If you haven’t disclosed your home’s rental suite, you may be breaking the law

A rental suite is a great way to help homeowners meet their mortgage payments at a time when home prices are creeping ever upward in some parts of Canada.

But as many as 15 per cent of secondary rental suites in detached homes are being operated in Canada illegally, said a survey of over 5,000 homeowners in B.C., Alberta and Ontario by Square One Insurance Services.

In many cases, illegally-operated secondary suites also go unreported to insurance providers.

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Homeowners find themselves in this situation in a number of ways, Square One president Daniel Mirkovic said in a news release.

Sometimes, they buy homes that already have suites in them, unaware of municipal building standards and therefore that their suites may not be up to code.

They may also not know about municipal laws that require them to obtain business licences before renting them out.

“Part of this dates back prior to the ’90s, when very few municipalities would allow you to have a suite in your own home,” Mirkovic explained.

However, in a statement issued with the findings on Wednesday, he said some municipal laws are outdated and don’t support the goal of building more affordable housing.

“It’s hard to understand why cities advocating for more affordable housing options would continue to enforce this outdated regulation.,” Mirkovic said.

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Homeowners are often fined by their municipalities if they’re caught operating illegal suites in their homes.

The fines can reach up to $2,000, like they do in Vancouver, Mirkovic said.

Additionally, homeowners may be required to rebuild their secondary suites to make sure they meet building standards.

Square One found that 17 per cent of rental suites in detached homes are considered illegal.

Ontario had the highest percentage of illegal rental suites in the survey at 21 per cent, followed by B.C. with 15 per cent and Alberta with 14 per cent.

The actual percentage is likely to be higher as residents may be reluctant to disclose illegal rental suites.

Ontario has more than 233,000 secondary rental units, while B.C. has over 155,000 and Alberta more than 125,000, according to the Canada Mortgage and Housing Corporation (CMHC).

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According to the survey, 40 per cent of homeowners build rental suites for extra income, while 34 per cent do it to help with mortgage payments.

It’s no coincidence that the highest percentage of illegal secondary suites are present in provinces where real estate is most expensive, Mirkovic told Global News.

Additionally, many homeowners don’t disclose their secondary suites to their insurance providers. Those people could lose their coverage altogether.

“If they don’t disclose this, their whole policy could be null and void,” Mirkovic said.

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This could be especially risky for homeowners who call on their insurance providers after their homes are damaged, or people are injured on their property, Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada, told Global News.

“You obviously face the risk, if you have a loss, that the insurance company may not pay because it contradicts the terms of the policy,” Karageorgos explained. He said that when insurance companies work with clients, they attempt to match the risk that a client presents with the policy they would need to best cover them.

Karageorgos warned that those living in illegal suites may not be covered by insurance.

And if someone is hurt on a property that houses an illegal rental suite, the homeowner’s liability insurance may also be affected.

While many homeowners are nervous about disclosing their rental suites to insurance providers, Karageorgos said some may not even be aware that they’re violating the terms of their agreement — just like they’re not aware that they’re even breaking the law.

Mirkovic and Karageorgos agreed that the best way to avoid the consequences of operating an illegal rental suite is to become familiar with municipal bylaws and the terms of your insurance policy ahead of time.