Anonymised, illustrative composite. An investor bought a house marketed as a legal duplex, financing the purchase partly on projected basement-unit rent. A municipal complaint after closing found the basement was never a permitted unit.
At a glance
An investor bought a detached house in Oshawa marketed as a legal duplex with both units currently rented — language that mattered directly to the deal, because the buyer's lender qualified the purchase partly on projected rental income from both the main floor and the basement unit. The listing's photos showed a finished basement suite with its own kitchen and a separate side-door entrance, which read, to anyone touring it, exactly like a legally converted second unit.
Six months after closing, a noise complaint from a neighbour brought a municipal bylaw officer to the property. The inspection found no building permit on file for the basement's conversion to a self-contained unit — no record of the fire-separation, egress-window, or electrical work a legal second unit requires ever having been permitted or inspected. The city ordered the basement unit vacated pending a compliance retrofit, cutting the property's rental income in half until the work was done and approved.
No dollar figure in this file is a market benchmark; the only real number is structural. The buyer's financing case had two rental income streams built into it, and one of them — the basement's — was ordered stopped entirely until a permitted retrofit was complete, which is a binary loss of that income stream rather than a percentage adjustment to it. Six months elapsed between closing and the complaint that triggered the inspection — long enough for the buyer to have already relied on the basement's rent in covering the mortgage before the order arrived.
RECO's own guidance on material facts names this exact category of information directly. Bulletin 7.3 lists items “often considered to be material facts”, including “zoning by-laws…impacting the legal use of the property” and “renovations and improvements made to a property and whether the required permits were obtained” — language that describes an unpermitted basement conversion almost exactly. The same bulletin sets a four-step duty: an agent must “take reasonable steps to determine the material facts,” “promptly disclose the material facts to the client,” “advise the client to consider if the material facts might affect their decision,” and obtain a written acknowledgment.
Marketing the property as a “legal duplex” was also a factual claim in its own right, separate from any disclosure duty. Under the Competition Act, s.74.01(1)(b), a performance-style representation is reviewable conduct where it is “not based on an adequate and proper test thereof, the proof of which lies on the person making the representation” — the burden sits with whoever calls a unit legal to have actually verified permits and zoning before saying so, not with the buyer to discover otherwise after closing. The permit itself was required well before any RECO bulletin or Competition Act claim entered the picture: under Ontario's Building Code Act, 1992, changing the use of part of a building — turning an ordinary basement into a self-contained second unit — needs a permit from the chief building official “even though no construction is proposed,” whenever the change would increase hazard as the building code defines it (s.10(1)). No such permit was ever applied for on this file, which is the fact the marketing language obscured. Treadstone Law’s guidance on selling with an open or missing permit covers the parallel, more common version of this problem: a permit that was pulled but never closed, rather than one that was never pulled at all.
The buyer pursued the matter against the selling brokerage rather than the municipality, on the basis that “legal duplex” had been stated as fact in the listing without the permit history to support it. The file settled before a formal RECO complaint or Competition Bureau referral proceeded, on terms that included a contribution toward the retrofit costs required to bring the basement unit into compliance. The city's vacate order stood regardless of how the dispute between buyer and brokerage resolved — a private settlement does not undo a municipal compliance order.
The tell was marketing a specific legal status — “legal duplex” — without ever confirming it against the municipality's own permit records. “Legal” is not a description of how a unit looks or how long it has been rented; it depends on whether zoning permits the use, whether the Building Code work was actually permitted and inspected, and whether the Fire Code was met, three separate rule sets that a walk-through photo and a rent roll cannot verify on their own. The safe standard, matching RECO's own four-step duty: before calling any unit “legal,” pull the municipal permit file, not just the seller's word for it, and disclose plainly if that file cannot be confirmed rather than repeating the seller's characterization as fact.
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