April 16, 2018
A Home-Grown Conundrum: What Homeowners Must Know About Marijuana Legalization
Under new federal legislation, as of October 17, 2018, 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.
Mary*, a 30-year-old condo resident in Toronto’s popular CityPlace community, has had enough.
Each day, at the stroke of 4 p.m., her floor fills with the pungent odour of marijuana smoke; it’s strong enough to permeate her unit, located all the way at the end of the hall. Just as frustrating, she says, is the constant onslaught of burnt joints raining upon her balcony.
“We’ve notified management, nothing has been done,” she says, her exasperation evident. “I mean, they’ve sent emails and posted things in the elevator, but we’re still getting these disgusting things thrown onto our balcony.”
Her concerns of second-hand smoke and the potential impact on her unit’s value are only growing, however, as federal legislation to legalize marijuana looms. With use already so prevalent in her building, where she has lived for four years, she dreads that her neighbours will soon be allowed to cultivate their own home-grown pot.
“If they start growing the plants on day one, I’m out, because I don’t think our neighbourhood should have to tolerate this,” she says. “We have a lot of young professionals, a lot of young families. I don’t see this is the right time or place to be promoting growing or smoking in the home.”
Mary’s just one of the 1.6 million condo dwellers who will be impacted when Bill C-45 – the Cannabis Act – is passed into law on October 17, 2018. While the particulars of how the drug is distributed and used will fall to the individual provinces, federal law states Canadians will be able to smoke, eat or vape pot in their homes, as well as grow up to four plants per household.
While the complications of smoking weed in condos have been hotly reported, less notice has been given to the presence of plants in private residences – and it’s actually the increase of these indoor grow-ops that most concern the real estate industry. Experts say everyone, from buyers and sellers, to agents, to home inspectors, will be affected.
Related read: What Legal Pot Means for Renters and Condo Owners
Home Grown Issues
The problem is the definition of a grow-op is, well, hazy. With no legal benchmark, any home where marijuana is grown – be it a single potted plant, or large-scale operation – can be stigmatized the same way. The humidity and power required to grow a large crop can lead to mould and tampered electrical systems – but evidence of this damage isn’t required to label a home a “grow-op”.
Once stigmatized, it can be very difficult to wipe the slate clean; remediation standards – a process that would indicate what repairs a former grow site would need before it’s deemed safe – don’t yet exist.
And grow-op status comes with real consequences; insurers and mortgage lenders generally want no part of a home where marijuana has been grown. This can result in issues ranging from home insurance coverage gaps, to difficulties selling the home or even getting a mortgage.
Related Read: What Buyers Should Know About Former Grow-Op Houses
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.
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.
A Legal Grey Area
Real 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.
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.
“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.”
*Name has been changed at request to protect individual’s privacy.