Substantial renovation

Substantial renovation, in relation to an existing housing unit, means a renovation or alteration of the housing unit to such an extent that:

• All or substantially all of the housing unit has been removed or replaced, other than structural components, which include, without limitation, the roof, the foundation, external walls, interior supporting walls, floors, and staircases (excluded components), or
• The habitable area of the housing unit is increased by at least 100 percent.

The following explains the requirements for: “all or substantially all,” “must be removed or replaced,” “of the existing housing unit,” and “habitable areas.”

On this page

• All or substantially all
• Must be removed or replaced
• Of the existing housing unit
• Habitable areas

All or substantially all

“All or substantially all” generally means 90% or more. 

A housing unit is substantially renovated when at least 90% of the house has been removed or replaced.

This requirement is for physical changes to a housing unit, either to improve its appearance, functionality, or structural integrity.

You may use any fair and reasonable method in the circumstance to determine whether a housing unit has been substantially renovated. The basis must clearly show that at least 90% of the housing unit has been removed or replaced. The following provides examples of common bases.

Examples of common bases

Basis	Scenario	Calculations
Floor space	A house has 2500 SF of floor space.  All areas of the house have been substantially renovated except for a 250 SF room.	Total areas before renovation = 2500 SF Total area not renovated = 250 SF Total renovated areas = 2250 SF Percentage of renovated areas = 2250/2500 = 90% The renovation meets the requirement.
Floor space,  unfinished basement - scenario 1	A house has 1500 SF of main floor and 800 SF of unfinished basement (e.g., a basement with roughed-in plumbing and electrical). 1350 SF of the main floor is substantially renovated.	Total areas before renovation: 1500 SF Total renovated areas: 1350 SF Percentage of renovated areas: 1350/1500 = 90% The renovation meets the requirement. The unfinished basement is considered unhabitable (see discussion in “Inhabitable areas”) and may be ignored in determining whether the renovation meets the 90% requirement.
Floor space,  unfinished basement - scenario 2	A house has 1500 SF of main floor and 800 SF of unfinished basement. 1300 SF of the main floor is substantially renovated, and 600 SF of the unfinished basement is converted into a habitable entertainment room (finished walls, ceiling, flooring, and electrical outlets).	Total areas before renovation: 1500 + 600 = 2100 SF Total areas renovated: 1300 + 600 = 1900 SF Percentage of renovated areas: 1900/2100 = 90% The renovation meets the requirement. The completed part of the basement (the entertainment room) may be considered in determining whether the whole-house renovation meets the 90% requirement.  The renovation of the main floor alone does not meet the 90% requirement (1300/1500 = 87%). However, a completed habitable basement that exists immediately before the renovation starts must be substantially renovated to be considered in determining whether a renovation to a house meets the 90% requirement.
Square footage of floor and wall space	A house has 2500 SF of floor space and 6000 SF of interior wall space.  All areas of the house have been substantially renovated except for a room that has 400 SF of floor space and 1300 SF of wall space.	Total areas before renovation = 2500 + 6000 = 8500 SF Total areas not renovated = 400 + 1300 = 1700 SF Total renovated areas = 8500 – 1700 = 6800 SF Percentage of renovated areas = 6800/8500 = 80% The renovation does not meet the requirement.
Cost or fair market value	A house was purchased for $1M, and the renovation costs were $.9M.	Although the renovation cost is 90% of the purchase price, this basis fails to demonstrate that 90% of the house has been removed or replaced. The cost of the renovation or the fair market value of the improvements is an unfair and unreasonable basis for determining whether a housing unit has been substantially renovated.  The “all or substantially all” requirement is for physical changes to a house.

Must be removed or replaced

The “removed or replaced” requirement is based on the nature of the renovation or alteration of a housing unit.  It stipulates the extent a renovation or alteration is required to be considered a substantial renovation.  

In a typical substantial renovation of a housing unit, the interior of the housing unit is basically stripped down to its structural frame.  For example, a major renovation of a housing unit would involve complete removal or replacement of all interior non-bearing walls, ceilings, floors, electrical and plumbing systems, kitchen counters and cabinets, fixed fixtures, and lighting fixtures.    

The following table outlines minimum typical renovations for the housing unit to be considered substantially renovated. For condominiums, some of the elements listed below may be common property. Common property does not need to be removed or replaced.

Removed or replaced requirements

Components	Requirements
Interior non-bearing or non-supporting walls	At least 90% of all interior walls must be stripped to the studs and finished with drywall or panels. For homes with plaster walls, covering the walls with new drywall would suffice.
Ceilings	At least 90% of all components must be removed or replaced.
Doors and windows
Lighting fixtures, fixed appliances, or fixed fixtures
Kitchen counters, cabinets, or bathroom vanities
Sinks, bathtubs, shower stalls, or faucets
Heating, ventilation and air conditioning (HVAC) (including ductwork), electrical, plumbing, or hot water system	It is not necessary to replace the entire system. In some circumstances, removing or replacing certain components would be considered in determining whether the renovation is a substantial renovation.
Central vacuum systems
Excluded components, including roof, foundation, external walls, interior supporting walls, and staircases	The requirement does not apply to the excluded components.

“Removed or replaced” does not include repairs or maintenance. For instance, patching drywall, repainting surface areas, refinishing hardwood floors, or duct cleaning is not taken into account to determine whether a housing unit has been substantially renovated.

Of the existing housing unit

The renovation or alteration must be for an existing housing unit.  Additions to an existing housing unit are excluded in determining whether the housing unit has been substantially renovated.  For example, you purchased a 2500 square foot housing unit and added a 500 square foot entertainment room.  In determining whether 90% of the housing unit has been removed or replaced, the additional 500 square foot entertainment room is excluded as the renovation is not to an existing housing unit.     

Habitable areas

Only habitable areas of a housing unit are included in determining whether the housing unit has been substantially renovated. The following are examples of typical habitable and unhabitable areas.

Habitable and unhabitable areas

Components	Habitability
Main floor living areas, finished basements, and finished attics are habitable areas For a finished basement or an attic to be considered habitable, it must at least have finished walls, a ceiling, flooring and electrical outlets	Habitable
Garages, parking areas, crawl spaces, or any areas designated for the placement of equipment for the heating of, or the supply of water, gas, or electricity to the housing unit	Unhabitable
Partially completed basement or attic (e.g., a basement with roughed-in plumbing and partially completed walls)	Unhabitable
Exterior components, including decks, balconies, open (unenclosed) porches, or unheated sunrooms	Unhabitable