How to rent out a secondary suite in Ontario

Renting out a secondary suite, such as a basement unit, can be a smart and relatively low-effort way to generate additional income. This option is especially appealing for those trying to pay off a mortgage.  

While it can earn you some extra cash, for homeowners in Ontario, renting out a suite comes with a variety of legal, financial, and practical considerations that must be addressed to ensure renting out a suite is a success. 

This article will provide an overview of the main considerations when renting out a secondary suite in Ontario. From understanding the legal requirements and insurance implications, to resolving disputes and establishing the right amount of rent to charge, here’s the essential information you need to become a successful landlord.  

Legal requirements for the suite 

Arguably the most important thing to do before you rent out a secondary suite in Ontario is to ensure you understand and meet all the legal requirements. If not, you could end up paying way more in legal bills than you’d make in rental income. 

For example, many would-be landlords don’t realize that secondary suite rules in Ontario vary based on your municipality. 

“Some regions are now implementing licensing programs for landlords, which include requirements for various services, such as inspections and on-site visits from the fire department, bylaw officers, building inspectors and the Electrical Safety Authority,” explains Rose Marie, 

Vice Chair of SOLO (Small Ownership Landlords of Ontario), an advocacy group for existing small scale housing providers who are currently advocating for changes in the Residential Tenancies Act. “Landlords must apply to the City for the permit, and ensure that the residences meet the various codes.”  

To make matters more complicated, zoning requirements for units also vary by municipality and can be expensive and time-consuming to navigate. You may even face opposition from neighbours who feel that having renters in their community could decrease their property value. 

Insurance implications 

When renting out a secondary suite, it is crucial to be completely honest and transparent with your insurance provider. That’s because if you aren’t upfront and your insurer later finds out you have a tenant, your policy could become invalid.  

So, for example, if you didn’t tell your insurer that you have a rental and your tenant causes some damage to your property, you’d be completely responsible for paying for repairs to the damage.  

Furthermore, many policies have specific rules about the number of unrelated people that can live in a home, or they may not cover damage like sewer backups or flooding, so it’s vital to have a full understanding of what your policy does and doesn’t cover.  

You may also want to ask if your provider offers loss of rental income coverage, which pays you the equivalent of your rental income in case the unit becomes uninhabitable due to an insured event.  

It is equally important to insist that your tenants get their own tenant insurance policy. This protects you from liability in case your tenant causes damage to your property or gets injured on your property. Many landlords require tenant insurance as part of the standard rental agreement. 

Related: What recourse does a landlord have if a tenant uses their home for illegal activity? 

How to decide how much rent to charge 

There is no one-rule-fits-all when it comes to calculating what to charge for rent. You will need to account for how much it cost to build the suite and then figure out what to charge to recoup your investment (and make some profit) over time.  

“Ideally, the guidelines or formulas that a homeowner would use to determine appropriate rent would be to ensure there are enough funds to maintain the unit and have enough for repairs as they arise,” says Marie. “Depending on the terms agreed upon, utilities may or may not be included with the monthly rent.”  

You’ll also have to familiarize yourself with the market rental rates for similar units in your area, as well as any laws regarding how much you are legally able to increase rent annually.  

If the unit was previously rented out prior to November 15, 2018, landlords are capped at a 2.5% rent increase per year (at the time of writing). If the unit is new and has never been rented out, rent control guidelines don’t apply and landlords can raise the rent by any amount every year.  

Dispute resolution 

While there are some resources available if a dispute between a landlord and tenant arises, the delays and backlogs within the system can be frustrating for both parties. In Ontario, the Landlord and Tenant Board (LTB) is where most landlords and tenants can resolve disputes. However, going through the LTB requires patience.  

 “It can take upwards to a year to have a matter heard, even in simple cases,” explains Marie. “There are other resolution methods for urgent matters when there is a concern of a violation of The Residential Tenancies Act, called the Rental Housing Enforcement Unit (RHEU) which operates independently of the LTB. These are really the only two options for settling disputes between landlords and tenants.”  

In cases where arrears applications exceed $35,000, landlords and tenants may try to settle their case through the Ontario Divisional Court. However, that option requires the applicant to cancel their application at the LTB and hire a lawyer.  

For smaller disputes, there are other non-official sources of help like SOLO, who are working to provide better protections for small landlords and keep secondary units available for renters. 

Other resources in Ontario for landlords and tenants include community legal clinics, landlord associations like the Ontario Landlords Association (OLA) and the Greater Toronto Apartment Association (GTAA). Note that each municipality may have other resources to help landlords and tenants with disputes.  

Are you ready to be a landlord? 

Renting out a secondary suite is a huge undertaking. You’re not just renting out a unit; you’re renting out a part of your home and property to a possible stranger. In return for rent, a landlord is making sure tenants are safe and secure in their homes: That means addressing repairs in a timely manner, providing access to basic services such as water, heating and electricity, and maintaining common areas. 

Before deciding to take the plunge, it’s wise to carefully consider whether you’re ready to take on the responsibilities — the legality of your suite, tenant relations, potential dispute resolution, insurance concerns — of being a landlord. 

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