the house.

Heating, Electrical & Utility Management

Most conventional homes have an HVAC system with a propane or natural-gas furnace heating the entire space. Trying to create separate zones with dampers and motor controls to isolate spaces is hard on the equipment, and the equipment isn’t really designed for that.

So you work with what you’ve got, and adding second furnaces or hot water tanks is very cost-prohibitive. What the bylaw typically requires is that the basement space be kept at a minimum of about 22 degrees Celsius — roughly 72 degrees Fahrenheit — to make sure it’s comfortable, since we know the basement will run a bit colder.

Because basements are colder, you might need to set the upstairs to 75 degrees to hit 72 downstairs, which some people find too warm. The best way around that, Kevin, is really good insulation — do a great job insulating the space during construction.

A full insulation draw on the perimeter walls, insulating the floor with a decoupling membrane and insulation on top, using a flooring material with insulative properties, and insulating the space between the basement and the upstairs. That gives you two benefits — insulation value and sound reduction. Do that properly, with a proper vapour barrier, and it becomes a lot easier to maintain the temperature and get better balance between the upstairs and downstairs.

Two different families or tenants will always have different comfort preferences — even in my own household, my wife likes it warmer than I do. There are tricks for that — we’ve installed devices on a couple of properties that let us monitor and adjust the thermostat remotely from our phones, locked away in the upper unit, so tenants aren’t fighting over the settings and there’s a balance between the units. That’s one of the things you run into with multi-family properties, whether you’re living upstairs and renting the basement, or renting the whole property out as an offsite landlord.

There are always compromises in shared space, on so many levels — that’s one of the things that has to line up with multifamily, making sure tenants can get along and enjoy their own space, because conflict between tenants can cause a lot of problems. From what I understand on the legal side, a landlord can’t evict a tenant just because they don’t have contents insurance — but at least this way you’d be notified, right?

Right. When setting up a lease, we get tenants to have tenant insurance before we turn over the keys. But once the keys are handed over, they can cancel their contents insurance any time they want, which protects their own stuff, whether they’re in a condo or a basement apartment.

Content insurance runs somewhere around $20 to $25 a month and covers everything they own, plus additional living expenses — so if the basement is being repaired after a water issue, insurance can pay for a hotel stay while that happens. It’s there to protect the tenant and give landlords extra peace of mind too. Being named as additional insured prevents the tenant from cancelling their insurance without the landlord’s knowledge.

That’s actually good to know — I’m learning something there too. I say this a lot — I learn something through every episode myself.

How would a landlord be added as additional insured, for any type of rental property?

They’d tell the tenant to add them at the time of purchasing tenant insurance. Besides checking references, credit, and so on, you tell the tenant they need tenant insurance and that they must name the landlord as additional insured. That’s a standard practice among insurance brokers — they’ll easily add the landlord’s name, similar to how a bank has its name added as mortgagee on a home insurance policy.

The lender would be immediately notified if the insurance is cancelled — same for the landlord in this case.

Is there a difference in insurance whether the family upstairs has their own insurance versus two separate families living completely offsite from the homeowner? Are we talking about the same home, or a fully separate rental?

If I’m a landlord with a duplex — up and down — versus being the homeowner living upstairs and renting out my basement, is there a difference?

Yes. If you’re not living in the property, it increases the risk for the insurance company. With a duplex where both units are rented, the risk that tenants won’t maintain the property the same way an owner-occupant would increases your insurance liability. So the premium would be different if you’re not living in the home, because you’re not maintaining it the same way you would if you lived there.

It’s now a full income property rather than a supplementary unit below the homeowner, where you have eyes and ears on the property at all times versus having someone else. Here’s one for you — does having a property management company managing your investment property reduce your premium?

Yes, that does reduce your premium. That’s another question we ask as brokers — are you managing it yourself, or does a property management company manage it?

The next question is whether the property manager has liability insurance. If yes, that means there’s someone else with skin in the game, and that lowers your premium. So we’ve now covered a lot about basement apartments, from technical requirements to practical management strategies. Let’s hear some final thoughts and recommendations from our experts, including building code requirements, safety considerations, and financial optimization strategies to keep a basement apartment safe, legal, and profitable.

Safety and legality come first — profitability follows.

Final Safety & Code Requirements

One thing to bear in mind is ceiling height — people forget about this. Some older, shorter basements won’t accommodate a tenant space.

You need a minimum of 6 feet 10.75 inches over more than 75% of the area, and no lower than 6 feet 4.75 inches under areas with bulkheads. Fire and safety —

we require fire-rated drywall and fire-rated doors, with a required burn time — roughly 20 minutes on doors, 30 minutes on the assembly. That comes back to insulation and drywall choices.

We use fire-rated products to slow burn time and give people time to escape safely. Tied into that, smoke alarms need to be hardwired throughout the entire house and interconnected — if the alarm upstairs goes off, the one downstairs goes off too, and everybody leaves the property.

Carbon monoxide detectors need to be in every bedroom — that’s critical, since natural gas often comes into the basement mechanical area, and that space should be covered too, along with every individual bedroom.

Before starting, make sure you’ve checked your zoning to confirm it allows a basement apartment. Some homes also fall within floodplain areas, which have been more clearly mapped after recent weather events —

you won’t get a basement apartment approved in a floodplain area. On plumbing, we also need a backflow-prevention system on the main drains coming into the house, to prevent sewer backups — that’s now required in almost every municipality.

That can cost anywhere from $1,000 to $4,000 depending on the situation. The unit also has to be registered as tenanted space, not just permitted.

The house generally has to be at least five years old to apply, and the rental unit must be smaller than the main house — you cannot build a bigger rental space downstairs than the available homeowner space upstairs,

even if the basement footprint happens to be bigger. Parking is another requirement — you need at least one assigned parking spot. Another good step is a fire inspection,

so you’re cleared and can show any incoming tenant proof of the unit’s legality as part of the lease package, so they’re confident in the situation from the start. That way there’s no issue down the road if something arises. These are fun, exciting projects — we’ve got a real need for housing right now,

with people sitting on empty basements they aren’t using. It’s a great income opportunity, and we’re seeing more requests for this kind of work these days.

Insurance Checklist & Final Tips

To sum up on insurance: get coverage, and disclose that the arrangement is happening — whether it’s a family member living down there as an extra person, or a rented unit, let the insurer know. If it’s a rental property, make sure they know someone is down there, that the space is safe and should be legal. Not every situation can be done that way, and there’s a real need for housing,

but make sure it’s completely safe for someone to live in. Any final things to share?

Prepare this checklist for basement apartment coverage: A, inform your insurer about the rental unit. B, add a rented-premises endorsement, since you’ve rented the basement. C, include rental-income protection, so if something happens, the insurer keeps paying you rent while the property is repaired.

D, increase your liability, since extra foot traffic increases exposure. And add yourself as additional insured on the tenant’s policy, and notify your provider if the property will be vacant for more than 30 days.

The most important piece is to make sure you have a smoke detector and CO2 detector installed on the basement or lower level.

Rental Cash Damming Strategy Deep Dive

As a financial landlord consultant, I’ll show you how to set up rental cash damming — we work together for a full 12 months to make sure there’s at least one full tax cycle to be certain it’s being done properly. Rental cash damming isn’t for the faint of heart — it’s for landlords who are very organized, or who want to be organized. When we work together, I give clients checklists, video training,

and one-to-one regular check-ins to make sure they’re staying compliant with CRA rules. To recap: when you’re looking to put in a basement apartment, don’t use your own savings — borrow the money instead.

But when you borrow it, keep it as two separate components: your regular mortgage, say $500,000, and a separate $40,000 loan for the basement apartment. When you get the rental income from that basement apartment — say $1,800 — you take that $1,800 and prepay the $500,000 mortgage, and use your line of credit to pay the interest costs on the $40,000 mortgage.

That’s the blueprint for how rental cash damming works. If you’re interested in learning more, there’s a one-hour training available that teaches landlords how to do rental cash damming properly.

It’ll be linked below or in the corner of the video, at cashdam.ca — that’s the full one-hour training on how to properly set up

rental cash damming. The end result is paying off your owner-occupied home mortgage eight to twelve years earlier than planned, transforming your long-term wealth building. And that concludes our comprehensive guide to basement apartments here in Ontario. I want to sincerely thank our experts, Mark Noonan, Rob Di Lisi, Azita Fathi, and Sylvia Ho, for sharing their valuable insights and expertise.

As always, we’ve learned today that creating a legal basement apartment involves careful planning, proper construction, legal compliance, adequate insurance, and smart financial strategies. There may be upfront costs and considerations, but a properly executed basement apartment can provide substantial benefits, from rental income to increased property value. Remember the key takeaways: always check municipal bylaws before starting,

obtain proper permits, ensure safety features like egress windows and smoke detectors, disclose the rental unit to your insurance company, use proper legal documentation, and consider strategic financing approaches like rental cash damming.

If you’re considering a basement apartment for your property, work with qualified professionals who can guide, advise, and consult you through the process and help you avoid costly mistakes. Thank you so much for joining us, especially for this special compilation episode, where we put four episodes together into this one for you. If you found this information valuable, please like, subscribe, and share the podcast with other Ontario landlords, and until next time — I’m Kevin Breitner with the CRESI Ontario Landlord Series.

Bye for now.