The issue: buyers purchasing a property with a suite that’s not legal

Licensees routinely advertise properties with mortgage helpers, legal suites, authorized suites, income-generating suites, in-law suites, nanny suites, etc. While there are occasions when creativity is welcomed and encouraged, using potentially misleading language to describe the status of a suite is most definitely not one of those times.

E&O gets a fair number of claims each year where agents are either misrepresenting that a suite at a property is legal or authorized when it’s not, or failing to make reasonable inquiries for their buyers to determine whether the suite is legal.

Since January 2021, E&O has received 37 claims about illegal suites, with the most expensive claim costing E&O over $284,000.

How do things go wrong with legal/illegal suites?

Sellers’ agents: often accept the word of the sellers that the suite was constructed with permits, is legal or authorized to be a rental suite by the municipality, or both. Sellers are sometimes wrong, misunderstand the requirements for a legal suite, or wrongly assume that their suite is legal based on information they received when they bought the property.

Buyers’ agents: likewise sometimes simply accept the representation made in the marketing materials or the MLS listing for the property that the suite is legal or authorized without further investigation.

Responsibility for confirming suite status can fall on both parties

Sellers’ agents: Taking a seller’s word for the legality of a suite is ill-advised. If you find yourself in this position, take the time to inquire with the municipality, and to obtain and review any paperwork from the sellers indicating information that confirms the suite is legal. Failing that, you shouldn’t represent the suite as legal, authorized, or capable of generating income. At most, absent certainty of the status of the suite, you may be able to say that it’s extra space, or a possible/potential suite that should be investigated by the buyers. Or better, say nothing at all.

Buyers’ agents: Agents should have discussions with their buyer at the beginning of the property search to understand their wish list and needs, including if they’re specifically looking for rental potential and a legal or authorized suite. If that’s the case, or if you’re asked to do so, you should investigate the matter on behalf of the buyer at the municipality, ask the seller for any documentation on the suite, and if not conclusive, recommend that the buyer obtain legal advice as to the status of the suite and on any due diligence clauses that should be included in the contract.

Both agents on the deal may want to:

Suggest their clients seek legal advice — about appropriate clauses that may be drafted concerning a suite. These clauses could indicate who accepts the following risks:

• that a suite may not be legal or authorized, or
• that rental income could be lost if the space is not rentable, or
• that the municipality requires costly upgrades to the property.

References to help guide your practice

The then Real Estate Council of BC (now “BCFSA”) has made several consent orders with licensees concerning professional misconduct in failing to verify that any suite or addition to the property was completed with permits and inspections and is in fact legal and authorized as a suite in the relevant municipality^[i].

BC courts have not dealt with illegal or unauthorized suites very often but have touched on the issue surrounding permits and misrepresentation of space as “livable” and provided some guidance on the standard of care required of real estate agents to make investigations when asked or when there are red flags present at the property^[ii].

Sticking to known facts is always best

When marketing a property or assisting a buyer on a property search, it’s important that you:

• Carefully avoid misrepresentations — because these can come with costly consequences. When in doubt about a fact concerning a property, verify the information from official sources or don’t make the representation at all.
• Recommend your clients get legal advice — when faced with the thorny issue of the legality or authorization of a suite.

Good luck out there and practice safe.

[i] For example Re: Wendy Cheung 2014 CanLii 84627 (BC REC)

[ii] Jakubke v. Sussex Group, 1993 CanLii 1277 (BC SC)