The summer of 2018 will see the federal government pass historic laws that will allow Canadians to smoke, eat or vape marijuana in their homes and grow up to four plants per household. Known as Bill C-45, the Cannabis Act, this legislation when passed will undoubtedly cause a stir in the residential real estate industry as it will affect homeowners, agents, brokers, insurance companies, home inspectors and lawyers. The new laws surrounding cannabis and its use may force many key players in this industry to adapt and change their terms, criteria and policies that expressly or impliedly involve marijuana. For instance, existing home insurance policies, standard mortgage terms, condo corporation rules, and nuisance laws may need to be revisited and possibly amended to coincide with these new laws on marijuana use and grow-ops.
Currently, most lenders and home insurance companies take a conservative approach to properties where marijuana growth has been present. Large institutional lenders typically do not give mortgage approval when there are signs of a grow-op on the property, irrespective of the legalities. Consequently, purchasers of such homes would need to seek a mortgage from alternative lenders, which may mean extensive paperwork, air and mould testing and reliance on case-by-case exceptions to obtain mortgage approval (not to mention being hit with significantly higher interest rates and lender fees).
Similarly, insurance companies’ strict home insurance policies normally do not permit the growth of marijuana on your property. This is another hurdle for purchasers of such grow-op homes because without fire insurance, you will not get approved for a mortgage. It may be the case that, to stay competitive, insurance companies will make changes to their policies that correspond with these new marijuana laws, but such changes may be accompanied by higher premiums for such homeowners.
Although growing up to four plants in your residence will no longer be considered “illegal activity” once the Cannabis Act is passed, the concern for lenders and insurers is with respect to pot-related damage to properties and the uncertainty surrounding remediation standards and costs. Home inspectors will have to be vigilant and trained to spot such property damage and deficiencies caused by the use and cultivation of cannabis. Some examples of the risks of growing the plant in your home include the development of mould caused by the humidity required to grow it, an overtaxed electrical system due to the use of grow lamps, increased fire hazards as a result of people drying marijuana in stoves, and unwanted odours from the plants that encroach upon neighbouring properties. These health, safety and nuisance concerns are part of the lingering stigma attached to such properties where cannabis has been grown and consumed. Such a stigma can potentially affect the property’s value and marketability.
In particular, when it comes to multi-unit residential complexes and condominiums, these risks are amplified due to the close proximity of the units and the dense living environments. Prior to the legalization of marijuana, condo corporations could rely on provisions in their declarations or rules that prohibited illegal activities as a means of preventing the use or growth of the marijuana. Now, condo boards looking to push back against these new laws will need to go through their rule-making process to restrict the use or growth of marijuana in units. Any new rule made by a condo board needs to be “reasonable” and promote the safety, security or the welfare of the owners, or of the property itself, or prevent unreasonable interference with the use and enjoyment of the units. Due to the aforementioned risks of growing marijuana in your home, a rule banning such growth in condo units could be argued to promote the safety, security or welfare of the owners or property. However, it would be difficult for a condo board to ban marijuana consumption that did not involve smoke (e.g., edibles). Condo corporations should also be aware that special considerations may apply with respect to residents who smoke marijuana for medical reasons – under the Ontario Human Rights Code, condo corporations are required to make reasonable accommodations for residents with disabilities.
Regardless of your stance on such legal changes, if you are considering purchasing a condo you should have your lawyer closely read the condo corporation’s declarations, by-laws and rules as part of the status certificate review and advise you on what is and is not allowed with respect to the consumption and cultivation of marijuana. In addition, condo corporations should be consulting with legal counsel to assist with the development of rules concerning marijuana, especially since trying to enact rules post-legalization that restrict the use or growth of cannabis on condo property may likely be met with requests for grandfathering by existing smokers and growers.
A further complication created by these new cannabis laws is whether or not real estate agents and sellers would be obligated to disclose the fact of a marijuana grow-op when listing the property for sale. When it becomes a legal activity, there would likely be no legal obligation to disclose such fact, just as there is no obligation for sellers to disclose a murder or suicide occurring on their property. It will be up to the provincial government and its regulators to implement and clarify disclosure rules involving marijuana use and growth on residential property.
With these new marijuana laws on the horizon, current and future homeowners thinking about growing marijuana plants in their dwellings in compliance with the new laws should consult with their mortgage lender and home insurer on this issue prior to partaking in such activity, so as to make it clear what their standard charge terms and policies, respectively, will and will not permit. It is much wiser to ask for permission than to ask for forgiveness in this circumstance, to avoid the risk of contract breaches and ensuing litigation.
To learn more about the particulars of marijuana legalization in Ontario this summer, you can visit the following website: https://www.ontario.ca/page/cannabis-legalization.