An additional residential unit (ARU) is a second, third or fourth home on a residential lot: a basement apartment, a unit above a garage, or a separate building in the backyard. London allows them on most residential lots, and they are one of the most common ways buyers make a home more affordable or turn a house into an income property. The rules changed in late 2025, though, and a lot of what is online is out of date.
Buying a Home With a Second Unit?
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226 581 9220What are the current ARU rules in London?
| Rule | What it means |
|---|---|
| Number of units | Up to 3 ARUs per lot, 4 units in total. Up to 2 of the ARUs can be in a detached building. |
| Bedrooms | City guidance, status unsettled (see below). Outside the Near Campus Neighbourhoods: no more than 2 bedrooms in any one ARU. ARUs inside or attached to the house: 3 bedrooms combined. ARUs in an accessory building: 3 combined. All ARUs on a lot: 5 combined. The Near Campus Neighbourhoods have their own bedroom rules. |
| Size | City guidance, status unsettled (see below): an ARU can't be larger than 80% of the main home's gross floor area. Separately, the Building Code requires at least 17.5 m² for a bachelor unit. |
| Parking | No extra parking spot is required, but you can't add a second driveway for the unit. |
| Detached units | Rear or interior side yard only, never in front of the house, and they must meet lot coverage, landscaped open space and drainage rules. |
| Permit | A building permit is required before work starts. You can draw the plans yourself or hire an architect or a designer who holds a BCIN, and the heating and ventilation design needs a BCIN-qualified HVAC designer. |
| Licence | Every ARU needs a residential rental unit licence, which includes an inspection. |
The bedroom and size limits come from interim control by-law CP-1600-300, which Council passed on 4 November 2025. Council adopted a permanent zoning amendment with the same limits on 3 March 2026, and it was appealed. The City's ARU page, last updated 9 November 2026, says the interim by-law continues to apply until the appeals are resolved, which Ontario's Planning Act allows unless the interim by-law has been repealed. Council's 3 March 2026 minutes, though, list a by-law repealing it. Until that is cleared up, treat the bedroom and size limits as unsettled and confirm the current rules with the City's zoning office before you design anything.
What makes a basement apartment legal?
A legal basement apartment was built or converted with a building permit, meets the Ontario Building Code and Fire Code (fire separation, smoke and carbon monoxide alarms, safe exits and window sizes, electrical), and is licensed as a rental unit with the City. A unit that is simply "finished with a kitchen" is not the same thing, even if a tenant has lived there for years.
What should I check when buying a house with a basement apartment?
- Ask for the building permit and final inspection for the unit. If there isn't one, assume it is not a legal unit and price in the work to bring it up to code.
- Ask whether the unit holds a current City of London rental licence.
- If a tenant lives there, the tenancy continues after closing. A buyer can end it only on grounds the Residential Tenancies Act allows, usually for the buyer's or a close family member's own use, with strict notice and compensation rules, so read the lease, rent and deposit details before you firm up.
- Check whether the unit is exempt from the rent increase guideline. A self-contained unit created in a house after 15 November 2018 can be, but the conditions are specific: the house had no more than two units on or before that date, and either the owner was living in another unit of the house when the new unit was first occupied, or the unit was built in space that was unfinished immediately before. The full test is in section 6.1 of the Residential Tenancies Act; confirm it for the specific unit.
- Tell your lender and your insurer about the unit. Many lenders will count part of the rent toward your qualifying income, but only for a unit they accept.
- Get a home inspection that looks specifically at fire separation, exits, the electrical panel and moisture in the basement.
Is there funding to build an ARU in London?
The City's ARU Loan lends up to $45,000 for any ARU type at any rent, to owners who live in the main home. It must be approved before work starts and is repaid in monthly payments over nine years, starting a year after the money is advanced. The City's ARU Construction Grant, which paid up to $45,000 for units rented at or below average market rent, has closed with all of its funding allocated. Terms change, so confirm them with the City before you rely on either one. Ontario's Development Charges Act exempts a second and a third unit on a house lot from development charges, with conditions. A fourth unit isn't covered by that exemption, so ask the City.
The federal Canada Secondary Suite Loan Program announced in 2024 will not go ahead: Budget 2025 said it was not yet operational and would not be implemented. What remains is CMHC-insured refinancing for a home you or a close relative live in. Your total mortgage can go up to 90% of the home's value with the suite added, if that value is under $2 million and the home has no more than four units. The extra borrowing can only pay for building the suite, not to take out other equity, and it is usually advanced in stages as the work goes. CMHC must approve the financing before construction starts or at an early stage, and the suite can't be used as a short-term rental. A mortgage broker can tell you whether it fits your situation.
Does an ARU add value to a home?
A legal, licensed unit with a reliable rental history usually adds value, because it widens your buyer pool to include investors and buyers who want help with the mortgage. An unpermitted unit can do the opposite: buyers discount it for the cost and risk of making it legal. Adding a unit can also raise the home's assessed value, and with it your property tax.
Frequently asked questions
How many units can I have on my lot in London, Ontario?
Up to four in total on most residential lots: the main home plus three ARUs, with no more than two of them in a detached building. Zoning setbacks, lot coverage and servicing still apply, so not every lot can fit that many.
Do I need a licence to rent out my basement in London?
Yes. The City of London requires a residential rental unit licence for every ARU, and the licence includes an inspection.
Can I sever my backyard unit and sell it separately?
Usually not. The City says there may be opportunities for severance in settlement areas in specific situations, assessed case by case, so ask the City before you count on selling a unit separately.
