Beware of homes with secondary suites

REM – Real Estate Magazine
10 January, 2011 8:07 AM
by Jim Adair

Beware of homes with secondary suites

By Jean Sorensen

As municipalities across Canada move more towards increasing housing density on land once zoned for single-family homes, real estate agents are being challenged with a barrage of conditions related to secondary living quarters.

The danger comes, says Marty Douglas, managing broker for Coast Realty Group in Courtenay, B.C., when the sales rep advertises “mortgage helper suite with $700 or $800 revenue” and the buyers qualify because of the extra revenue. Douglas says: “If it is not a legal suite and they (buyers) faced evicting the tenant, the problems can really begin for the Realtor. He really has to be cautious on suites even when the municipality turns a blind eye.”

The blind eye is more of a shift of political outlook. There has been a general trend in the marketplace for homeowners to put in suites or convert suites illegally and municipalities largely did nothing unless a complaint was lodged. But now municipalities are passing bylaws allowing licensed suites. Even West Vancouver city council this year bowed to pressure on secondary suites and gave those with extra living units (estimated at l, 000 in the area) until Sept. 30 to register their suites or face a fine of $300 per day. (Only an estimated l0 per cent were registered when the bylaw was passed).

Sold Home For Sale Sign and HouseThe difficulty for real estate agents lies in sorting out the grey areas around legal and illegal under a mixed bag of conditions. An average of one case a year is now landing before the higher courts as municipalities and homeowners fight over who has what rights. In most cases that have been decided, the homeowner has lost and the B.C. Supreme Court has ordered the units to be removed or demanded extensive renovations.

“There is a rule in real estate – if you are unsure, disclose, disclose and disclose,” says Scott Carpenter of Vancouver’s The Carpenter Group, a Re/Max group of real estate consultants and associated professionals ranging from a conveyance lawyer to mortgage brokers and home staging specialists. The group works on the City of Vancouver’s west side, dealing in high-end properties.

Issues can be complex. Owners may often think their units are legal when they are not. Or, like the film Lost in Translation, the legality of what they own has become garbled. In the recent court case of the Corporation of the Township of Esquimalt v. Crosson (2010 BCSC 1490), an Esquimalt couple were found in breach of bylaws when their duplex actually had three suites (three kitchens and three mail addresses – although only two were legal). Court records show the previous owner converted the house to a duplex with the city approval in the early 1990s. The previous owner testified in court he was given the right to do the conversion and he submitted an amended plan indicating a third kitchen was being installed on an amended plan. The couple relied upon the amended plan in the city files, which “appeared to be the approved plan with some additional handwritten notes.” The previous owner couldn’t remember the name of the individual who made the red notes on the plan. But, he felt he had approval and went forward. Staff subsequently wrote the owner a note in 1993, saying while the third kitchen in the downstairs basement would be allowed, it could not however be used for a suite.

The judge found that the question to be determined was “not whether three kitchens were installed with permission, but whether three dwelling units were installed with permission” and while bylaws allowed for a duplex conversion, whether they also allowed for three dwelling units. He ruled that two bylaws in effect allowed only for a duplex conversion and the suite didn’t qualify as one of non-conforming but permitted. He gave the owners six months to remove the third suite.

The case clarifies some of the situations that can arise between owners and the municipality and zoning laws. The judge in the case points to Port Coquitlam (City) v. Hoffer (l988) BCSC Vancouver A871964, which stated “a municipal officer cannot give valid permission” to use land for something outside the bylaws and the city can’t be stopped from taking action even if the officer has made a commitment.

In Langley (City) v. Wood (1999), the city stopped the use of a two-family dwelling in a single-family area even though the owner had met with the building inspector and plan checker and obtained permission for its use for more than one family. When the home was moved on to the site, it was deemed that it did not fall into the category that would have made it legal non-conforming. The home could therefore only be used for one family.

Sales reps taking any listing for a suite within an existing building need to check with municipal authorities to determine the validity of any such property, says Douglas. “The owner might say it is legal, but I tell them that I am going to have to check anyway,” he says. If the owner is not telling the truth, then “he usually says something like – oh, no, don’t do that.” That then brings the issue of whether the suite is legal into question again. (Carpenter said he also does due diligence checking out what owners say – and, he does a walk-through looking for “red flags” or tell-tale signs such as low ceilings or other construction features that may signal it is not built to any standard or has not been inspected.)

Once a suite is determined to be unlicensed or illegal, there are other questions that emerge. Was it properly built and were the proper inspections carried out for the work completed? Douglas said there was a case in Comox on Vancouver Island where the city gave approval for an in-law suite over the garage. However, what the owner constructed exceeded the bylaws and the suite could not be used. Douglas has also written in REM about the problems of a Nanaimo homeowner who had to remove an in-law suite when a neighbour in a single-family development (with covenants restricting it to single family) complained. As Douglas points out, the removal occurred even though the city permitted such suites.

The lesson to Realtors is that “if you have checked the city hall zoning and the city says ‘no problem’ you still have to check the building scheme and see if it does conform,” Douglas says.

The Nanaimo case is backed up by another judgement in 2009 Robins v. Cranbrook (City) 2009 BCSC 355, 58 M.P.LR. (4th) 87. The court there stated that the issuance of a permit, which is in any event governed by bylaw, cannot amount to a promise that a restrictive covenant in favour of the city would not be enforced.

Today, Douglas says, agents are posting the documents relating to suites online with listings. He says the selling agent has a responsibility to check with the city (and document who he or she speaks with) “and the buyer’s agent also has a responsibility to make sure the documents are correct,” he says.

The ensuing problems that can result when a house is listed with illegal suites can cause more headaches than a sales reps wants to deal with. In Burnaby (City) v. Chiodo 2008 BCSC 491, the 1950s house provided the original owner/builder with a temporary occupancy permit to have a kitchen and live downstairs while the upstairs was finished – a common practice of the era. Those living quarters were to be only temporary but later owners made them permanent. There was a later permit in the late ’60s to put in a bathroom, but the existing old bathroom was to have been torn out and that was never done.

In summer 2006, the owner decided to sell and the house was listed with two suites downstairs. A complaint was made to the city and a city inspector called the listing agent to tell her there was a problem with non-compliance. The owner then attempted to sue the city (the case was dismissed) claiming for damages as he blamed the advice given to the real estate agent prevented him from selling the house. The judge sided with the city and ordered a list of upgrades, tear-outs and inspections to the property.

Vancouver lawyer Richard Bell, whose firm Bell Alliance deals mainly with real estate law and property purchase law, says there is a growing trend for homeowners who have illegal suites to get them licensed before selling the house. “They are asking the city to come in and inspect them so they qualify for a legal suite,” he says. Still it is the buyer’s duty to disclose and the real estate agent’s duty “to fully advise on the property” with the clients about the perils of buying a house with an unlicensed suite, he says. “When we do see an unauthorized suite, we make sure that it is a buyer-beware situation,” he says, adding that the owner runs the risk of having to evict tenants or carry out costly renovations.

“The cost of renovation can far exceed any income revenue,” says Bell.

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