Podcast Episode 44:
“Illegal Suites Are Everywhere.“
People often add onto or subdivide their properties, which can make diligence tricky for investors. Did the seller have a permit for a secondary suite? If so, did they actually build what they were supposed to? You need to figure these things out before purchasing or else you might not be able to use that extra suite.
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Illegal Suites Are Everywhere
My wife Donna and I once went to Hong Kong to visit my number one and only son Colin. His thesis topic for his PhD in ethnomusicology was “music in the martial arts.” Because martial arts have such a huge Asian component (hello Bruce Lee) Colin was at the Chinese University of Hong Kong learning Chinese and doing research. I knew Hong Kong was limited in area and very densely populated. But, it’s one thing to have some vague idea and another to actually be there and see what happens where there are a lot of people jammed into not very much space.
Every square inch of space seems to be covered with buildings, almost all of them high-rises. Walking around one day I saw an advertisement on the one of the charming British style double-decker buses that seemed to be about illegal suites or additions. Then I saw another one. In discussions with Colin, he said that space is so limited in Hong Kong that un-permitted suites and additions are the rule rather than the exception. The Hong Kong government has a huge campaign to crack down on all these illegal buildings. My observation is that it doesn’t seem to matter where you are; illegal, unpermitted suites and building are something real estate investors must watch out for. Questions about illegal suites are the first or second most asked question in my real estate practice.
For your purposes, on a very practical basis it’s up to you to understand how it works in the area where you invest. Remember, it’s not the same in every jurisdiction. Different municipalities have different bylaws. Where they have similar bylaws, they often enforce those bylaws differently. Some municipalities are strict and vigorous about enforcing their illegal suite bylaws. Some municipalities are less diligent and more flexible. I thought it would be useful to provide a point of first contact for six of Alberta’s major cities. Following are links:
Red Deer http://www.reddeer.ca/business/planning/permits-and-applications/secondary-suites/
Fort McMurray (Wood Buffalo) http://www.rmwb.ca/Municipal-Government/municipal_departments/Emergency-Services—Law-Enforcement/RES/Fire-Prevention/FireCodesConditions/SecondarySuiteStandards.htm
I think it’s extremely worthwhile to:
- Read your local bylaw.
- Understand what zoning categories allow secondary suites.
- Actually go in to the municipality and talk to a planner. Get a sense of whether they are supportive
- Talk to other suite-owning investors in your area. What do they think about the municipality’s attitude? Is the process easy, hard, or complicated? What are the hoops that you must jump through?
- If your proposed purchase has an illegal suite and if you don’t think you can make it legal, always do two sets of financial calculations: one with suite revenue and the other if you are forced to remove that suite.
- Sellers warrantees about legality of suites are useful but not definitive. You must check further.
- A tax notice for a suite is not proof of legality.
- Check your local zoning bylaw for any property’s zoning category. Understand the descriptive terms. Distinguish between ‘permitted’ and ‘discretionary.’
- The zoning must allow (or did allow at one time i.e. grandfathered) the type of suited building you propose to purchase.
- Check to see that development and building permits have been issued allowing the suite.
- Your last but very important piece of diligence is to do a search of municipal records to prove the property has had a final inspection showing no deficiencies and is approved for occupancy.
Contact Barry McGuire now. Alberta real estate needs an Alberta lawyer.