What are Additional Dwelling Units (ADU)?
Additional dwelling units are separate self-contained living spaces in a home in existing property lines, that are becoming a common way to address the shortage of homes as well as provide additional rental opportunities for homeowners.
In 2022, the Ontario government passed the More Homes Built Faster Act, which allows homeowners to build up to three residential units "as of right" on most urban residential lots. Some municipalities, such as Waterloo, have gone further, permitting up to four units per lot. While this new legislation applies to any "parcel of urban residential land", it is important to check your local municipality for any special zoning requirements or limitations that may exist.
Let's say you own a single-family home in Ontario and have space in your backyard. The first thing you need to do is check and follow local regulations and obtain permits.
To obtain a building permit to install an additional dwelling unit, you must:
- Confirm adequate water, wastewater, and stormwater servicing is available
- Submit required plans and reports (e.g., site grading, stormwater management)
- Comply with zoning bylaws, including:
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- Setbacks from property lines
- Lot coverage and building height limits
- On-site parking requirements
Note that municipal regulations can vary, so it's essential to consult your local planning department early in the process so as to ensure that you are aware of the agreements and approvals required.
Do I Need Additional Home Insurance?
In Ontario, home insurance is not legally required, but it is strongly recommended, and often mandatory if you have a mortgage. If you choose to insure an additional dwelling unit (ADU) on your property, such as a laneway or garden suite, there are several options available to you.
One option is to extend your existing home insurance policy to include the ADU. In this case, your policy must be updated to reflect the full replacement cost and risks associated with all structures covered, including the main home and the additional unit.
Alternatively, some insurance providers now offer separate home insurance policies specifically for laneway and garden suites. These standalone policies can insure the ADU without affecting the coverage of the main home, offering more flexibility in some situations.
You'll also want to consider the types of coverage you may need, which can depend on the tenant occupying the ADU. For instance, you may want to insure:
- The structure itself
- Contents within the unit
- Loss of rental income, in case the unit becomes uninhabitable due to an insured event such as a fire or flood
If you're renting to someone unrelated to you, it may be wise to consider landlord insurance, which offers additional protections. Also, think about whether you need vacant property insurance, especially if the unit won't be occupied year-round or may sit empty during tenant turnover.
Overall, insurers will offer various types of coverage depending on the use of the property as well. For example, if an owner is using the property as a second location for themselves, then coverage would fall under detached structures under an existing policy. If the second location is rented to others, the location would need to be insured separately as a residential policy.
Ultimately, you must ask your insurance provider for the best suited coverage for your circumstance. An ADU functions like a separate home, and it should be insured accordingly. While there are many customizable insurance solutions available, we generally recommend starting by exploring whether your existing home insurance can be extended to cover the ADU.
Your Next Steps:
- Check your local zoning rules and development policies – a Zoning bylaw may affect you when it comes to permitted land uses, minimum lot size, minimum heights, lot coverage, parking, and requirement for a well location and private septic system to name a few.
- Confirm warranty eligibility with Tarion and the HCRA
- Explore financing options with a mortgage advisor
- Consult your municipality's planning department before proceeding – this includes zoning requirements, approvals to build, and existing easements such as sewer or water.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
