Unlocking Wealth, Avoiding Pitfalls: Legal keys to multi-unit residential property success

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  Kyle Hampson
  Lawyer

This article featuring Kyle Hampson was first published in Guelph Today.

Navigate the complex world of multi-unit residential real estate investing with confidence as Kyle Hampson, a real estate lawyer at McKenzie Lake Lawyers in Guelph offers some insights to protect your investment 

Investing in multi-unit residential properties can be a golden ticket to long-term wealth, offering steady rental income and gradual property appreciation. Having multiple tenants under one roof amplifies revenue potential, making it a popular investment vehicle as long as investors understand the legal keys to multi-unit residential property success. 

Without having a roadmap for your multi-unit property investment strategy investors risk getting lost in a maze of zoning bylaws, compliance issues, and tenant regulations. Kyle Hampson, Partner and Real Estate lawyer at McKenzie Lake Lawyers in Guelph says, “There are many false assumptions by newer purchasers of multi-family properties and they may not realize the potential consequences in the absence of proper due diligence.”

Verify legal zoning before you invest 

Before rushing to finalize a promising multi-unit deal, or waiving conditions in a competitive offer, Kyle Hampson advises investors to pause and do their zoning homework because confirming zoning compliance is one of the smartest moves, they can make.” A zoning search is fairly easy to ensure the local municipality has approved the property use to operate as multi-use residential property. The property must be approved by the building department to ensure either everything is up to code, or that it has operated in its current use for a sufficient period of time to qualify as legal non-conforming.”  

That charming triplex might only be recognized by a municipality as a single-family home. Buying first and checking later might result in costly consequences such as being ordered to remove tenants or cease renting altogether. Evicting tenants can be challenging, even if its been ordered by the municipality, and can lead to fines and lawsuits from displaced tenants. Hampson advises, “Engage early with the municipality’s building and zoning departments and consult an experienced real estate lawyer to ensure the property  is in compliance before making any commitments.”  

Understanding legal non-conforming uses 

Some multi-unit properties come with a legacy or “legal non-conforming” status. The usage of some buildings may not have been prohibited at some point in time, but zoning bylaws have changed. While these uses may be “grandfathered”, any change or expansion in use since the by-law change may have negated the ability to qualify as legal non-conforming. If the investor plans to renovate, expand, or change how the property is used, it can trigger requirements to meet current building and zoning standards. Hampson says, “Understanding a property’s status before being committed to a transaction is crucial to avoid unintended violations.” Sophisticated investors do their due diligence early to avoid costly compliance surprise.  

Navigating building and fire safety regulations

Multi-unit properties must adhere to building code and fire safety regulations, which require proper fire separations between units, safe and accessible exit routes, and working smoke and carbon monoxide detectors. A violation could result in hefty fines, forced renovations, or even evacuation orders. Hampson says, “That’s why engaging a qualified building or fire safety inspector to assess the property prior to being committed in a transaction is essential. They can spot hidden compliance issues early and advise on upgrades before problems arise.” 

Digging into title and off-title searches 

Buying a property without thorough title and off-title searches is risky and potentially disastrous. Title searches reveal legal ownership and any encumbrances, liens, or easements that could limit the use of the property. 

But the real surprises can often hide in off-title searches, which might uncover outstanding work orders, heritage designations, or environmental concerns. These searches provide a clearer picture of the property’s legal standing and any obligations that may be inherited. Certain off-title searches can have longer response times and, if the offer has a tight deadline, there is a potential that something important could be missed prior to the offer becoming firm and binding.  

Tenant rights and lease agreements 

Purchasing a property with existing tenants brings a buyer to into a legal relationship with those occupants. Tenant rights remain with a change in ownership, and a buyer may not be able to remove tenants from a property at the time of acquisition.  Ontario’s Residential Tenancies Act has specific processes and timelines that an owner is bound by; if an owner does not adhere to those rules and regulations, they can face fines and other penalties. Always review existing lease agreements to understand rent amounts, term lengths, and any other clauses. Hampson says, “When it comes to tenanted or multi-residential properties, use a realtor who experience in those types of properties. Realtors are becoming more specialized as issues with tenanted and multi-residential properties become more complex.” 

Protective clauses and language for stronger agreements 

When it comes to real estate deals, the fine print is everything. In the Agreement of Purchase and Sale, insertion of protective clauses and usage of specific language are the purchaser’s best defense. They should include conditions such as satisfactory inspections, building and zoning compliance, and lease reviews to avoid any surprises after signing. Kyle Hampson stresses, “As a buyer, it is crucial to list the current use of the property under the title search/requisition provisions in the agreement. For example, if a buyer is looking to acquire a three-unit triplex, that is how the property should be listed. It should not simply be shown as “residential” or “multi-residential.” These clauses can provide an exit strategy if due diligence uncovers significant issues, potentially allowing the buyer to withdraw without penalties.”  

Managing multi-unit obligations 

Owning a multi-unit residential property can be like running a small business. From fixing leaky faucets to handling tenant disputes and chasing late payments; the responsibilities add up fast. An owner needs to stay on top of maintenance, manage tenant concerns, and ensure compliance with local bylaws. Not everyone is cut out to be a landlord which is why many investors hire professional property managers because they bring experience, legal know-how and peace of mind, especially when handling multiple units.  

Tax implications and structuring  

Multi-unit residential properties may generate steady income but also comes with tax obligations. Owners must pay property taxes, report rental incomes, and be prepared for potential capital gains taxes when it’s time to sell. How ownership is structured, expenses claimed or even the time of sale can impact the bottom line. Hampson says, “A little planning on the front end can have a significant impact on the back end for investors who are looking to create generational wealth.” A real estate lawyer and tax professional can help an owner of a multi-unit residence understand their obligations and find strategies to minimize the tax obligations. 

The promise and pitfalls of multi-unit investments 

Engaging an experienced real estate lawyer early in the process can help spot red flags before they become costly mistakes. Kyle Hampson says, “As soon as you sign an offer, and before it becomes firm, that is the best time to reach out to us. If you’re submitting an unconditional offer, let us review the agreement in advance to see if any changes should be made. We can have a substantially positive impact on the transaction, if we’re engaged early enough.” 

With the right legal guidance, an investor can confidently navigate the fine print and turn potential pitfalls into long-term profits. In real estate, success is about how well you understand what you’re buying into.  

Conclusion

If you have questions with regard to investing in multi-unit residential properties, or this article, please contact Kyle Hampson (519) 826-4333 x7601; Email: kyle.hampson@mckenzielake.com; Website: https://mckenzielake.com