It’s sweet to have a suite. Not only as a seller for whom the benefits of rental income need not be mentioned, but also for REALTORS® who have listings with secondary occupancy units, most commonly called “suites." Properties that contain these extra dwellings often achieve a higher sale price and are differentiated from their neighbouring competitors. It's not all roses, however, there are some things to consider about marketing and selling these properties, so let's talk about those tricky bits.
Secondary OccupancyNot all suites are suites. This means that if they have not received the necessary approvals from the local municipality as meeting zoning, legislative, building code, and safety requirements, they cannot be legally called a suite. In most municipalities in Alberta, there is a process for bringing a secondary dwelling in a home up to the standard of receiving a secondary occupancy permit from that municipality, making it a legal suite, provable by producing that approved secondary occupancy permit. To a consumer, the word suite assumes all those things have been allowed and approved and therefore any cute term designed to wink at the issue, such as nanny suite, in-law suite, mortgage helper, or the like are generally assumed by the public to be legitimate legal suites. If there is no secondary occupancy permit, they should not be called a suite unless it carries the label 'illegal.'
What if there is no secondary occupancy permit?No permit means it's not legal. A REALTOR® holding a real estate license must always ensure that consumers know at the earliest possible moment that what they see in the property as a suite is illegal for use as a rental suite, so the use of the term ‘illegal suite’ must be in the public remarks of the listing. Since the seller still wants the public to know about the features of the home, and there may be buyers who find those features valuable to their life or situation, the best way to advertise these properties is by a transparent explanation of what they are in reality. For example, a statement such as “the illegal suite in the basement is fully finished and features a separate entrance, second kitchen, and second laundry room," informs the public of the qualities of the home while disclosing upfront that the use is not a legal secondary dwelling. Additionally, there should never be a mention of the ‘potential’ income of such a dwelling, since the potential would be based on the illegal occupancy of a second family without a permit, and therefore the promotion of that illegal activity.
What if there is a secondary occupancy permit?Hurray, this is a time to celebrate! This means the property can be advertised as a legally permitted suite, can be insured as such, and maybe most importantly, would allow the income or potential income from the suite to be recognized by a mortgage lender as contributing to the servicing of the debt. This would mean that a larger pool of buyers could potentially qualify for the home at a higher value than its competitors. Not to mention the benefits for the purchaser to have the ability to significantly offset some of their housing costs by having a tenant in the secondary dwelling. These properties generally sell for significantly higher prices and with a shorter market time once they have the legal secondary occupancy permit.
Protecting buyer and sellerThe realities of selling property that has not achieved the high bar of legal secondary occupancy bring us to the protection aspect. With varying family living arrangements, multi-generational homes, and communal family relationships, some purchasers would benefit greatly from the features of non-permitted secondary dwellings but have no intention to rent them out. In such situations, it is very important to ensure everyone touching the transaction understands the status of such property. I would recommend adding a term to the contract such as “The seller and buyer acknowledge the current basement development in no way constitutes a legal secondary suite," and having the parties initial. This ensures everyone, including the lawyers and lenders, understands what the parties have understood about this issue and there can be no short memories down the road.
One of the chief concerns about selling homes that have the makings of a secondary dwelling but do not have a legal secondary occupancy permit is public safety. There have been horrible situations where tenants and even children have perished in the basements of homes that did not have legal permits for a secondary suite and did not have the proper egress to escape during a fire. This is only one of several concerns where the proper legal bar has not been met in achieving secondary occupancy permits, which makes this issue a high priority to get right, and be transparent for all parties to understand.
Provincial Practice Advisor
Bryan has many years of experience in the real estate industry including over 10 years as a former broker in the Edmonton Region.
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