Whether you are a first-time homeowner or an experienced landlord, leasing a self-contained basement suite can be a viable investment in your future.

Not only does this space generate revenue to pay your mortgage, but it also allows you to reap the benefits of ownership, granting you both possession of a property and financial security to make ends meet. It also provides a form of affordable housing for potential tenants.

Before you can lease out your basement to make some extra money, it must pass certain legal specifications to be deemed habitable, including fire and electrical safety, zoning by-laws, building codes and other municipal requirements.

Some property owners already have a second suite waiting to be put to use, while others may have empty basements they wish to turn into a second dwelling. Whichever situation you are in, regional by-laws for housing standards will vary by state, which is why it’s important to review your local laws before undergoing renovations.

So just what are the legal requirements for leasing a basement and what can you do to prepare your basement to rent?

Basic Legalities

In some regions, the home must be a certain age (Eg. At least 5 years old) and a certain type of dwelling (Eg. Single or Semi-detached) in order for a basement suite to be added to the home.

Other common restrictions may include:

  • The basement apartment must be smaller than the primary unit
  • The home cannot alter its outside appearance (to have little impact on the surrounding neighborhood’s aesthetic)

Fire and Electrical Safety

Exit/Separate Entrance
The basement apartment should have a separate exit that is easily assessable to the tenants in case of emergency and they need to exit outside.

The term “acceptable windows” differs for each space. However, some secondary suites require a standard size window and windowsill to not only bring in enough light and ventilation, but more importantly, allow room for the tenant to escape in the event of a fire. The size of windows may rely on the size of the space itself. Enlarging windows may be an option if your current ones do not pass regulation.

Much like window size, there is typically a minimum requirement for the height of your basement ceilings. Most minimum heights tend to be around 6’5 or higher. If there is no suitable way to raise the roof, lowering the floor may be your only option.

Separating a potential fire from the main dwelling unit upstairs is another consideration when bringing your basement apartment up to code. This may involve using fire rated drywall or insulation in the basement apartment or hallways, as well as steel doors, to contain the flames and prevent the spread of fire to the main floor.

Smoke Detectors/Carbon Monoxide Detectors
As a requirement in every rental property, it is the landlord or property manager’s responsibility to make sure the basement is equipped with audible smoke detectors and carbon monoxide detectors.

Some regions request interconnected smoke detectors to notify all residents of the home when one alarm goes off.

Fire Extinguisher
A fire extinguisher should be available near or in a basement apartment.

Rules regarding electrical safety will depend on the basement space and your region’s laws. The rental unit will have to undergo an inspection by fire and electrical safety departments, where they will assess the property and make note of any hazards that need to be fixed.

Permits and Zoning By-laws

Many urban areas require that you apply for a building permit to build a new secondary suite before starting construction on it. Often when applying for a permit, proper site and floor plans/drawings of your intended suite construction should be included with your application for city planners to view.

Whether you are issued the permit will depend on if you meet the local zoning laws and pass safety inspections.

Depending on your zoning by-law, you may be required to provide parking as an amenity to the basement tenants.

Upgrades and Renovations

In most cases, upgrades are necessary to attract tenants into an existing or new basement apartment and pass inspections. Always hire a professional contractor to help with any new installations unless you are confident you can do it yourself.

If the basement does not already have a bathroom, this should be the first addition to your downstairs. A window or fan may need to be installed also, in addition to proper plumbing.

Kitchen area or kitchenette
Most basements won’t have the capacity for a full kitchen, which is often why landlords put in a kitchenette instead. A kitchenette typically includes a sink, fridge, stove and some counter space—providing the tenant with the essentials.

Other improvements
Lighting is always a concern for tenants of basement apartments because they are living below the ground, where natural light is not readily available like an above-ground dwelling. Install warm lighting to make the unit feel more welcoming.

Should you add a Second Suite?

Renting out a basement can be a great source of additional income. However, it does not come without its share of effort to get the space into renting shape. The work you will have to put into the second suite depends on if you are creating a new dwelling or upgrading an existing one. Plan out your costs to determine if it is a feasible investment.

Whichever you decide, research your legal by-laws to see what steps you need to take to upgrade or build your second suit so it complies with legal regulations. You should be able to find a complete and accurate list of your state’s specifications online.

If you are found to be renting out an “illegal” basement apartment, you may be asked to stop renting, remove the tenants, pay a fine, be sued for negligence or remedy the problem in some form depending on your regional laws.

Have you ever prepared a basement suite for tenants? What did you have to do to comply with by-laws?

Posted by Kristy DeSmit

Kristy is a blogger, Twitter enthusiast, and company legalese interpreter.