Square One Finds a 50% Increase in the Number of Homes With Illegal Rental Suites

In a recent survey of Canadian homeowners, Square One found that 10% of homeowners were renting out at least one secondary suite in their home. More surprisingly, as many as 2.7% of homeowners are renting out multiple rental suites within their home — and many of those additional suites may be illegal.

Despite the present housing crisis, most cities in Canada strictly limit the number of secondary suites that a single-family property can have — most of the time, that limit is one. Whether a basement suite or a laneway house, typical municipal bylaws allow two living suites per single-family lot: one primary and one secondary. While some provinces, including BC and Ontario, have introduced legislation to relax these restrictions, progress remains slow. Nevertheless, based on Square One's research, more than one-quarter of homes have more than one rental suite.

"We've looked at the numbers of secondary suites in the past, and we were interested to see how that's changed because of the worsening housing crisis and rising mortgage costs," says Square One President and CEO Daniel Mirkovic. "It's not surprising to learn that more people now have multiple rental suites to help with the extra financial burden of homeownership. Hopefully, governments continue to relax these restrictions, but for now, many homeowners appear to be sidestepping their local bylaws."

The number of homes with more than one secondary suite has increased over the past five years. The combined data from Vancouver, Calgary, Edmonton, Regina, and Winnipeg indicates this number has increased by over 50% from 2019 to 2023 (from 18% to 27% of homes with secondary suites having multiple such suites). And the actual numbers could be even higher, as many homeowners renting out multiple suites may not disclose the additional (potentially illegal) units.

In the face of rising mortgage costs, many homeowners understandably turn to secondary rental suites to help make ends meet. Based on the survey results, the main reasons for renting out a secondary suite are:

  • To help pay the mortgage (32%)
  • For the extra income (32%)
  • For the added security (17%)
  • For the company (10%)
  • Another reason (8%)

Renting out a secondary suite is more common in western Canada, where 13% of homeowners do so compared to just eight percent in eastern Canada. There was a similar split between urban and rural areas. Sixteen percent of urban homeowners indicated they rent out a secondary suite, compared to eight percent in suburban locales and just four percent of rural homeowners.

Given skyrocketing mortgage rates of late, it's understandable that many homeowners would consider adding multiple rental suites. But all would-be landlords need to understand the regulations where they live and how secondary suites impact their home insurance.

"Given that we're seeing so many new secondary suites, some homeowners probably feel like they need to hide those suites from their insurance provider. This is a major issue," says Mirkovic.

A home's occupancy is one of the most important aspects of a home insurance policy. Above all else, a homeowner must inform their provider if they're adding unrelated tenants to their property (or renting out their home on a short-term basis via Airbnb or similar services). Failure to do so could render their policy void and any claims invalid. But there are other home insurance considerations for those adding a rental suite:

  • Adding a suite likely increases the rebuild value of the home. Failure to inform their insurance provider about extensive renovations would result in the home being underinsured (or, at worst, rendering their policy void).
  • The homeowner has additional liability risks when more people, especially unrelated tenants, live in the house. Those renting out part of their house should consider increasing their liability coverage.
  • There are also liability concerns with allowing too many tenants in a suite that doesn't have adequate space, utilities, and appliances. For example, a suite without a proper kitchen may necessitate using hotplates for cooking, which poses a greater fire risk that could result in injury or death as well as property loss.
  • A homeowner's policy won't cover tenants' personal belongings or liability exposures even once the insurer knows about the tenants. So, it's critical tenants carry separate insurance to protect themselves.
  • Typically, homeowners must add specific landlord's property coverage for their property inside the rental unit, such as appliances or furniture. A standard homeowner's policy doesn't cover furniture in a rental unit.
  • If a landlord relies on rent payments for their mortgage, they may want to consider rental income insurance. Such coverage protects against lost income from the rental unit after an insured loss (like the tenants having to move out during repairs after a fire).
  • Landlords should also consider insurance that covers legal fees if they become involved in a legal dispute with their tenant, such as legal protection coverage from Square One. 

Homeowners or landlords wishing to know more about secondary suites and insurance should speak with their home insurance provider or visit www.squareone.ca/landlord.

Source: Square One Insurance Services