Will The Legalization Of Cannabis Affect Real Estate?

Contributed by Natalka Falcomer, Vice President, Chestnut Park Real Estate Limited, Brokerage

The sale of marijuana, along with growing a few plants, is now legal. How to manage the sale of marijuana and the potential tax base it will provide is being widely studied and debated across all media platforms and by all levels of government. However, what’s not being as hotly debated is what this could mean for the sale of your house or, worse yet, for you to buy a hazardous home.

Is it a Cannabis Grow Operation or Just a “Few Plants”?

Growing cannabis indoors requires high humidity and high temperatures. These conditions create perfect conditions for mold and fungus to grow and spread, making the growth of even a few plants difficult and expensive to remediate. The risk is uncontrivable: such mould poses serious health and safety issues for home buyers. This is why cannabis grow operations, regardless of size, have been villainized in the real estate industry.

In the past, grow ops were easier to identify: the home was typically abandoned, boarded and unkept. Heating bills were unusually high and the neighbours, should you ask them, would tell you of their suspicions. This is all about to change.

The federal legislation allows individuals to grow up to four plants in their home. While there are corresponding fire, plumbing and electrical regulations, it’s highly unlikely that everyone will comply. When legalization occurred in Denver, Colorado, for example, 1 in 10 homes grew marijuana and very few complied with the health and safety regulations created to prevent the growth of mould and damage to the structure of the homes.

Some argue that the federal law will impose the necessary regulations to prevent the damage to homes caused by growing a few marijuana plants. For example, there is a limit the number of plants one can grow. This claim is hard to substantiate as limits on home growth and ensuring health and safety compliance in someone’s home – as opposed to a business – is hard to police. If you’re growing four plants, for example, and need to keep a certain level of humidity and heat, how can you prevent mold from building and then spreading?

The risks extend just beyond health. Some REALTORS® have shared cases with OREA where “buyers have purchased a home, had the property remediated and brought up to building code standards, but were still denied insurance”.  There’s serious lack of clarity regarding how home insurance compliance will fit into the legalization puzzle and what level of remediation is acceptable to obtain insurance. It’s also unclear is whether or not legal marijuana “grow ops” pose a stigma that needs to be disclosed by either REALTORS® , when appropriate, or by the seller. Who’s responsible, for example, if a seller covers up the legal “grow op” with a fresh coat of paint? Does that even need to be disclosed? What is more, when does a legal grow up become one that needs to be reported due to health and safety issues?

Home inspectors, one could argue, can be the shield to protect an unsuspecting buyer. The problem is that home inspectors do not have any mandatory training on how to identify a former marijuana grow-op – legal or not. Accordingly, the best solution as a buyer is to ask the seller pointed questions about whether or not marijuana was grown or known to be grown in the home. However, concurrently with this, the Canadian public is wise to support the Ontario Real Estate Association, Canadian Real Estate Association, the Canadian Medical Association, Canadian Association of Chiefs of Police and the Canadian Federation of Apartment Associations’ position that “no personal cultivation of cannabis be allowed inside homes and any provisions related to indoor personal cultivation be removed from the legislation and regulations”. This position, for the time being, is the best way to protect home buyers from incurring significant costs of to properly remediate the home and from losing their home insurance.