BuyingCommentarySelling April 22, 2024

What Everyone Should Understand About In-Law Apartments

The term “in law apartment” or “in-law space” has become misunderstood lately by both agents and consumers, so I’d like to clear up what should be fairly straightforward.

First, if a home is a single family house, it is just that: a single housing unit. It is not a multi-unit building. If it has a “in law” attached, that space is designated for non-commercial purposes so that extended family can live in the same house, but more or less separately, and not for market rent. There is no true legal definition of an in-law space in my research, but overall it is visually like a second apartment in what would have been a single family home. It often has its own kitchen and for all intents and purposes appears to convert the structure into a 2 family, and other times it is a separate space with its own entrance that may not have its own kitchen.

“Separate but close” is, in my experience and what I have read elsewhere, the biggest distinction. It could be a living area above a garage, an out building like a cottage, a basement living area with it’s own entrance, or any number of other setups. But what all in law spaces also have in common is that they are not for rental income. Now, to be clear, you might have family in an in law apartment or area who contributes to your mortgage every month. That’s one thing. But if the people who live there and pay you rent monthly came from Craigslist and not from your genome, you are out of compliance.

Recently, we had an accepted offer on a home with a separate space with it’s own entrance that we suggested could be a home office or an in law space. The prospective buyer was sent by his agent to the municipality’s building department to ask if the space could be rented out. They were obviously told that they couldn’t. They withdrew their offer and the agent suggested that the wording in the listing was inaccurate.

I have two thoughts on this:

  1. The consumer clearly misunderstood what an in-law space is.
  2. That agent should have accompanied their client to the building department for obvious reasons. If a client has to do the due diligence, what use is their agent?

In-law spaces cannot be rented out to the public. No building department would sanction this. Moreover, if one decided to get clever and rent out an in law space on the down low, they would be tempting fate. If anything happened on the premises that required an insurance claim like a fire or accident, the insurance company would likely deny their claim because most policies mandate legal use.

Think about that. If you buy a home with an in law space with the intention of renting it out to the public instead of having family live there and the place burned down, you might not have coverage for the loss.

Real estate has lots of catch-22s: Someone might skip getting a permit on an improvement because they are afraid of an increase in their property taxes, but when the time came to sell, they’d have to legalize the work later at great expense to their wallet and they could lose a buyer or two in the process, affecting their sales price. A self employed person might hide taxable income to avoid income tax, but they end up having a harder time qualifying for a mortgage or having to pay a higher rate. In both cases, the short term savings is often washed away in the long run.

It is the same thing with misuse of in-law spaces. Skirting the rules could turn a short term profit into a long term headache (or worse). If you are on septic and rent out the space to a small family instead of having your aged uncle live there, it could overwhelm the system. You could cause a parking problem. You might have a neighbor complain , especially if your tenant doesn’t behave themselves. I’ve already mentioned the liability issues. Anyone who thinks that “in law” is a dog whistle for a multi unit home in the traditional sense is inviting future headaches, and could cost themselves dearly. Just like most real in-laws, proceed with care.