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Legal Pot and Real Estate

Posted October 18th, 2018 under pitfalls, smart buying, smart selling.

Regardless of how you feel about marijuana now being legal in Canada, you need to be aware of how it affects you as a buyer and seller (of homes).

Growing marijuana in a home is not a risk-free process. A basement “grow op” has the potential to destroy as much as one-third of the value of a property through a combination of unsafe renovations, humidity damage and mold, along with the perceived stigma for buyers. Even smaller growing efforts carry some risk.

Now that it is legal to grow up to four plants in a home, the number of people attempting to grow marijuana is sure to increase, and many of them will do it incorrectly. Both sellers and buyers need to take precautions to protect the value of their investment.

As a property owner (and future seller), if you intend to grow marijuana, make sure you investigate proper growing methods to avoid damage, and be aware that growing more than four plants remains illegal.

In the past, sellers were legally required to disclose any past marijuana growing to buyers, even if the buyer did not specifically ask, since (without a specific license) it was an illegal activity. Sellers who did not disclose could be sued if any damage was found later.

I recommend that sellers continue to pro-actively disclose marijuana growing to buyers. Even if you are confident that you have used correct methods and not caused any damage to the property, the mere fact that marijuana growing can potentially cause damage puts you at risk if you do not disclose. If you are aware of damage, make the investment to repair it correctly.

Buyers, meanwhile, must decide what they will and won’t accept in the homes they are buying.

When placing an offer, I recommend you include a clause requiring the seller to confirm in writing that they have not grown marijuana. (This clause should not “merge on closing”; it should continue to have force after closing.)

Even if you are willing to tolerate past marijuana growing in the home, including this clause puts the seller’s answer on the record, and gives you the opportunity to negotiate or investigate further.

As time passes, the rush of new amateur growers will settle down. But for the next few years, caution is the right approach for both buyers and sellers.

Want to know more about disclosure and how to deal with damage in a property? Just ask me, I'll be happy to help.

--Peter

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