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With housing prices in the Greater Toronto Area (GTA) continuing to soar, many homeowners are creating rental units in their homes to generate extra income. However, it is estimated that a large percentage of these rental units are illegal, posing serious risks to both homeowners and tenants. Not only is this alarming safety risk, the implications of having an illegal rental unit extend beyond just safety, encompassing financial, legal, and liability risks.
Our expertise in rental unit design, construction, and the permit process is guided by Imperio Construction's CEO, Juan Zapata, a Professional Engineer and Realtor with over 25 years of experience in diverse fields such as mining, infrastructure, residential, and commercial real estate, as well as energy projects. Juan has led major projects worldwide, including mining ventures, and has played a key role in several local Canadian municipal developments for the City of Toronto, Mississauga, Oakville, Vaughan, Ottawa, and the Regions of Durham, Peel, and York. His work also includes contributing to the Toronto subway expansion and other large-scale infrastructure projects. Read more about Juan Zapata and our other team members.
This article will cover the key dangers of illegal rental units, explain what makes a second unit legal, and show how Imperio Construction can guide you through the process of creating a fully compliant rental unit.
How Many Rental Units in the GTA Are Illegal?
Though it is difficult to find a reliable and accurate statistic, some have speculated that in Toronto between 50% and 80% of basement apartments might not be legal. This staggering estimate underscores how widespread the issue is, leaving thousands of homes with rental units that may fail to meet legal standards. The prevalence of illegal units is driven not only by a lack of awareness about the strict legal requirements but also by the pressure for affordable housing, low inventory, and the lure of rental income. Many homeowners either don't understand the risks and requirements of having a second unit or wish to avoid the formal permit process. We hope to educate with this article and provide clarity on building legal, safe rental units.
Legal Requirements for a Second Unit
To create a legal second unit in your home, you must comply with specific zoning laws, building codes, and safety standards. Here are the key requirements:
Zoning Compliance and Building Permits:
Your home must be in an area zoned for a second unit. Local zoning laws dictate where secondary units are allowed, and these vary by municipality. More information on zoning requirements can be found on the Toronto website.
Any modifications made to create a rental unit require a building permit. This ensures that construction meets local building codes and is inspected by city officials. The permit application and approval process can be daunting for some people, which is why we find it imperative to guide our clients through every step of this process. Familia Fine Foods in Oakville Ontario had this to say about their experience with Imperio:
"Thank you Ingesuelos Group (Juan Zapata) for your help obtaining my permits with the city, you did a great job from start to finish, you went the extra mile nobody else did. Highly recommended. Wish you all the best, keep up the good work, we need many companies like yours in this country. Thank you again." - Familia Fine Foods
Fire and Electrical Safety:
Fire safety is a crucial aspect of legal second units. This includes the installation of smoke alarms, carbon monoxide detectors, and fire-rated drywall. Tenants must also have access to emergency exits, like large windows or a second door. For electrical safety, hiring a licensed electrician is essential. According to the Toronto website, some of the factors and conditions that increase the risk of fire and injury are as follows:
Renovation (to add a secondary suite) typically done without required City review and approval (no building or zoning permits).
Non-compliant (no dedicated exterior door leading directly to ground level, shared means of escape forces residences to enter another unit, or does not lead directly outdoor at ground level) means of escape for each unit.
Lack of interconnected smoke/CO alarms and/or fire alarm system throughout the house (due to lack of City review).
Landlords often stop renting out one or both suites to single households and instead rent out bedrooms within each suite as rooming/lodging accommodations as this would be more lucrative, turning the house into a rooming house or hybrid arrangement (see above).
Lack of proper electrical upgrades to accommodate increased electrical loads, and/or electrical upgrades not ESA (Electrical Safety Authority) inspected and approved.
Parking Requirements:
Most municipalities require additional parking for a secondary unit. Be sure to check local parking regulations when planning a rental unit. As an example, in Toronto, one parking space is required for each secondary suite above the first secondary suite. See detailed parking requirements.
Plumbing and Heating:
The unit must have proper heating, ventilation, and plumbing systems that meet the necessary standards.
At Imperio Construction we are experts in building legal second units. We can assist you through each step of the process, from securing the necessary permits to designing and constructing a compliant rental unit. We ensure that every aspect of your project meets local regulations, keeping both you and your tenants safe.
The Dangers of an Illegal Rental Unit
Safety Hazards
One of the most alarming dangers of an illegal rental unit is the lack of safety measures. Many illegal units don’t meet fire safety codes, which could result in a deadly situation in the event of an emergency. Without proper fire exits, smoke alarms, or carbon monoxide detectors, your tenants—and even your own family—are at risk.
Liability Risks
Homeowners with illegal rental units are exposed to significant liability. If an accident or injury happens in an illegal unit, you could face lawsuits and insurance complications. Insurance companies often won’t cover damages caused by illegal units, meaning you could be on the hook for massive financial losses.
Legal and Financial Consequences
Municipalities are actively cracking down on illegal rental units. Fines for operating an illegal unit can reach up to $50,000 in Toronto, and you may be forced to remove the unit altogether. Additionally, the rental income you’ve earned could be nullified if the unit is deemed illegal.
Financial Loss
The financial risks don’t stop at fines. If your illegal rental unit is discovered, you may have to evict your tenants and undertake costly renovations to bring the unit up to code. This could eliminate any income you’ve gained and create a financial burden as you scramble to make your unit legal.
How Do You Legalize an Existing Secondary Suite in Toronto?
If you have an existing secondary suite that isn't legal, there are two primary ways to bring it up to code:
Apply for a “Change of Use Permit” with Toronto Building: This process is similar to building a new secondary suite. Your home will need to comply with zoning laws, Toronto by-laws, and the Ontario Building Code. If everything meets the requirements, Toronto Building will issue a permit and perform inspections to ensure compliance. If changes are needed, you will be required to make the necessary corrections before your secondary suite can be legalized.
Contact Toronto Fire Services (TFS) if your secondary suite existed before July 14, 1994: In this case, TFS will inspect your home to ensure it meets the Fire Code and Part 9 Retrofit requirements. You'll also need to contact the Electrical Safety Authority (ESA) to confirm electrical compliance. If any updates are necessary, you must complete them before the unit can be retrofitted. Toronto Building does not participate in this process.
Conclusion
Having a rental unit in your home can be a great source of additional income, but only if it’s done legally. The dangers of having an illegal unit, from safety risks to potential lawsuits, are too great to ignore. By ensuring your unit meets all local regulations, you protect yourself, your tenants, and your investment.
If you have any questions about building a legal second unit, reach out to Imperio Construction. Our team can guide you through the entire process, making sure your unit complies with all building codes and safety standards, so you can enjoy the benefits of rental income without the risks.
Have you Considered Building a Garden Suite?
Another option for generating rental income on your property is building a garden suite—a detached unit typically built in the backyard. Garden suites provide an additional rental opportunity while maintaining privacy for both the tenant and homeowner. To learn more about this option, check out our blog post on garden suites.
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