Agents on the hook for illegal in-law suites

Oct 4, 2014 | 2014 Toronto Star Columns



Bob Aaron bob@aaron.ca

Discipline hearings signal need for fuller knowledge about two-unit homes

The Real Estate Council of Ontario (RECO), the body that licenses and governs
real estate agents, is cracking down on representatives who advertise two-unit
homes without making clear whether the second unit — usually a basement
apartment — is legal.

Many agents typically use wording such as, “Agents and seller do not warrant
legal retrofit status of in-law suite.” Descriptions like this could disappear
in the wake of two recent decisions of RECO discipline panels.

Dan Plowman has been a successful real estate agent in Whitby, Ont. for 25
years. Last year, he listed a property, describing it as having “income
potential” with “separate entrance/in-law suite.” The MLS listing for the
property included the disclaimer that “we do not nor does the seller warrant the
legal retrofit status of the ‘in-law suite’.”

That wording, however, did not appear on Internet listings, or on realtor.ca.

Wording like this is common in the real estate industry and is generally
understood to mean that the basement suite is not legal. In my experience,
Plowman’s listing used wording that thousands of Ontario agents have used and
continue to use.

In a RECO discipline hearing, Plowman faced charges of acting unprofessionally
by including information in an MLS listing which was either false, inaccurate,
misrepresentative or misleading to consumers.

It was alleged that he failed to take steps to verify the legal status of the
basement suite so that the appropriate language could be used in the MLS listing
and available to consumers.

In an agreed statement filed at his hearing in June, Plowman admitted that he
breached several sections of the RECO Code of Ethics and was fined $5,000.

The same thing happened this past May to Tammy Loeman, an experienced Hamilton
real estate agent. She advertised a property with the remarks: “Fabulous home
used as 2 family . . . own your own rental property or live in one unit and let
the other one pay your mortgage.” She also marketed the home on web sites with
the words “fabulous family home with income rental.”

Loeman acted for both buyer and seller in finalizing a purchase agreement.
Unfortunately, the local zoning only permitted single-family dwellings. The
buyer was an investor who intended to rent out both units for rental income.

His complaint was that if he knew the second unit was illegal, he would not have
bought the property, or would not have agreed to the price in the contract.

At her discipline hearing, Loeman admitted that she acted unprofessionally by
failing to determine and disclose material facts relating to the property. RECO
fined her $10,000.

Under Ontario law, basement units that existed prior to November 1995 are exempt
from meeting local zoning bylaw requirements (but not other safety standards).
The discipline panel accepted that the basement apartment contravened the zoning
bylaw, but in fact it may have been a pre-1995 unit and perfectly legal from a
zoning viewpoint. As a result, the discipline decision could well be wrong in
law.

It is not clear whether Plowman and Loeman were represented by legal counsel.
What both Plowman and Loeman did is common practice in the real estate industry.

It appears that RECO now requires agents to confirm whether a basement apartment
is legal — a complex taskthat involves determining whether the unit complies
with zoning bylaws, fire code, building code, electrical safety requirements,
and — in some municipalities — registration and licensing.

The problem is that municipalities will not tell owners or agents whether
basement units are legal. How, then, can RECO require agents to verify legality
of those units?

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Contact Bob Aaron

Bob Aaron is a Toronto real estate lawyer and frequent speaker to groups of home buyers and real estate agents.
He can be reached by email at bob@aaron.ca, phone 416-364-9366 or fax 416-364-3818.

Aaron & Aaron specialize in Real Estate Law, specifically Sale of Rental, Condominium, Residential, Rural Recreation, Offer to Lease, Commercial, and New Construction