Oh, So Suite... #562

With housing prices near record levels and stubbornly high interest rates, it is hardly surprising that many buyers have and will continue to turn to “mortgage helpers” or secondary suites to supplement their income or increase their purchasing power.

According to a May 2023 article from Statistics Canada¹, British Columbia has, by-far, the most “investor-occupants” in comparison with other provinces, a term which refers to a homeowner who rents out a unit on property that is also their primary residence. In fact, many buyers will include a mortgage helper on their “must haves” list alongside an open-concept kitchen. And while properties with income potential likely enjoy a distinct advantage in the marketplace, REALTORS^® should be mindful that the legality of any secondary suite can present unique challenges and risks for both consumers and REALTORS^® alike.

Legal or not legal, that is the question

A secondary suite is a self-contained dwelling unit with its own entrance, kitchen, bathroom, and sleeping accommodation, typically within a larger single-family home. While by-laws differ from municipality to municipality, a secondary suite is only “legal” if it was created with a building permit and meets all zoning, health and safety, electrical, and fire standards.

The serious implications of legality

Although there is a shortage of official statistics as to what percentage of all secondary suites in British Columbia are legal, the reality is that illegal suites are common and are often tenanted without serious incident. And while enforcement policies against illegal suites vary, many municipalities take a largely complaint-driven approach and do not actively seek out illegal suites. Yet, if a municipality receives a complaint and discovers the operation of an illegal suite, the potential consequences can be both expensive and time-consuming for homeowners. In addition to hefty fines, municipalities can require homeowners to bring the secondary suite into compliance with all applicable bylaws and standards or require the owner to remove the secondary suite altogether. Municipalities also have the power to file a Notice on Title for an illegal secondary suite, which would likely alert potential buyers of a breach of government by-laws or regulations².

Claims against REALTORS^®

With such significant potential consequences for homeowners, it is unsurprising that the legality of secondary suites is a consistent hotspot for claims and regulatory complaints against REALTORS^®. Indeed, there are many regulatory and court decisions regarding illegal secondary suites. In one recent case, the Real Estate Council of British Columbia (RECBC) found that a REALTOR^® committed professional misconduct when, acting in the capacity of a sellers’ agent, he failed to make written disclosure to the buyers that the subject property contained an illegal suite³. In another regulatory decision, a REALTOR^® was found to have published misleading information by stating in an MLS^® Listing that an illegal suite could help reduce mortgage payments⁴. Similarly, sellers’ agents have been alleged to have negligently misrepresented or misled buyers into believing that a secondary suite was legal and could be rented out legally⁵.

The risks are equally present for REALTORS^® who act for buyers. In one decision, the RECBC found that a REALTOR^®, acting within the capacity of a buyers’ agent, failed to make her clients aware of the risks of relying on unauthorized accommodation for rental income⁶. Similarly, another regulatory decision resulted in a finding that a REALTOR^®  committed professional misconduct for failing to use reasonable efforts to ascertain whether the subject property contained unauthorized accommodation⁷.

Tips to avoid claims

Given that the legality of any secondary suite is a hotbed for claims and complaints against REALTORS^®, they should take the following precautions when dealing with secondary suites.

Sellers’ agents

1. Do not make assumptions. When faced with conflicting information, take steps to confirm with the relevant municipality regarding the legality of any secondary suite before making representations regarding its legality or ability to generate income.
2. If a secondary suite is unauthorized (i.e. illegal), ensure that this is accurately and consistently reflected in the MLS^® Listing and all other marketing material(s).
3. According to the British Columbia Financial Services Authority (BCFSA), unauthorized accommodation is a material latent defect, and adequate written disclosure, if known, must be made to a buyer before entering into a contract of purchase and sale⁸.
4. Incorporate the use of solid disclaimers in all marketing materials. In particular, disclaimers should indicate to prospective buyers that the information contained in the marketing materials should not be relied upon without independent verification.
5. Consider the use of BCFSA’s acknowledgment for unauthorized accommodations in the contract of purchase and sale: “The Buyer acknowledges that the Property contains unauthorized accommodation and understands the potential consequences including the loss of income if the Buyer is required to discontinue any rental of that unauthorized accommodation."

Buyers’ agents

1. Advise your clients of the risks associated with an illegal secondary suite, including the risks of relying on income generated by an illegal suite.
2. Familiarize yourself with the various zoning designations within any given municipality and be mindful that some municipalities and/or zoning designations do not permit secondary suites.
3. Take steps to confirm with the appropriate municipality the legality of a secondary suite if it is of importance to your clients or recommend in writing your clients do so themselves.
4. Do not make assumptions. For example, a separate gas/hydro meter or utility charge does not necessarily mean a secondary suite is legal. 
5. Review the Title to the subject property and suggest that your clients obtain independent legal advice regarding any notice(s) of by-law contravention on Title.
6. Document your advice in writing. Consider using BCREA’s Buyer’s Acknowledgement of Information—Recommended Conditions form to document the advice given to your clients.

A special note regarding co-ownership

According to Statistics Canada, there is a high prevalence of buyers who seek to purchase real property in groups of three or more in British Columbia⁹. Hence, REALTORS^® who are acting for buyers wishing to enter into a collective-housing arrangement would be wise to recommend independent legal and financing advice to their clients. Within the context of secondary suites, however, if a group of buyers intend to occupy an illegal suite as part of a collective-housing arrangement, they should be advised of the associated risks, including the risk that the municipality may require the illegal suite be removed. Similarly, REALTORS^® should also be mindful that some municipalities may have bylaws restricting the number of maximum occupants occupying any given property. For example, the City of Vancouver’s Zoning and Development Bylaw 3575¹⁰, subject to some exceptions, prohibits any dwelling unit from being occupied by more than one “family,” a definition which includes a maximum of three unrelated individuals living together as a household. Where necessary, REALTORS^® should suggest to their clients that they confirm with the appropriate authorities that their intended living arrangements comply with the applicable bylaws and regulations and to seek legal advice.

Concluding thoughts

The legality of secondary suites is a hotbed for claims and complaints against REALTORS®. These issues may be particularly important given the increasing need for many buyers to rely on income generated by secondary suites and the increased prevalence of collective-housing arrangements. REALTORS^® who are mindful of the potential issues that may arise regarding secondary suites will be in a better position to advise their clients and mitigate the risks of costly regulatory and court claims.

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	1.	Housing Statistics in Canada: A profile of residential real estate investors in 2022.
	2.	Section 57 of the Community Charter, [SBC 2003] c.26.
	3.	Michael Randolf Cowling, Managing Broker, Re/Max Michael Cowling and Associates Realty. Real Estate Council of British Columbia, File No. #15-680. Consent Order March 12, 2020.
	4.	Raj Banga, Representative, Sutton Group—West Coast Realty. Real Estate Council of British Columbia, File No. # 16-780. Consent Order December 10, 2019.
	5.	Examples: Eck v. Montreal Trust Company of Canada, 1991 CanLII 1698 (BCSC) and Radhuber v. Iverson, unreported, October 4 1999, BCPC, Nanaimo Registry No. C21624.
	6.	Celia Heather Myers, Representative, Coast Realty Group (Parksville) Ltd. (QuaB). Real Estate Council of British Columbia, File No. #17-263. Consent Order February 17, 2021.
	7.	Zhou (Frank) Zhu, Representative, Multiple Realty Ltd. (Rhmd). Real Estate Council of British Columbia, File No. # 12-008. Consent Order December 4, 2015.
	8.	Rule 59 of the Real Estate Services Rules.
	9.	Residential real estate sales in 2018: Who is purchasing real estate?
	10.	City of Vancouver, Zoning and Development By-law No.3575.

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