Cannabis (Residential) Guidelines

• Guidelines
  
  BCFSA’s Guidelines provide a practical application of the information and give suggested best practice guidance to assist real estate professionals. These guidelines provide BCFSA’s interpretation of RESA and all other applicable legislation.

  In addition, BCFSA’s Guidelines may be a useful information source for the general public looking for information about standards of conduct for real estate professionals.

Purpose

The purpose of this guideline is to help you understand cannabis legalization and potential issues that may arise. It will also help you to adequately identify and address client concerns around defects, stigmas, and advise your client to seek legal advice relating to how cannabis can impact a real estate transaction. This guideline includes information for rental property and strata managers by providing information on how cannabis legislation can impact their clients. If a material latent defect exists due to cannabis cultivation, it must be disclosed.

Please see the regulatory information on Material Latent Defects for more information.

1. Understanding the term ‘marijuana grow-operation’.
2. Identifying red flags for grow operations.
3. Understanding the importance of a home inspection.
4. Understanding stigmas.
5. Be aware of mortgage and insurance complexities.
6. Understanding cannabis and how it relates to strata management.
7. Understanding cannabis and how it relates to rental property management.
8. How cannabis relates to commercial real estate.

Guidelines

Understanding the Term ‘Marijuana Grow Operation’

There is no legal definition of the term ‘marijuana grow operation’ or ‘grow-op’. Many consumers associate it with the illegal cultivation of cannabis. The term can sow confusion between buyer and seller. Some sellers believe that if they are growing four legal plants, their home is not a grow-op and may answer a question about grow-ops in the negative. On the other hand, a buyer may be using the term to reference either legal or illegal cannabis cultivation.

Given that the term “grow-op” is not defined, when attempting to ascertain whether or not cannabis has been grown legally, or illegally, you should ask your client “Are you aware if the premises has been used to legally or illegally grow cannabis or to manufacture illegal drugs?”

It is your responsibility to ensure the information you are getting for your client is accurate. Using vague language may put your client at risk by eliciting a response that is inaccurate, even if the party providing it believes they are answering correctly.

For more information on all the duties you owe to your clients, please click Duties to Clients.

Identifying Red Flags for Grow Operations

Some of the key red flags that you can look out for include:

• Modified duct work that makes no sense;
• Odd venting holes in roof that may be patched;
• Brown stains on walls and soffits around venting;
• Modified wiring not done with permit;
• New plumbing for water supply drains;
• Wiring that bypasses the electrical meter; and
• Rotting and mold caused by excessive moisture.

If you note anything that gives rise to concern that the property was used as an illegal grow operation, you should keeps note of what you observe.

If red flags are noted, advise your client of your concerns, and attempt to gather additional information from the seller or landlord, or the municipality with respect to bylaw infractions or building code violations.

Another red flag is an unusually high electric bill. A common scam with illegal cannabis cultivators is to bypass their electrical meters so as not to raise suspicion. In some instances, in multi-family homes such as townhome complexes and strata tower complexes, those looking to bypass the electrical meters will do so by tapping into a neighbour’s electrical system. When this is done, even if the neighbouring unit has never had a hydropic set-up in their home, their electric bill will be unusually high. Having a home inspection may be good way to identify altered electrical work.

Many provincial and federal trade associations have created pamphlets and forms that can help identify additional red flags.

Understanding the Importance of a Home Inspection

If you have indications that a property may have been used as a grow operation – whether legal or illegal in nature, you should recommend that you buyer client obtain an independent home inspection. A home inspection will help protect your buyer client’s interests by examining the physical condition of the property for concerns such as mold growth, excess moisture or alterations to the electrical system.

If you work with a seller who is growing cannabis in the home, suggesting a pre-list home inspection to identify any damage that may have been caused so that it can be remediated before it is listed can reduce the chances of issues being identified by a buyer.

While the consensus amongst many police and fire departments is that four cannabis plants are unlikely to cause more damage than other plants, cultivators who use additional equipment such as hydroponic systems are at a greater risk of damaging a home with excess moisture if they are not vented properly.

Advising a home inspector of any concerns around cannabis will allow them to look more closely at parts of the property such as the electrical systems and moisture levels to ensure there are no hidden or unknown defects.

Understanding Stigmas

A stigma occurs when an event has transpired that has had no direct impact on the structure or land but may cause some consumers to avoid it. Properties could be come stigmatized by such things as drug production, drug sales, or deaths on the property. These do not need to be voluntarily disclosed by either a seller/landlord their real estate professional.

Without a disclosure requirement, a buyer interested in a property cannot rely on the seller’s real estate professional to provide them or their real estate professional with information regarding cannabis consumption or cultivation in the property.

The obligation to discover relevant facts about the property for your client requires you to have a thorough discussion with them regarding issues of concern when purchasing a property.

Some questions that you should ask buyers or tenants you may be representing include:

• Are there any health concerns (e.g. allergies) to be aware of when viewing properties where smokers or cultivators of any substance, including cannabis, may reside?
• Do they work in an environment where random drug testing takes place and where testing positive for cannabis can have negative implications?
• Do they have any concerns about viewing homes where an owner or tenant grew cannabis?
• Do they want to avoid searching in areas that have been approved for cannabis dispensaries to operate nearby?
• If the buyer is interested in an attached property or attached strata, would they be concerned with the potential of cannabis smoking or cultivation odours (cultivation odours can be very strong)?
• If the buyer is interested in a strata property, would they want the bylaws to specifically prohibit or allow the smoking and cultivation of cannabis?
• Does the buyer desire to cultivate or smoke cannabis?

You should ask clear and direct questions of the seller or the seller’s real estate professional, do additional research and/or refer your client to an expert to obtain the answers needed.

Seller’s agents should remember that a seller is not required to volunteer information on potential stigmas. If your seller client is asked about potential stigmas, you should advise them either to answer questions honestly or to decline to answer the questions. Providing inaccurate or misleading answers could expose your seller client to legal risks and contravenes your duty as a licensee to act honestly when dealing with third parties.

The answers to these questions will assist you in identifying any stigmas that may impact your client’s desire to purchase a particular property. You should then undertake the required due diligence obtaining the necessary information for sellers or their real estate professionals.

For more information on material latent defects, please click Material Latent Defects.

Be Aware of Mortgage and Insurance Complexities

Many financial institutions are still attempting to determine how best to deal with the new cannabis legislation. There have been suggestions that each application will be reviewed on its own merit. Some financial institutions may not fund mortgages where legal cannabis growing has taken place without further property inspections.

You should advise your client to be honest with their mortgage broker and/or lender if they believe that cannabis, legal or otherwise, has been cultivated on the property. It would not be in their best interest to get approved for a mortgage, and then to have funding denied at closing because the lender discovered that the seller had grown cannabis in the home.

Likewise, insurance can become an issue when a buyer is looking at home where cannabis has been grown. Some insurance companies have a blanket prohibition on insuring properties where cannabis has been cultivated. For sellers, their insurance policies may be voided if the insurer is unaware that they are growing cannabis plants on the property. This is true even if the plants have not caused any damage to the home.

As a real estate professional, it would be prudent to advise both sellers and buyers to check with their preferred insurer to see if their existing policy, or a policy they are considering purchasing provides appropriate coverage.

Understanding Cannabis and How it Relates to Strata Management

B.C. has granted authority to strata corporations to implement bylaws allowing the corporation to restrict both non medical-cannabis use and cultivation in individual strata lots. Many of these strata corporations have also now introduced bylaws prohibiting the consumption of cannabis in common and limited common areas.

You must be aware of all strata corporation bylaws but also be aware when there are duties to accommodate. The Government of BC states that, under human rights legislation, strata corporations have a duty to accommodate strata residents, owners and tenants who are using medical cannabis. Lawyers can provide more information on this topic and what factors strata corporations need to consider when administering their bylaws.

Understanding Cannabis and How it Relates to Rental Property Management

As a rental property manager, it is your obligation to ensure your clients understand the implications of cannabis legalization. Landlords have an obligation to provide nuisance-free environments that could potentially impact the tenant’s peaceful enjoyment of the property. Cannabis smoke and odour can impact the ability to do this.

You should also consider discussing with your landlord clients prohibiting the smoking and cultivation of cannabis in their rental agreements. If the landlord is going to permit cannabis smoking or growing, you should advise your client to find out if their insurance will cover cannabis use by the tenant, and damage to the property caused by cannabis cultivation.

Landlords must remain aware of the distinctions between home cultivation for medical and non-medical purposes.

How Cannabis Relates to Commercial Real Estate

The legalization of non-medical cannabis has generated tremendous interest, and investment in commercial real estate has been no exception. To meet the demand of a growing market, the cannabis industry will require warehouses, greenhouses, and retail space.

One issue to consider before leasing space to a cannabis production facility or dispensary is how it will affect other tenants. There is a potential stigma surrounding the consumption of cannabis and other tenants may raise objections to a prospective cannabis-related tenant. Cannabis dispensaries produce odours that may also impact other tenants. Before leasing space to a cannabis business, you should check the lease terms with current tenants to ensure that it is not restricted from entering into such a lease. You should also take into consideration the impact on current tenants and the ability to attract future tenants.

Relevant Cases

Case #1

The licensee, as a limited dual agent, failed to disclose to the buyers that the seller had informed her that the seller had grown cannabis plants “outside the house”. She also failed to make any further inquiries in order to ascertain all information about the property once it became known to her that the cannabis may have been grown outside the house, as per the information provided by the seller. Cannabis plants had in fact also been grown inside the house and garage.

Contraventions: Sections [Duties to clients], [Duty to act with reasonable care and skill], [Disclosures], and [Disclosure of latent defects] of the Real Estate Services Rules

Read the full case

Managing Broker Considerations

Developing policies around the use of cannabis and other substances in the office will be similar to policies developed around the use of alcohol in the office. Brokers need to expand their policies to include instructions about cannabis consumption in the office. Some changes to policy could include:

• The use of cannabis when having any client interactions;
• Educational sessions to help real estate professionals understand more about cannabis;
• Ban the use of cannabis for a certain amount of time before driving clients around to view properties.

As a broker you must also be aware that medical cannabis is treated like any other prescription medication. If a person has a prescription for medical cannabis, then the you as the broker have a duty to accommodate as required by federal and provincial human rights legislation. The employee can be evaluated using fit to work procedures to see if they are able to perform their job. More information on fit to work assessments and the duty to accommodate can be found at Canadian Centre for Occupational Health and Safety.

Applicable Section of RESA/Real Estate Services Regulation/Real Services Estate Rules

• Section 35(2), RESA, Conduct unbecoming a licensee
• Section 30, Real Estate Services Rules, Duties to clients
• Section 59, Real Estate Services Rules, Disclosure of latent defects
• Section 33, Real Estate Services Rules, Duty to act honestly
• Section 34, Real Estate Services Rules, Duty to act with reasonable care and skill

Definitions

Cannabis: has the same meaning as in the Cannabis Control and Licensing Act

Cannabis control date: means the date that section 14 of the Cannabis Control and Licensing Act comes into force

Cannabis plant: has the same meaning as in the Cannabis Control and Licensing Act

Grow: means to cultivate, propagate or harvest

Medical cannabis: has the same meaning as in the Cannabis Control and Licensing Act

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