real estate investment in multi family units: a cautionary tale about illegal suites.

With real estate prices skyrocketing, it's no wonder more investors are turning to properties with multiple units to make their investments cash flow. Some people are willing to invest time and effort into converting a single-family house into a multi-unit property or even building one from scratch, while others prefer something that's already done. If you fall into the latter category, there's nothing wrong with that—just be cautious. I've seen many investors end up in difficult situations after unknowingly purchasing properties with illegal suites.

You might think that if a property is listed as a duplex, triplex, or fourplex on the tax records, or if there are multiple hydro meters, the units must be legal—after all, both Hydro and the city tax department are in on it, right? Maybe the previous owner even reassures you, saying the units have been there for 20 years without a hitch. However, these indicators alone don’t guarantee legality.

The most important factor in determining if a suite is legal is whether a building permit was issued either to construct the building as a multi-unit property from the beginning or to add additional units to a single-family dwelling. Here are some steps to help you verify the legality of the units:

1. Request Building Permits: Ask the current owner to provide any old building permits for the additional units. If these were added recently, the owner should have this documentation. Be cautious if they don’t.

2. Review Original Drawings: Some owners might have original architectural drawings, which could indicate what the building was intended to be from the beginning. However, these documents are rare for older properties.

3. Order a Compliance Report: The most reliable way to determine if the units are legal is to order a compliance report from the city. For those investing in Ottawa, you can order one online here. If the property isn't under your possession yet, you might need to obtain authorization from the owner. The report would look something like this::

   
   
   
   

Ottawa Compliance Report

Don’t be fooled by the number of units listed in the first section of this report—it’s not what the Building Code department actually cares about (I know, it’s messed up). You’ll need to scroll to Page 2, where the important stuff is. In this example, a property had a permit issued to convert it from a triplex into a duplex. The fact that this permit was completed and closed in 2006 means that, officially, this building is a duplex, even though city records might still show it as having three units. If the permit had remained open, you could have canceled it to revert the property back to a triplex as permits don’t expire on their own, but in this case it has been unfortunately closed. I’ve seen permits that have been open since the ’90s—yes, they can linger that long!

Ottawa Compliance Report

Now, we don’t know exactly when the property was converted into a triplex or whether it was done legally. I'm not sure which way the city would lean if there wasn’t a permit issued in 2006. Would they deem the units legal or illegal? I’d say it all depends on what the city records show. If all they have is a note about a 3-unit building, they might let it slide. But if somewhere in their dusty file storage, there’s an old piece of paper labeling it as a single-family dwelling with nothing since to officially allow the conversion into a triplex, then in the eyes of the city, they’d probably still see it as a single-family home with illegal suites.

what if you discover the units are illegal...?

If you find out that the units are illegal before buying the property, it might be wise to walk away unless it’s a fantastic deal and you’re prepared to invest in making them legal. Even if the units have been there for decades, things can change quickly if a tenant complains or if you apply for a renovation permit. The city could then require you to either legalize the units or shut them down.

If you already own a property with illegal units, your options are limited. You could hope that the city doesn’t find out and continue renting the units, though this is a risky approach. Alternatively, you could attempt to legalize the units, but this can be challenging. The units will need to comply with current Building Code and Zoning By-Law, as in the eyes of the Building Code department, these units don’t officially exist. Consulting with an expert who understands these regulations is crucial—not only to increase your chances of getting city approval but also to determine if legalizing the units is even feasible before you get within 100 feet of the Building Code department.

the importance of due diligence.

Remember, as a landlord, you could be held criminally liable if something happens to your tenants in an illegal unit, such as in the case of a fire or other safety hazards. It’s your responsibility to ensure a safe living environment, and illegal units often fail to meet safety standards.

Investing in real estate can be lucrative, but it’s essential to do your due diligence. Ensuring that all units are legal can save you from significant legal and financial headaches down the road.

If you find yourself in a tricky situation, don't hesitate to contact me. I'll do my best to advise you on the best course of action for your specific case.