Legal Cannabis and Real Estate: Advise Your Clients and Get Their Instructions
| February 08, 2019
Cannabis became legal across Canada on October 17, 2018, and the legislation allows residents to grow up to four plants per household for personal use in Alberta.
RECA developed a unit in the RE REP 2019 re-licensing course that will outline real estate professional requirements with respect to cannabis and advice to clients. This course will launch in mid-February.
The information in this article is intended as a general guide only. Please refer to federal, provincial, and municipal legislation and bylaws for specific requirements.
Residential Property Managers: Talk to your clients as soon as possible.
Speak with your residential landlord clients about how they wish to deal with tenants who use or grow cannabis in their properties. Subject to legislative requirements, it is the landlord’s decision whether they will allow cannabis growth or use in their property. Advise landlords of their options and advise them of their potential obligations to other tenants in the property who may find cannabis use a nuisance or have other objections.
If the landlord wishes to prohibit tenants from using or growing cannabis in their property, the tenancy agreement must reflect this. This includes existing tenancy agreements. Amendments may be required, and must be signed by the landlord and the tenant. You must ensure the landlord’s rules with respect to cannabis are clearly understood by tenants.
For tenant clients, advise them of the residential cannabis legislation, and ask them what their instructions are. If they instruct you to find a property that allows cannabis use or growth, you must do your due diligence and ask the right questions to determine a suitable property for your client. Advise them that though a property may currently allow cannabis use and growth, the landlord could change their mind or condominium boards may change their bylaws at any time.
Commercial Property Managers: Advise your clients about requirements and potential issues with cannabis sales.
For commercial landlords, advise them of the potential impact of legal cannabis on existing and future tenants. Tenants opening licensed cannabis retail locations must follow the strict regulations set out by the Government of Alberta under the Gaming, Liquor, and Cannabis Act. There could also be potential impacts to the landlord’s structures caused by storing and displaying cannabis material. Make sure your clients are aware, and that landlord concerns, prohibitions, remediation requirements, or other special requirements for a cannabis retail location are reflected in the lease.
Real estate professionals representing buyers: You and your buyer clients have the right to ask sellers questions.
As best practice, you should talk to your buyers before you start looking for properties to determine if they have concerns with cannabis use, or if they desire a property where cannabis use and growth is or is not permitted, particularly if they are interested in condominiums. If your buyer has a concern, you need to ensure that you are asking the right questions to the industry professionals representing sellers of properties that might interest your buyer.
Ask them if cannabis was grown on the property, legally or not. If you do not get an answer, conduct your own research. Work with a home inspector to specifically look for evidence of cannabis growth in the property, and ask neighbours.
If you ask a seller representative and they refuse to give a definitive answer, tell this to your buyer clients. That in itself may be enough to have them consider a different property. Work in their best interest, always.
If your buyer client is interested in a semidetached, attached, or condominium property that allows cannabis use and growth, again, ask the specific questions. Talk to the neighbours. Also, review any condominium documents, including condominium bylaws that may prohibit cannabis use or growth.
If you find a condominium property that allows cannabis use or growth for your buyer, advise them that the condominium corporation could change this at any time. And as always, talk to your clients, ask them questions, learn their concerns, and proceed accordingly as a professional representing their interests.
Disclosures and Material Latent Defects
What do I have to disclose as a seller’s representative?
Sellers can instruct their representatives to disclose the fact that they have four (or less) legally growing plants. If real estate professionals know about material latent defects, these must be disclosed to buyers.
If material latent defects occurred from cannabis use or growth, these must be disclosed. Four legally grown plants will not, in and of themselves, constitute a material latent defect.
Only material latent defects need to be disclosed. Sellers can instruct their representatives to disclose this information if they wish to. However, if seller clients have legally grown cannabis in their property, and there are no material latent defects resulting from it, unless a seller gives their representative permission to disclose this fact, doing so would be a breach of your duty of confidentiality to your client.
In the case where you are not permitted to disclose, and you are asked if cannabis has been used or grown, you cannot answer the question.
But in the case where your seller client allows you to disclose legally grown cannabis in the property, you must answer, and you must answer truthfully.
When does cannabis growth become a material latent defect?
If a property has a defect that cannot be discovered with reasonable care during an inspection, that is a latent defect. A material defect is a defect that reasonable people would agree is significant in the particular circumstances of a transaction.
Material latent defects include, but are not limited to, those that:
- make a property dangerous or potentially dangerous
- make a property unfit to live in
- make a property unfit for the buyer’s purpose (if the buyer has told their industry member or the seller’s industry member the purpose)
A material latent defect may also exist if the defect is very expensive to repair, the seller has received a local government or authority notice that something on the property must be remediated, or the seller does not have the appropriate building or other permits for the property.
Disclosures and Material Latent Defects
If the property was significantly damaged, or extensive mould growth has occurred because of plant growth, and this could not be discovered with reasonable care during an inspection, then this circumstance may constitute a material latent defect.
Talk to your seller clients about material latent defects and their duty and yours to disclose this information. It can not be covered up. You have a duty to inform yourself about the property you are listing. If you suspect that legally grown cannabis plants in your client’s home may have caused a material latent defect, tell them, explain what a material latent defect is, and explain their duty and yours to disclose. If the seller asks you not to disclose a material latent defect, you must inform them of your legal duty to disclose. If they do not accept it, you should terminate your representation.
Cannabis growth as a property stigma
Properties can sometimes become “stigmatized” when they have an unfavourable quality that makes them less attractive, but the quality is unrelated to the physical condition or features of the property. Stigmas could include a death at the property, reports a property is haunted, or even having the wrong numbers in the street address. These are qualities that may concern certain buyers, but not others. For some buyers, the fact that cannabis plants were legally grown in a property could be a stigma.
When representing a seller, you do not have to disclose property stigma to buyers. If you are asked about cannabis growth or use, and there is no material latent defect, you cannot answer unless you have permission to disclose from your seller client. If you are permitted to answer, you must do so truthfully.