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Marijuana and Real Estate: The info you need

It goes by many names; cannabis, pot, weed and marijuana are just a few. The recreational cannabis industry has always existed but now it is a hot topic since it became legal this past October in Canada.  Adults 19 and older can now purchase pot legally and are permitted to use it in their private residence, including outdoor spaces. In addition, Ontario is allowing people to grow up to four plants per residence. According to Statistics Canada, over 5 million Canadians use marijuana, and those are just the ones who admit it.

As a Realtor, I can’t help think about how the real estate market will be affected, especially in Guelph which tends to have a liberal, green centred view with lots of young adults who are more open to choice. Many questions linger about how personal use and cultivation will impact value, desirability and insurability of homes? How will landlords and condos deal with people smoking and growing in their units? Do Millennials, Gen Xers and Boomers have different views on the topic? Unfortunately, the answers to questions are hazy and we won’t fully know for some time. Because legalization is Canada wide we can’t even compare the effect like we could if it was a single city or county. In terms of real estate whether your a buyer, seller, landlord or tenant the new legislation affects you.

RESIDENTIAL

Aside from being concerned about smelling your neighbours favourite pastime, many are concerned about growing pot indoors. While only four plants are permitted at a time there are no limits on plant size and frequency of growth. This has critics worried that the high heat required to grow marijuana and the resulting humidity could cause a defect such mould, fungus and water damage. This may result in increased questions from buyers regarding the past use of a property.

In real estate, there are patent defects which are readily visible and can be identified during a home inspection. There is no requirement for a seller to disclose these deficiencies. Latent defects, on the other hand, are not apparent or easily discoverable (ie hidden behind a wall). If the seller knows about it they must disclose, especially if it poses a risk to health and safety. But, Ontario Courts have determined that sellers don’t have to be proactive in disclosing the history of their homeownership. Disclosure can be a problem in real estate because if a seller doesn’t fully disclose their knowledge you may not know about the damage. And even if there is no damage or damage is remedied, the home’s history still has the potential for stigma (a negative psychological response in a potential buyer, like a past death in a house) if the issue concerns a buyer.

As a buyer, if the use and growth of marijuana is a concern tell your Realtor and ensure they ask questions. The seller can choose to answer truthfully or decline to answer; either answer should give you a good indication whether to proceed or walk away. At offer time your Realtor can include a seller’s warranty that the home was not used to grow marijuana (only applies to the period the sellers have owned and lived there) and if they choose to not sign that could give you some answers.

The grey area regarding pot and residential real estate right now is with condominiums. Condo rules and regulations are a fact of life if you live in one, and they are there to keep the peace and ensure everyone can use and enjoy their unit and common elements, such as a balcony, without unreasonable interference. The argument that its legal and therefore it can be done doesn’t apply here as many activities that are legal can be against the rules in a condo such as, owning a dog. A lot of people are living in condos and without access to backyards, indoor growing and smoking is likely their only option.

You can guarantee condo boards will address this issue as smoking and growing can affect the air quality of a building. If you have multiple units growing plants that could turn the building into a small scale grow operation, not to mention additional costs for hydro and water if that’s included in the condo fees.  Whether you want to smoke and grow cannabis or you want nothing to do with it ensure you read the condo rules before making a decision. A status certificate can be ordered and it lays out the law of the land.

Another grey area centres around landlords and tenants. In Ontario, the government hasn’t changed rental laws to address pot but a renters right to smoke in their unit, building or house will depend on a tenants lease agreement. Currently, landlords can ban smoking tobacco and they will be able to include a ban on smoking marijuana on new leases (current tenancy laws prevent changes to a lease prior to its end). I would imagine many new leases will include a ban on growing marijuana.

COMMERCIAL/INDUSTRIAL/RETAIL

A whole new industry has been born. Lots of investment and growth has created a large demand for industrial space to produce cannabis and commercial space for new cannabis businesses. And the retail landscape is set to change dramatically in April 2019 when storefronts are allowed to open and sell recreational marijuana and related products.

With regard to retail space, owners and property managers have a lot to consider as there are a lot of unknowns. Will allowing a retail cannabis store be good for a plaza/mall or bad for business? Will existing tenants have issues with it? Will there be pushback from owners of houses nearby? Will pot shops become the new anchor tenant (the tenant that brings significant customers in)? Will rent start to go up because of the plaza’s new popularity?

OUTLOOK

As I stated at the beginning there are a lot more questions than answers. In my opinion, I don’t think the legalization of marijuana will have a negative effect on real estate. Buyers with concerns can ask questions and I think sellers will be more open to telling the truth now. In the past, there have been concerns about a house being a grow operation. Now that it’s legal and easily accessible I don’t think there will be many grow ops in the future. And I believe those that grow it will do it safer now because they can have a proper setup and not have to hide. I think houses that have extra rooms/areas in them or outdoor spaces such as gardens will be even more desirable.

I don’t see prices of real estate located close to a retail store declining. Real estate prices reflect more than just the house. They also reflect positives such as a nearby park and negatives such as a nearby landfill. There is a great degree of difference in what one sees as a positive or negative feature of a neighbourhood. If the costs exceed the benefits in the minds of potential home buyers, they keep looking, but, if the benefits exceed the costs they look to buy.

I also don’t see a retail location being negatively affected by a storefront. If you have driven by a currently open medical marijuana dispensary you know they are busy. Busy is good for surrounding stores, especially when they are competing with online shopping that keeps people at home. It will bring more boom back to retail, industrial and commercial real estate which have been struggling to fill space.  And the benefits to a community for welcoming the cannabis industry can be very positive as they bring jobs.

Theoretically, this could go either way. I expect we will see lots of studies come out in the future regarding the effects of legalization on real estate. As I always stress find yourself a good local real estate professional. Make sure you express any concerns you have and that they work as your advocate to get the answers you need.