I’m looking for someone to wedding go in on the cost of making it legal.

Their point is that having someone else besides a spouse in the LLC opens legal questions. 

Mixed use. make sure its legal and the city know about the current use.its hard to comment without knowing more details. what types are the units?

The legal premise at work here is, if that wall is existing the house isn’t new, therefore it can’t be given the same property tax bill as new construction.

I know there can be differences between how the US and Canada operates in terms of legal structures, financing, and others, so I'd like to find some help on the topics specific to Canadians.A little about what I'm planning on investing in. 

We are trying to do it very legally, my husband even wants to register our apartment with the city.

I found some legal language I implemented into our month to month lease agreement which basically stated, any guest staying longer than 2 weeks in any 6 month period will be considered a tenant and subject to a $50.00 per week "guest fee."

That is not legal if you happen to rent the unit before the 2 months is over, AND you have to show reasonable effort to try to rent the unit.The key to rental property is continuously occupied units with good tenants, not the insignificant details of how long the lease is or whether you have a security deposit.

Unless stated in the contract somewhere (which based on your post I'm assuming it isn't) the seller has no requirement to extend and, since you are the party that is unable to perform under the current contract there is probably nothing you can really sue him for (this is not legal advice, just an opinion).

What legal action can I take if possible?