March 27, 2024

Legal corner: Due diligence required before listing a property with a basement apartment

Note to reader: This matter was prosecuted under the Real Estate and Business Brokers Act, 2002.

Case Summary

In a recent discipline decision, the listing for a property stated that a buyer could obtain rental income from a finished basement with a separate entrance and a kitchen with appliances. However, the basement had not been approved by the local municipality and was not legal nor could it be legally rented.

The buyers agreed to buy the property believing that the basement could be used as extra income based on the information included in the listing. After taking possession of the property, the buyers were issued a compliance order from the municipality requiring them to remove the basement kitchen.


The discipline panel found that the seller’s agent failed to conduct appropriate due diligence to determine the legality of renting the basement and for improperly advertising the permitted use for the property. A fine of $10,000 was ordered. The panel found the agent had breached s. 3, 4, 5, 21(1) and 38 of the code of ethics.

Learning opportunity

Real estate agents are required to ensure that they practice due diligence when researching a property and avoid any misrepresentation.

Before advertising a property as having an income-generating basement or second-unit apartment, confirm that the living space you’re describing meets local zoning, building and safety requirements. Some of these include provincial and municipal bylaws, such as electrical and fire codes.

Agents should ask the seller for any documentation to confirm the legality of the secondary unit, such as permits, inspections, and approvals received. Some municipalities issue certificates to confirm a unit is authorized to be rented. Agents representing sellers and buyers in such transactions must take the necessary steps to confirm the permitted use for their respective client.

Misrepresenting a dwelling — in this case, the legal legitimacy of a unit — can have potentially devastating ramifications for both a seller and the new buyer.