Pot & Real Estate

If you were a fly on the wall in a room full of REALTORS® when the topic of marijuana & real estate came upthese are some of the things you would hear...

I had one, totally renovated, was raided 10 years back, full home inspection, air quality tests, even infrared imaging and not one A lender would provide a mortgage. Very pretty house, good quality reno. 
Even B lenders are declining mortgages on former grow ops, even if the property is completely re-mediated. I only know of one lender - other than private lenders- that will do a grow op at this point in time and they will put you through the ringer.
Legal is legal RIGHT? So tell that to my client who leased 2000 sq feet in an Industrial Mall to a legal grow op... RBC called his mortgage, only about a 40-50 % ltv but he had to come up with $600,000 to pay them out.

Soooooo, you can imagine my surprise when I read THIS article by another  REALTOR® suggesting it would be a good idea to steer clients towards purchasing former grow-ops because they can get a "deal" on them. But if you look at the real-life examples above,  it's an uphill battle. Sure, I've heard about the odd "unicorn" deal that actually goes through, but that would be the ultra ultimate in exceptions to the rule.

With the legalization of cannabis just a few short months away, it feels like there are still so many details to be ironed out, especially when it comes to understanding the potential fall-out on real estate.

When pot is involved, one of the biggest & most difficult issues to overcome is financing. Lenders are all about risk management, especially the "big 6" institutions who tend to take the position that they don't need to take on the less than desirable properties or mortgagees. They're looking for the cream of the crop & all the rest can look for alternative options...and don't let the door hit you on the way out!

When a live deal goes in front of a lender there are many things that they look at when deciding whether or not they're willing to lend on it - the buyers' financials, the house itself, the neighbourhood, their own internal policies - and if it's an insured mortgage then CMHC or Genworth have their own criteria that need to be met as well.

Stigma is the key concept to understand here.  A property can be "stigmatized" by any number of things....by being too close to something "undesirable", by having something undesirable happen in the house itself, like a violent act, or an illegal one, or even an environmental issue affecting the land that the house sits on.

I sold a property last year in an "emerging" neighbourhood in Central Oshawa. Great entry level home & it sold in multiple offers. The appraisal that the buyers' lender ordered had a LOT to say about the neighbourhood & treated it like a defect in the same way that they made note of some issues with the foundation. The lender felt that the neighbourhood was stigmatized & didn't want any part of it. Luckily for my seller clients, the buyers were able to get an "exception" from their lender & the financing went through & the house closed.

That was just a neighbourhood issue that needed an exception - lenders take a really hard line when it comes to former grow-op homes. These properties are stigmatized with a capital S! Re mediated or not, and even if it was rebuilt - yes you read that right, even if you tear the house down & rebuild it from the ground up - the stigma is attached to the address & can last forever when it comes to lending on that property. Also there is no Statute of Limitations on disclosure in Ontario so regardless of how many years have passed it always needs to be discussed if the property is being sold.

We need to deal with the bank rules on these places. I sold a "grow op" where the tenant was caught before any damages to home, all signed off on by municipality, required no remediation, but stigmatized, and banks wouldn't touch it.

The issue is, safe by who's guidelines? Until the big 6 agree it's also safe, home-growers might as well put money through the shredder. Same result. 

I think we can all understand the dangers to a home that has been used to grow pot in it. We hear about them on the news - police in hazmat suits bringing out hundreds or thousands of plants, electrical systems altered, mold, tons of damage to the interior etc. But what about the "little guy", the one who has a license to grow pot for medical purposes? They're getting caught up in this as well even though what they're doing is legal. Bottom line is, the lenders don't care.

I had a client who grew over 200 plants, did everything 100% by the book and when it came to selling he was SOL. Now, I haven't searched records, but if it hasn't happened yet, we will see a case where someone legally allowed to grow for medical purposes will challenge a bank on discrimination. An important side note for those worried about grow ops, you need to change the pre-printed clauses and remove "illegal" as for many growing or those who have grown in the past, it is 100% legal.

The banks take the stance that..Just because it is legal it doesn’t mean that I have to lend my money and accept a mortgage on it . Be careful advising your Clients , this is a new business with new legislation.

So there's the disconnect right there, in that last quote. Our various levels of government are famous now for not involving ALL the stake-holders in discussions around important legislation like this one. "Unintended Consequences" was the tagline for real estate in 2017 & perhaps will continue to be in 2018 as we see the impacts that stress-testing uninsured mortgages have on the real estate market & the faster than expected slow down of the economy. Until the big banks get involved in the discussion, look at changing their policies, that disconnect will continue & leave a lot of homeowners in big trouble.

More to come on this topic...stay tuned for Tenancy, Insurance & Valuation issues when it comes to Pot & Real Estate.

Have a fabulous day!

There's still lots of unknowns surrounding the effects of the gov's legalization of pot however on the bright side this study found that houses near legal marijuana stores increased in value by about eight per cent compared to those that weren’t. Local crime rates went down too https://globalnews.ca/news/3979230/marijuana-retail-real-estate-home-prices/

quiet enjoyment clause




a recent Registrar's Bulletin on this.And legalizing marijuana has zero to do with it. The farming within a house, without proper regard for the structure is the issue. They could have been raising geraniums, it does not matter. It is about structural abuse and mould. NOT about the product, it is about the resultThe RECO view as published in the Star has already been posted here. Barry Lebow and I went to see Joe Richer and a room full of RECO lawyers several months ago expressing our concerns about this article. Previously, I had written an annotated version. My comments are in "italics" throughout the article.  http://www.isourcerealestate.com/blog/p/brian-madigans-annotated-version-of-recos-press-release-on-grow-op-disclosureSubsequent to the RECO meeting, I considered a completely different approach. I looked again at a 1979 Supreme Court of Canada decision and found an interesting line. which supports another Seller's liability obligation. So, I changed my mind. Anything that I had written prior to that date is not up to date. However, we are still talking about the same 1979 case. http://www.isourcerealestate.com/blog/p/stigma-disclosure-in-canada-revisitedAt this time I am an expert witness for one of the major banks as a house is being used for the legal growing of marijuana. He has a medical permit. This is a complicated case as it goes to the mortgage doctrine of "committing waste" as well as other issues. He has had the police come, he has produced more weed than he has permission for, etc. One of my comments deals with the concept of stigma. In my mind a Realtor is obligated to disclose what transpired. Unless someone put in the best ventilation system possible indoor gardening, and I don't care if they want to raise tulips, the growth and infestation potential for mould is real. There is zero thinking here - disclose or face the possibility of a lawsuit. That simple. I cannot identify more about this case that I am in nor in which Canadian city due to it being an ongoing case. I guess that I have been an expert in from 50-75 marijuana propertiesAll the Grow-Op courses and Seminars I have been in over the past 14 years echos what Barry is saying. If they are Licensed but do not have the top notch ventilation system, and the system is not inspected by Health Canada like so many are then potential for mould spores from brown yellow green or even black ranges in the 60-80%. I suspect that if it's a plant you water by hand, that's one thing, however if it's hydroponic then that is another ballgame. Best advice walk your clients away, as down the road if anything comes by way of health issues for that family, all parties involved could potentially open themselves up for a lawsuit. Just my opinion.
Did they grow weed? Yes! Did they get arrested for it? Yes! It's not the license that means anything. It's not the arrest that means much. It's the fact that they are growing weed.... air quality, mould, electrical, etc.... that is the problem.It IS a grow op.... disclose! If the seller says not to disclose....... run! Your registration means more to you than a listing.
In my opinion, I believe all grow op homes should be taken as proceeds of crime and destroyed. Niagara did it! Bulldozed the home.
We are hoping are faithful leaders in Ottawa have a plan to deal with all off the details, financing , resales ,environmental . Trudeau has thought all these issues through , right ? Bwa ha h aSmoking is smoking.. to include tobaccos, marijuana and EVape. Include it in the rental agreement stating they understand they will be charged $$, $$, for remediation of carpet cleaning, repainting, etc. Spell it out, make the costs reasonable and huge.https://www.ctvnews.ca/canada/what-are-tenants-rights-under-proposed-marijuana-laws-1.3559918I haven't seen any new regulations governing remediation/banking rulesBanks and insurers will continue being the issue regardless of the number of plants if it's ever found out. I amended clauses in offers to purchase as well as lease quite a while ago. In BC it's a huge mess with tenancies...and insurance companies are pulling their house coverage, which means their mortgage could be in jeopardy. The whole thing is a hot mess!!!!I honestly don’t see grow op as stigmas as much as I see them as a defect. The major issue is mold and improper ventilation. Also, a grow op is typically very low key and does not see any “drug dealing” traffic at ALL.So that’s where the problem lies. It’s labeled a grow op for the purpose of an investigation, when in reality there was never enough plants or alterations to justify stigmatizing the property. If the police deem that it was used for the purpose of trafficking it get labeled as such. Unfortunately they don’t have a standard way to label grow ops and t is case-by-case. I guess my point is, not all grow-ops equate to a material defect in the home or stigma. But the label it’s been given does. Does that make sense ?
NOT a human rights issue, tenants do not have a basic right to smoke inside their unit. Been tested."It is legal for a landlord to include a no-smoking policy in the lease; this has been confirmed through decisions made at the LTB. Smoking is not a disability, nor is it a protected ground under the Human Rights Code. It is not considered discriminatory for a landlord to dictate where smoking can or cannot take place. The Ontario Human Rights Commission has stated that a landlord may have little or no obligation to accommodate a tenant’s need to smoke when to do so would amount to undue hardship, such as negatively affecting the health and safety of other tenants."Pot is just another 'smoking substance'. They do not have the right to smoke insidehttp://www.cbc.ca/news/canada/british-columbia/go-public-medical-marijuana-landlord-tenant-insurance-pulled-1.3985875One is not a grow op. 10 may not be a grow op. You realize many people grow plants in their homes, right? Flowers, vegetables, herbs, they are everywhere, and they are not stealing hydro and water to feed their families. How many home gardeners do we meet that have really nice organic set ups in their homes to grow food. Weed in the home will be no different. It's the dealers that grow hundreds and thousands illegally that will be on the radar. A client of mine had RBC call a mortgage with a 50 % ltv on an industrial mall because he had a legal grow op in one of the 6 or so units .