Somethings to Consider Before Purchasing a Multi-Unit Home

It feels as though it is becoming more common to see multi-unit residential property listings in the current market. Perhaps it is due to sellers acknowledging the perceived necessity of having multiple families living in one home, optimizing income properties for investors or allowing a purchaser the option of renting out a portion of their home. In any event, purchasing a multi-unit dwelling can involve some different considerations which every potential purchaser may not be aware of. 

Lender considerations

If you are financing your purchase transaction by way of a mortgage or secured line of credit, it is pertinent to advise your lender of the nature of the property, your intended use and the fact that it contains multiple units. This is something that your lender may take into consideration in approving your financing, any conditions they may require to be satisfied in order to do so, and in dictating the terms of your financing once approved. 

Its important to provide your lender with these details up front and, ideally, as part of the pre-approval process prior to entering into an agreement of purchase and sale. If you do not inform your lender, it will likely come to their attention later which could potentially impact your financing.

Zoning 

Often, the agreements of purchase and sale we receive for residential properties arrive to us firm and final, free of any outstanding conditions. While we are still able to conduct off-title searches for zoning, at that stage, finding out a property is not zoned for the intended use can create concerns for the parties involved including lenders, insurers, and, of course, purchasers. At this point, there may be little that can be done by a purchaser to end the transaction without consequence if they determine the intended use of the property is not legal. 

To avoid the foregoing, it may be prudent to include a condition in your agreement dealing with satisfying the purchaser that the intended use is possible and legal. This may be particularly important when dealing with multi-unit dwellings. 

Property insurance

Obtaining property insurance for a multi-unit dwelling can often involve different considerations by the insurer. Ensure that you engage an insurance agent who is knowledgeable in insuring muti-unit residences, understands your intended use of the property, and has access to all the relevant information pertaining to the home. 

The cost of insurance for this type of property can also carry a higher price tag compared to insurance for a single-family home which is something you want to factor into your budget for carrying costs. 

It is also important that you understand what your reporting requirements to your insurer are in the event there is a later change in use of the property. 

Title insurance 

In the event you are title insuring your purchase transaction (which is often the case), it is important to make your title insurer aware, usually through your lawyer, that the property contains multiple units. Many title insurers have different off-title searching requirements for a multi-unit dwelling that your lawyer must satisfy to obtain a title insurance policy. It can take time to receive responses back from the relevant authorities for these types of off-title searches so informing your lawyer immediately upon intake of the nature of the property is important to help ensure that the searches can be completed and responses received within the required timelines. 

It may be important to consider the above when purchasing a multi-unit dwelling even if you do not intend to use the property as a multi-unit residence. The nature of the dwelling may still be significant to your insurer, lender etc.

It is also important to remember that not every property may obviously look like a multi-unit dwelling. Often, when clients hear ‘multi-unit property’, they see the image of an apartment building or a multi-story triplex. However, the definition of multi-unit will likely differ depending on whether you are dealing with a lender, title insurer, or insurer and may include a property with more than one kitchen, separate entrances, and so on. If you are unsure whether the property you are purchasing may be a multi-unit dwelling, speak with your real estate lawyer.

Please feel free to contact one of our real estate lawyers if you have any questions on this topic.

The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.