Buying a NYC House With an Illegal Basement or Cellar Apartment

You can buy a New York City house with a basement or cellar apartment the city has not approved, and the deed transfers normally. But the apartment stays illegal after you close, and the problem becomes yours. The city can fine you or order the unit emptied. Your lender may ignore its rent, and your title insurance will not pay to fix it.

As of November 1, 2026, the city’s basement legalization pilot is still not accepting applications. This guide covers the five boroughs only.

Basement or cellar: why the difference matters

City housing rules split below-ground space into two kinds (HPD, Basements and Cellars):

A basement is a story partly below the curb, with at least half its height above the curb.
A cellar has more than half its height below the curb.

In a one- or two-family house, no one may rent a cellar room. Family members may not sleep, eat or cook there either (city housing code). The one exception is a cellar ancillary dwelling unit (ADU): a legal extra apartment with its own certificate of occupancy (CO) or temporary CO.

A 2026 City law rewrote that exception in April 2026. It does not make any existing cellar apartment legal.

A basement unit can be legal only in narrow cases:

House type	Rented basement unit	Main condition
One-family	Possible	One family only, 7-foot ceilings, a window in every room, zoning allows it
Two-family	Not if it adds a third family	A third unit makes the house a multiple dwelling that needs a new CO from DOB
Any 1-2 family	Cellar unit: only as an ADU	Approved ADU with a CO or temporary CO

Every below-ground unit also needs DOB approval and must meet light, air, sanitation and exit rules (HPD source above). In practice, it is legal only if DOB records, usually the CO, show it.

How an illegal unit shows up

The CO. The CO lists the legal use floor by floor. If it shows the cellar as storage or a boiler room, a cellar apartment is not legal. See legal two-family or not and, for older houses, no certificate of occupancy in NYC.

Complaints and violations. Anyone can report a suspected illegal unit through 311, and DOB’s Quality of Life Unit inspects. If refused entry, DOB gets an access warrant, served with police help. Where safety rules are broken and there is imminent danger, DOB orders the unit vacated (DOB, Illegal Conversion).

HPD also inspects and can issue its own violations and vacate orders. DOB records appear in BIS (DOB’s older Buildings Information System) and the OATH Summons Finder; HPD’s appear in HPD Online. See how to check a NYC property before contract.

The appraisal. Many illegal units are never cited. The first to flag one is often the lender’s appraiser, who reports the use as legal or illegal (see legal two-family or not).

What title insurance does and does not cover

An unapproved unit is a question of use, not ownership. Owner’s policies exclude losses from building and zoning rules, unless a government notice about the problem was recorded in the land records. DOB and HPD violations sit in agency systems instead. So the cost of removing or legalizing the unit is generally not covered. See what a title policy covers and found a DOB violation after closing.

Money charges are different. Some become liens, debts attached to the property, which the title company will want paid at closing (see ECB and HPD charges and the new owner):

OATH judgments on a small house. On a building with three or fewer units, an OATH judgment against the owner for a Building Code violation becomes a tax lien. See NYC property violations at closing.
Relocation charges. If HPD vacates a unit and pays to house the occupants, it bills the owner. For orders issued on or after September 14, 2021, the Department of Finance bills these charges, and past-due amounts become tax liens that can be sold. Charges for earlier orders are owed to HPD directly and do not appear in HPD Online (HPD, Orders).

Can you collect rent from an illegal unit?

It depends on how many families the house holds in total.

Three or more families. A basement unit in a legal two-family house makes three families, which state law treats as a multiple dwelling. While it is occupied without the required certificate, the owner can’t collect or sue for rent for that period, and the lender may call the loan due (state law on unlawful occupancy).

Two families in total. A basement unit in a one-family house makes two families. That state rent rule does not apply to a house with no more than two families (state definitions). No statute reviewed for this guide bars rent in that case. This guide does not cover how courts have ruled on it.

Registration. A rented one- or two-family house must be registered with HPD if neither the owner nor a family member lives there. An unregistered owner who must register can’t evict for unpaid rent (see legal two-family or not).

Even where rent can be collected, a vacate order ends the occupancy, and a lender may not count the rent.

If someone lives in the unit when you buy

Under New York’s unlawful eviction law, an occupant who has lived there 30 days or more, or has a lease, can be removed only by court order or a government vacate order. Changing the locks or cutting off services to force someone out brings civil penalties of $1,000 to $10,000 per violation, and doing it on purpose is a misdemeanor.

A buyer who wants the unit empty usually needs the contract to require delivery vacant. Otherwise the buyer inherits the occupant and the court process.

Re-occupying a unit before HPD dismisses its vacate order brings civil penalties of at least $5,000 per unit (HPD, Orders).

The basement legalization pilot: status in November 2026

A 2024 City law created a pilot to legalize existing basement and cellar apartments in one- and two-family homes:

Where. Fifteen community districts: Bronx 9 to 12, Brooklyn 4, 10, 11 and 17, Manhattan 2, 3 and 9 to 12, and Queens 2. Others can be added later under state law (DOB, ADU FAQs).
Which units. An apartment that existed before April 20, 2024, with acceptable kitchen and bathroom facilities, outside the city’s 10-year rainfall and coastal flood risk areas.
Deadline. Applications by April 20, 2029.
What it offers. An Authorization for Temporary Residence (ATR). It lets the unit stay occupied for up to 10 years while the owner meets safety milestones and gets a CO. Some DOB penalties can be put on hold and possibly waived. If the owner falls short, DOB can revoke the ATR and resume enforcement, including vacate orders.

It is not open yet. DOB says it is not accepting ATR applications and will post a notice before launch (same DOB source). Its rules, proposed in November 2025, are marked withdrawn on the NYC Rules page, and no final rule has been published. Until one is, a unit in a pilot district is as illegal as any other.

Outside the pilot districts, illegal below-ground units can’t get an ATR and must go through the regular legalization process (DOB, ADU types).

Your options as the owner

Make it legal

Legalizing means a DOB filing by an architect or engineer, the work, sign-offs and a new or amended CO (see no certificate of occupancy in NYC). For a below-ground unit, the usual route is a legal ADU. DOB’s rules for basement and cellar ADUs include (DOB, ADU FAQs; DOB, ADU types):

At most 800 square feet, with 7-foot ceilings in living rooms
For a cellar, a ceiling at least 2 feet above the ground outside
An emergency escape opening in every living room, and a separate entrance
Sprinklers, water sensors, fire separation, separate utility shut-offs and radon or vapor protection
Not allowed in the city’s flood risk areas, including federal special flood hazard areas

An ADU in a two-family house makes three units, which brings in the state multiple dwelling rules. Many existing units can’t meet these rules, especially low cellars.

Take the unit out of use

The other path returns the space to the use on the CO: the occupants leave lawfully, and the features that made it a separate home are removed. Removing a stove, gas line or partitions can itself need DOB permits and a licensed plumber.

Open violations still have to be closed, usually with a Certificate of Correction, DOB’s filing showing a problem was fixed. Paying a penalty alone does not close one. See found a DOB violation after closing and, for sellers, clearing OATH/ECB violations before you sell.

Keep it as is

Some owners leave the unit in place. Every risk above stays with the building, and the unit will surface again at a sale or refinance.

What sellers disclose

Sellers of most one- to four-family houses fill out the Property Condition Disclosure Statement, the state’s seller disclosure form (state disclosure law). It does not ask about basement apartments or violations. The closest questions cover certificates of occupancy, anyone else’s lease or right to occupy, and water penetration or flood damage.

A false answer can support a fraud claim; silence on something the form does not ask usually does not. Real protection comes from the contract: a promise about legal use, delivery of the unit vacant, and a right to cancel (see found a DOB violation after closing).

Details for attorneys and title professionals

Cellar rental rule. A 2026 City law amended the housing code’s cellar rule, enacted April 9, 2026 without the Mayor’s signature and effective immediately. Renting a cellar room in a one- or two-family dwelling is now allowed only for an ADU, as the Building Code defines it, with a CO or temporary CO. The Council’s summary describes it as extending to cellar ADUs in newly built homes the exemption already available in existing homes. It does not reach unapproved cellar apartments. HPD’s basements page still says cellars in one- and two-family homes can never be lawfully rented; that page predates the ADU exception.
Pilot penalty deferral. Under the 2024 law, DOB civil penalties that would otherwise have to be paid before an alteration permit can be deferred, and waived once a CO or temporary CO issues. Deferred amounts come due again if the owner fails to comply.
Pilot tenant rights. A tenant living in an eligible unit on April 20, 2024, who has to leave for the required work has a right of first refusal to return. The law caps a tenant’s damages for denial of that right at the unit’s annual rent.
Vacate orders and the land records. HPD says it files copies of its vacate orders with the County Clerk (HPD, Orders). Whether a filed order counts as a recorded enforcement notice under a given owner’s policy was not reviewed for this guide.
Larger illegal conversions. Higher minimum penalties, entry warrants and automatic tax liens apply where a building has three or more units beyond its legal count (2017 City law). A single basement unit in a small house is usually below that threshold, but the general small-building tax lien rule above still applies.
Title reporting. DOB, HPD and CO searches in NYC title reports are returned for information only, as explained in NYC property violations at closing.

Official sources

Korvane Title is preparing to launch in New York. It is not licensed as a title insurance agent and does not accept title orders. Content on this site is general information, not legal advice.