What are the risks of buying a property with an illegal secondary suite or basement apartment?

An unregistered or non-compliant secondary suite carries risks beyond just the tenancy occupying it. If the unit does not comply with local zoning or the Ontario Building Code, a municipality can, in some cases, require the unit to be closed or brought into compliance, which can mean a real cost or a lost source of rental income depending on how the property was priced and financed. Insurance can also be complicated if a policy was written on the assumption the property was a legal single-family or duplex configuration.

Importantly, the unit's uncertain legal status as a suite does not remove the occupant's protections; the Residential Tenancies Act, 2006 generally still applies to whoever is actually living there, regardless of whether the space itself is properly authorized, so a buyer cannot treat an illegal suite's occupant as easier to remove than any other tenant. Before waiving conditions, have your lawyer and, ideally, a qualified inspector look into the unit's actual zoning and permit history, since assuming a suite is legal because it currently generates rent is a common and costly mistake.