Vancouver’s Basement Suites – An Asset or Liability?

Mortgage Helper

You’ll often hear the ubiquitous term `mortgage helper` applied to secondary suites in many Vancouver homes. Alternatively and more correctly, on the Multiple Listing Service you will see these suites categorized as ‘unauthorized accommodation. Are they an asset or a hidden liability?

Are You Covered?

What you call them doesn’t really matter. What does matter and what you may not be aware of is that your home insurance may not provide any indemnity for you and the people living in that secondary living space. The consequence of incorrect home insurance coverage can be disastrous!

Stories Heard

In a recent conversation a story was told about a family who own their home that had an actively rented basement suite. At some point in time, it seems the renters inadvertently started a fire in the suite. Growing quickly, the fire engulfed the suite and subsequently spread to the upper floor causing immense damage to the home. Worse, the tenant in their attempt to put out the fire was severely burned.

Outcome

Laying in ruin was all the furniture, clothing and the former homes of both the owner and the tenant. No worries thought the owner – we have insurance that has us and the tenant covered.

Denied

The twist to the story is that the insurance company denied all claims – both the owner`s and the tenants. Amongst things denied, was the tenants mounting medical costs to treat their burns and subsequent rehabilitation. The reason – the home was not correctly insured to cover `two` families.

More Pain

The disaster quickly escalated for the owner who now was not only left without insurance to replace his home soon found himself defending a legal action by the tenant who without means to pay for his medical care and who had no where to live sued the owner for costs. The problem for the owner – all claims were denied including law suits.

One or Two?

The story as told struck me as curious that this could be the case. It precipitated a lengthy phone call to my Vancouver home insurance broker to find out if this could be fact or fiction.

According to the conversation with the broker in substance the following applies. You and your home will be fully insured if you have a direct relative living in the suite and subject to the terms of your insurance policy you are designated as being ‘one’ family. If you have any other arrangement you may well want to take some time to speak with your insurance broker to ensure you are covered. Your insurance broker may determine that because you are renting the suite to a third party you may be designated as having ‘two’ families living in your home?

For quick reference have a look at your policy’s ‘Declaration page’ to see if the number of families covered is one. If it is for only one and you have someone other than a direct relative living in the suite you will want to give this serious attention and have this condition changed to reflect this alternate and potentially devastating arrangement.

As with all good things the change may required an increased annual premium which based on the conversation with the broker was approximately $150 per year. From this perspective the extra premium seems a small price to pay to mitigate a potential financial life altering problem.

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

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*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

Adam Says:
July 16th, 2012 at 9:55 pm

If that person had died, and it had been shown that the unauthorized accommodation was unsafe, it may have been the catalyst for a Vancouver city council taking swift action against unauthorized suites. I’ve said it before – all it will take is a spark (literally) to have the hounds set loose on homeowners who pack 2 families into their basements illegally. Vancouver homeowners have been lucky so far that the city has turned a blind eye to this.

July 16th, 2012 at 10:05 pm

@adam,

That’s not the point of the post!

As to letting the hounds loose – really? Let’s get real about this. Take away the suites and where would all those people live – in city subsidized housing – unlikely.

Bally Says:
July 16th, 2012 at 10:23 pm

A cautionary tale to be sure but does it matter whether the suite is authorized or not? Sounds like this is more a matter of getting the correct insurance coverage than making sure the suite is all tickerty boo with the City.

July 16th, 2012 at 10:37 pm

@bally
correct insurance – exactly. Of course in deference to Adam, the best insurance is to make sure the suite is proper and well maintained including suitable fire extinguishers and tenants who know how to use them.

elizabeth Says:
July 17th, 2012 at 9:09 am

Great article Larry. As someone who just went through a house fire started by a tenant (no one hurt), I have to add my voice to urge anyone with a mortgage helper to make sure their insurance covers it. Our suite was unauthorized, but we paid insurance on it (income tax too). Now insurance is paying for the furnished condo we’re living in, the items we lost from smoke damage, and the restoration of the house to its original condition. We’re so grateful. Ever since this happened I’ve been grabbing people by the lapels and yelling “Get proper insurance!” Another hint — get your insurance through an independent insurance broker so you’ll have someone on your side in a disagreement between you and the insurance company.

vangrl Says:
July 17th, 2012 at 12:27 pm

and if you live in a strata titled apartment, buy condo insurance from the same company that the building is covered by…..that way if something happens in your suite (water damage), your company won’t try to shuffle it off to the building’s insurance company to take care of.

I’ve seen it happen a few times, where a claim will conveniently come in just over the buildings deductible (usually $5000), putting it on the building to look after the claim rather than the company that’s insured the individual suite.

This doesn’t work in favour of the owner, because the strata will then “charge back” the owner the $5000 deductible, some Insurance policies cover this “charge back”, but not all!

bit off topic, but i thought i’d throw that out there:)

July 17th, 2012 at 1:58 pm

@vangrl

re: Deductable: actually you can purchase ‘deductible insurance’ as part of your contents package to offset that problem

BubbleBoy Says:
July 17th, 2012 at 3:13 pm

Larry,

Any chance you heard or read about what Keith Roy & Sam Wyatt had to say about Van west? I’d like to hear your thoughts on this topic as well.

Thanks!!

July 17th, 2012 at 8:56 pm

@bubbles
“I’d like to hear your thoughts on this topic”

I’m not a fan of sound bites

Ruth Says:
July 17th, 2012 at 10:05 pm

You haven’t mentioned liability issues when having work done on your house – if the worker isn’t covered by WCB you, as the homeowner, are liable for any injuries incurred in the course of the work being done.
Gordon Campbell was liable for the death of a roofer at his summer home even though Gordie was nowhere near. People should be fully aware of what their insurance does indeed cover – ignorance is not bliss.

July 17th, 2012 at 10:15 pm

@Ruth,

The topic was about 2nd families but the issue of workers is another bag of beans and it is good of you to bring that up.
Rule number one for that is to make sure that anyone working on your house is insured. Always ask to see the certificate to prove it.
If you are uncertain contact your insurance broker to put on a binder that will cover you for the duration of the work being completed.

July 20th, 2012 at 10:28 am

Same goes for Richmond, every single family home that’s less than about 10 years old has a suite with a separate entrance, clearly to rent for monthly income. And more than 90% of these are not registered with the City.

While the City is not blind, it certainly turns a blind eye to this practice, presumably because it thinks this approach helps provide lower cost accommodation, Indeed a noble objective.

Here is my beef: these properties are being taxed as they were a Single Family Dwelling, which obvioulsy means that those who abide by the laws regarding property taxation are subsidizing those who are running a rental business. They should be paying higher property taxes!

On a secondary point, whether the owner is declaring the rental income is another matter but we usually know what the answer is to that. Wake up CRA, you could collect lots os taxes here as well Capital Gains taxation when the property is sold.

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