There are many things to consider when buying or selling a home. An important, but sometimes overlooked factor is, whether or not the property was ever used as a marijuana grow operation.
A new case was filed in BC Small Claims Court for $35,000 out of Heffley Creek against the previous homeowners and their realtor for losses from a failure to disclose a marijuana illegal grow operation.
What is the reason they are able to sue?
The seller’s response has not been filed yet so don’t we don’t have the full picture yet as to their defence. However, we do know that it is alleged that when the sellers were buying the property, they used the same realtor as they did to sell it. We also know that it is alleged that when they purchased, the property disclosure statement disclosed the illegal cannabis grow operation.
The disclosure form asks if the seller has any knowledge as to cannabis production (other than permitted by law) or illegal drug manufacturing. The seller in this instance marked the form as no, which on the face of it appears untrue.
The buyers are able to sue based on the stigmatization of the home based on its history of illegal cannabis production which is alleged to lower the home value. The home value is reduced due to many factors that were not disclosed to the buyer but which will affect them now and again when they try and sell.
Issues for uninformed buyers
If a buyer is not told about the previous illegal cannabis operation, they do not know to have the home inspected for potentially hidden risks and problems. These include:
Electrical
Meters are often bypassed and wiring for the increased wattage may not be to code, which is a fire hazard.
Mold
Mold may be hidden and pose a health risk.
Lenders
Not many lenders will lend for buying a former grow op. The buyer could face losing their mortgage funding if the lender finds out. A higher loan to value assessment means a higher down payment or interest rates. Interest rates can be higher by up to 1.5 times for former grow op residences, no matter how remote.
Insurers
Home insurance premiums can be higher as well for former grow operations.
Security
Finally, the notoriety of the location to the criminal activity means that there is a safety risk for future residents because that home’s location, security, and layout are all known to people involved in crime.
Resale
If the new owners eventually sell the house, they will need to disclose the illegal grow op as well and that may affect the new buyers for all of these reasons as well and it may be harder to sell the house
All of that translates to losses in the value of the home now, costs incurred for extra steps, and the nuisance. That will continue into the future without some pretty expensive and time-consuming steps to cover themselves off now.
Legally growing marijuana
Growing cannabis plants is legal now in BC. Are there any problems associated with growing marijuana plants that homeowners need to be aware of?
- Yes, just because it is legal to grow 4 cannabis plants personally does not mean there are no problems associated with that.
- Many lenders and insurers still consider any cannabis production indoors a ‘material latent defect’.
- There are still life and safety hazards from cannabis production indoors, at any quantity.
- Spores and mold will exist, meaning on a sale, air quality inspections and environmental reports will be required by any lenders or insurers if it is known
- Many lenders or insurers are asking if cannabis is being grown in any quantity and if the homeowner fails to disclose that and there is an insurable loss like fire, flood, or respiratory issues due to mold or spores, those will not be covered and the homeowner will be found in breach of their insurance
- High wattage is often used to cultivate indoor plant production. You must have all the permits and inspections performed if any alterations are made to the home’s electrical. The high wattage without electrical upgrades is a fire hazard.
- Many insurers have an exclusion for losses arising from the indoor cultivation of cannabis in any quantity. Just because it is legal doesn’t mean the insurer will accept that risk
- As well, indoor cannabis cultivation comes with safety risks in that a child or pet could ingest the plant material or a criminal could become interested in taking the cannabis material, resulting in an increased risk of theft and home invasion.
- Insurance company risks increase and so this needs to be disclosed to them and that will mean a higher premium in most cases or a breach of insurance if it is not disclosed.
Sellers
What do homeowners need to do if they are planning on listing their homes for sale if they have grown marijuana or know of a previous owner or tenant that has in the past?
- Get an air quality assessment
- Get an environmental report
- Perform cleanup and remediation
- Disclose the production of cannabis in any quantity, as it could be seen as a material latent defect and open up the homeowner to liability if they fail to alert a buyer before inspection
How far back would that disclosure go?
- The test is “any knowledge” so it goes back as far as the current homeowner is aware.
- That is the issue in the Heffley Creek matter, as it is alleged that the sellers knew and their realtors knew and they failed to disclose it to the buyers
What do people looking to buy a home need to be alert to regarding the growing of Marijuana or cannabis?
- Now that cannabis production is legal in certain amounts, have your home inspector look for any problems associated with that, even if it is not a known risk\
- Double-check electrical and hidden areas of the home for mold
- Have an air quality inspection done
- If you are buying a home that you know had cannabis grown in it and want to buy it anyway, make that clear to your lender and insurer
- The cost and nuisance of the extra efforts is better than being found in breach of your insurance or mortgage or being denied insurance after a fire or flood because you did not do your due diligence
Also, discuss this issue with your realtor, your mortgage broker, your home inspector, and your lawyer when you are completing your home purchase. They may have better insight as these issues are just emerging now with the legalization of cannabis production for personal use and we really don’t know yet the long-term implications with respect to real estate as the risks and losses are just beginning to come to light now.