Will new cannabis laws affect your home’s value?

Posted by Steve Harmer on Thursday, November 1st, 2018 at 12:56pm

Canadian Real Estate and MarijuanaUnder new federal legislation, Canadians will be able to grow up to four marijuana plants in their private residence.

But a lack of protections and awareness could cost them thousands – or even their mortgage.

Sentiment on smoking and cultivating marijuana at home still largely negative, finds new Zoocasa survey.

With the new cannabis laws coming into force, would growing pot at home reduce your property’s value? What about smoking weed at home? Do you think a new cannabis store in the neighbourhood would help or hinder a home sale? A majority of Canadian homeowners (64 per cent) believe that a home where the owners smoked pot would see a decreased value, according to a survey released October 16 by real estate website Zoocasa.

And 57 per cent of homeowner respondents said they think that even growing a legal amount of cannabis at home would reduce their desire to buy that property. Sentiments were a little different among respondents who identified as renters, of whom less than half (46 per cent) thought that smoking pot would damage a home’s value.

Pot in BC and your Real EstateWhat is Legal - See the BC government site here for more info

The age of respondents also made a difference. Millennials were found to be the least likely to consider home-grown pot a problem, with 38 per cent saying that a legal amount of cannabis grown in a home would reduce their desire to buy that property, compared with 58 per cent of Gen Xers and 59 per cent of Boomers.

Nearby dispensaries

With pot shops becoming legal and licensed, would such a store opening up nearby be a problem for home values? Some 42 per cent of both homeowner and renter respondents said yes, while 34 per cent disagreed, and 23 per cent were neutral.

This compares with just 11 per cent of all respondents saying they think a new liquor store would reduce the value of nearby homes.

Condos and rental apartments


landlords and cannabis in BCIn terms of condo owners and strata corporations’ rights, 61 per cent of all respondents disagreed that residents should be able to smoke cannabis within their units. An even higher proportion, 64 per cent, said that strata council boards and property managers should be able to ban the drug’s use in residents’ units.

Tenants and landlords responding to the survey seemed largely – but not entirely – on the same page. Just over one third of renter respondents agreed that tenants should be able to smoke cannabis inside their homes, while 46 per cent did not agree, and one in five was neutral.

On the other side of the equation, 88 per cent of respondents who identified as landlords said they want or plan to ban smoking within their rental properties.

Zoocasa’s report authors wrote, “Despite the drug’s newly-minted legal status, questions linger over how personal use and cultivation may impact the value, desirability, and even the insurable status of homes for sale. With such areas remaining, well, hazy, it’s no surprise that stigma pervades among current and prospective homeowners, as well as those renting out their property.” 

Growing Marijuana Could Risk Your Mortgage.

Mike Bricknell, a mortgage broker at CanWise Financial, says lenders take a very conservative approach with homes where growth has been present. Most “A” banks will deny the mortgage altogether, requiring borrowers to turn to alternative lenders, which still require considerable legwork to clear the home for financing. So far, any trace of a ‘grow op’, legal or not legal, past or present, is not to be considered approvable by a conventional residential lender,” he says. “For the unconventional lenders it takes a lot of paperwork, air and mould testing, and case-by-case exceptions to obtain a mortgage and home insurance approval.”

“Most Insurers Want Nothing to Do With It”

This can be further complicated if the home’s status makes it hard to insure. “Lenders technically own a home until a borrower pays off the mortgage,” Bricknell says. “A home must have home fire insurance, so if the insurance companies are not approving a home insurance policy, then by default the lenders will not approve a borrower’s mortgage on that particular home in the first place.” It’s not yet clear whether insurers will adjust these strict criteria post-legalization, and whether those who grow within the legal limit are risking their home coverage.

Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada, says the insurance industry is closely monitoring the issue, but it’s challenging as no specific legislation has been introduced. “Like everyone, we’re operating in a vacuum in regards to the details,” he says, adding that insurers will have to review their policy wordings once legalization occurs.

Is your mortgage at risk with a grow op

Because insurance is a competitive marketplace, he says, some insurers may introduce policies that allow for home growing, while others will not, and stresses those who plan to grow at home should review their policies in depth. “Once the legislation is introduced and passed, it makes sense that any homeowner sits down and contacts their insurance representative and makes sure what they have makes sense for them in coverages,” he says.

One man in Kelowna, B.C., for example, learned his tenant was growing dozens of medical cannabis plants in the apartment, CBC reported last year. Though the tenant had a license that let him grow up to 60 plants, without his landlord’s permission, the landlord’s insurance provider cancelled coverage as soon as it learned about the operation. The insurer explained that it was concerned about safety features, not about legality. Even if they hadn’t previously cancelled coverage, insurers could refuse to pay a cannabis-related claim on the grounds that growing cannabis significantly alters the risk for damage, which they hadn’t agreed to insure.

And fair enough: cannabis growers often modify the heating and electrical systems in the building, which can increase risks for fire and electrocution. The Fire Chiefs’ Association of B.C. has said grow-ops, both legal and illegal, are 24 times more likely to catch fire than a regular house. Also, poisonous fumes can build up inside the home’s ventilation system and cause mould or fungus to develop. The fumes could also be released outside and put neighbours and passersby at risk.

Growing medical cannabis can also heighten your risk of theft. There’s a reason why professional production facilities have extremely high security. They include pressure centres that can detect if someone is trying to tunnel into vaults, and tracking where employees are at all times. But while home growers could booby-trap their operations to deter thieves, they could put them at risk of liability claims.

While properties that host grow-ops can be remediated, it can still be difficult to find home insurance for them. That’s because moisture, pesticides and fertilizers, which soak into the building’s structure, can have long-term effects. Similarly, there could be a mould problem that hasn’t yet been made apparent, or criminals could still target the property because they think they could still find drugs on site. Most insurance providers, therefore, consider these properties to be high risk or substandard and will charge accordingly.

Growing marijuana and selling your home

There is quite a bit of information being passed around about growing marijuana in your home that could or will  prevent the sale of your property down the road. CMHC is Canada’s federally owned mortgage insurer. As of October 25, 2018, their stance on homes that were former grow operations has not changed and reads as follows:

“At this time, CMHC is not making any changes to its mortgage loan insurance policies in relation to the impending  legalization of cannabis. CMHC will continue to insure mortgage loans for homeowner residential properties (1-4 units) and multi-unit residential properties (5+ units) where cannabis was previously grown and/or will be legally grown.
We will also monitor the impacts of the Cannabis Act on our mortgage loan insurance activities over the long term. We will also be reminding Approved Lenders that, in cases where property damage has occurred, they are required to disclose this information to CMHC in making the request for mortgage loan insurance and confirm that remedial action has been taken to address any related property damage/alterations,” Courtesy Beverly LePage, Client Relations – CMHC.

A Legal Grey Area

cannabis dispensary or liquor stroreReal estate and insurance lawyers, though, are bracing for the influx of confused homeowners and policy holders. “What’s going to happen is, you’re going to have scenarios where the insureds are going to have losses, because of the use of marijuana grow-ops. They’re going to make the claim, the insurers are going to say, ‘well, we don’t cover that’, and the insureds are going to say, ‘But I have a license, it’s legal now. The law allows me to have one (plant),’” says Steven Wallace, partner at BC-based Dolden, Wallace, Folick LLP.

“Most of the exclusions refer to it as an illegal act. So if it’s not illegal, I think the insurance companies need to start asking more questions at time of the application stage – ‘Do you plan on growing marijuana in your home?’ Because then they’re going to have to start deciding, are they going to charge more? But most insurers right now really want nothing to do with it.” Bob Aaron, a partner at Aaron & Aaron Barristers and Solicitors who specializes in real estate law, says while it’s unlikely that there will be a dramatic uptick in home growers, fallout will occur.

“I think there’s going to be a fair bit of litigation when it becomes legal,” he says. “But I don’t think that suddenly when it becomes legal, there’s going to be a statistically significant increase in the use of marijuana, of people saying, ‘Well, it was illegal on June 30 and now it’s July 1, and I’m going to go out and get some and try it.’ I think the people who’ve wanted to try it have already done it.”

Survey data collected by Zoocasa on Canadian home buyer sentiments find that while there is some interest in home pot cultivation, it’s not widespread; 53 per cent of respondents indicated they “strongly disagreed” they would consider growing pot at home post-legalization, while only 8 per cent said they “strongly agreed”. However, 47 per cent stated they would be less likely to purchase a home if marijuana had been grown there, while 39 per cent believe increased usage inside a home would decrease its value.

Real Estate Industry Seeks Clarity, Protections

There are also significant challenges for those who work in real estate; as more homes become grow sites, realtors must do their due diligence to disclose them. That’s not always an easy task, especially as it’s left out of the federal framework altogether says Pierre Leduc, spokesperson for the Canadian Real Estate Association. “The federal legislation does not discuss or frame disclosure with regards to cannabis cultivation in the home. Our understanding is that there would be no requirement to disclose that cannabis was grown in a home, just as there is no legal requirement to disclose a homeowner cultivated geraniums or other living plants indoors,” he stated in an emailed response to Zoocasa.

“Further complicating the issue is that trade in real estate is provincially regulated, so our expectation is that provinces and their regulators will be the ones to implement new regulations or clarify and expand existing regulations as concerns disclosure requirements and home cultivation of cannabis.” The Ontario Real Estate Association has recently moved to do just that, unveiling on April 9th a five-point plan to protect homeowners, and to better clarify the process for residential grow-ops.Canadian Real Estate Association

Their proposal, titled Protecting Ontario Homes: OREA’s Action Plan for Cannabis Legalization, urges the provincial government to:

  • Designate illegal grow operations as unsafe under the Building Code Act
  • Mandate that illegal cannabis operations are inspected by a municipal building official
  • Require municipalities to register remediation work orders on the title of a former grow operation – this is especially noteworthy, as it will allow a home’s status to be cleared once the necessary repairs are complete
  • Mandate that all licensed home inspectors receive training on how to spot the signs of a former marijuana grow operation
  • Restrict the number of plants that a homeowner can grow to one from four in units that are 1,000 square feet or less

OREA President David Reid says that establishing an actual process for removing a home’s stigma gives sellers some recourse, and will better protect buyers of former grow sites. It will also improve their standing in the eyes of insurers and lenders. “It will show that, yes, there has been some damage to the property, it’s been earmarked by inspectors by the building department, and yet now – once the proper things have been done – we hope that stigma will come off the property, once it’s off the title,” he says. “So (we’ll take) a bit more control of it, and hopefully, working in conjunction with the insurance companies, that will help with that problem.”

Matthew Thornton, OREA’s VP of public affairs and communications, says, “With respect to the insurance companies and the banks, the greatest issue out there for those two organizations, is the uncertainty that exists with these properties. There’s no defendable standard out there currently that exists for these properties to be remediated to, so the creation of the standards we’re recommending in our five-point action plan, I think you’re going to see a better response from insurers and the banks.”

How Homeowners Can Contain Pot-Related Damage

Another resource homeowners can look to is the medical marijuana industry which, having had legal status since the early 2000’s, has developed a number of innovations to minimize the damage associated with growing your own weed. Nick Pateras, vice-president of growth at Lift.co, a medical marijuana educational and business resource, says that while smoking the drug will soon be phased out in favour of vaping or slow-release pills, plant exposure in homes has always been a concern.

Cannabis mold in home

“With regards to actually growing on your own as a medical patient in your own dwelling, there are tons of great products that are coming out now that allow people to grow in a controlled environment,” he says. Contained grow boxes are particularly effective, he adds, in that they remove any physical contact between the plants and the rest of the home. “It’s a contained environment where you get the benefits of growing, but in a way that actually controls the smell and the impact to your living room. So that really allows any fears, especially of odour, to be mollified.”

James Zaza, president and CEO of ZaZa Financial Group and Ontario Realtors Pension Plus, is a venture capital banker behind the Grobo, a fully contained grow box that can be controlled with a phone app. He says reducing the risk for homeowners is the main motivator behind how the product is marketed, and is connecting directly with real estate boards to help promote and educate the public on its benefits.

“If you start going down the list of things that make a house not saleable or unattractive, I’m guessing the number one thing would be if a murder took place,” he says. “Number two has to be grow-op. That would stigmatize the value in the home, and the salesman’s ability to be able to sell the place.”

The Grobo’s Canadian business model will distribute the product exclusively via real estate agents, who can offer it as a leased, or even free, solution to their clients. Zaza says response thus far has been overwhelmingly positive. “It’s the difference, as far as I’m concerned, between a grow-op, and legal compliance,” he says. “If they’re ordering a Grobo – “That takes care of the legal issue right there… they’ll get insurance, nothing can stand in their way, it can’t be objectionable to anybody.”

Zaza adds that while home growers will still likely be required to obtain a permit, there will still be those who choose to grow unregistered plants – and it’s these homeowners that are at the greatest risk.

“They can’t just start growing on their own – I mean, they will, and they can if they wanted to, because they’re either not aware that they need to be registered or have a permit, or they don’t care – but that’s not going to be do their advantage, they’re going to ruin their property for sure.”

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