As of April 30, the Canadian Real Estate Association (CREA) has formally requested an amendment to Bill C-45, calling on the federal government enact a moratorium on home cultivation until a national framework is developed and implemented in all provinces.
Under new federal legislation, as of late summer 2018, Canadians will be able to grow up to four marijuana plants in their private residence – but a lack of protections and awareness could cost them thousands – or even their mortgage.
The problem is the definition of a grow-op is, well, hazy. With no legal benchmark, any home where marijuana is grown – be it a single potted plant, or large-scale operation – can be stigmatized the same way. The humidity and power required to grow a large crop can lead to mould and tampered electrical systems – but evidence of this damage isn’t required to label a home a “grow-op”.
And grow-op status comes with real consequences; insurers and mortgage lenders generally want no part of a home where marijuana has been grown. This can result in issues ranging from home insurance coverage gaps, to difficulties selling the home or even getting a mortgage.
Growing Marijuana Could Risk Your Mortgage
Mike Bricknell, a mortgage broker at CanWise Financial, says lenders take a very conservative approach with homes where growth has been present. Most “A” banks will deny the mortgage altogether, requiring borrowers to turn to alternative lenders, which still require considerable legwork to clear the home for financing.
“So far, any trace of a ‘grow op’, legal or not legal, past or present, is not to be considered approvable by a conventional residential lender,” he says. “For the unconventional lenders it takes a lot of paperwork, air and mould testing, and case-by-case exceptions to obtain a mortgage and home insurance approval.”
“Most Insurers Want Nothing to Do With It”
This can be further complicated if the home’s status makes it hard to insure. “Lenders technically own a home until a borrower pays off the mortgage,” Bricknell says. “A home must have home fire insurance, so if the insurance companies are not approving a home insurance policy, then by default the lenders will not approve a borrower’s mortgage on that particular home in the first place.”
Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada, says the insurance industry is closely monitoring the issue, but it’s challenging as no specific legislation has been introduced. “Like everyone, we’re operating in a vacuum in regards to the details,” he says, adding that insurers will have to review their policy wordings once legalization occurs.
Because insurance is a competitive marketplace, he says, some insurers may introduce policies that allow for home growing, while others will not, and stresses those who plan to grow at home should review their policies in depth.
“Once the legislation is introduced and passed, it makes sense that any homeowner sits down and contacts their insurance representative and makes sure what they have makes sense for them in coverages,” he says.
A Legal Grey Area
Real estate and insurance lawyers, though, are bracing for the influx of confused homeowners and policy holders.
“What’s going to happen is, you’re going to have scenarios where the insureds are going to have losses, because of the use of marijuana grow-ops. They’re going to make the claim, the insurers are going to say, ‘well, we don’t cover that’, and the insureds are going to say, ‘But I have a license, it’s legal now. The law allows me to have one (plant),’” says Steven Wallace, partner at BC-based Dolden, Wallace, Folick LLP.
“Most of the exclusions refer to it as an illegal act. So if it’s not illegal, I think the insurance companies need to start asking more questions at time of the application stage – ‘Do you plan on growing marijuana in your home?’ Because then they’re going to have to start deciding, are they going to charge more? But most insurers right now really want nothing to do with it.”
Survey data collected by Zoocasa on Canadian home buyer sentiments find that while there is some interest in home pot cultivation, it’s not widespread; 53 per cent of respondents indicated they “strongly disagreed” they would consider growing pot at home post-legalization, while only 8 per cent said they “strongly agreed”. However, 47 per cent stated they would be less likely to purchase a home if marijuana had been grown there, while 39 per cent believe increased usage inside a home would decrease its value.
The Ontario Real Estate Association has recently unveiled on April 9th a five-point plan to protect homeowners, and to better clarify the process for residential grow-ops.
Their proposal, titled “Protecting Ontario Homes: OREA’s Action Plan for Cannabis Legalization”, urges the provincial government to:
Designate illegal grow operations as unsafe under the Building Code Act
Mandate that illegal cannabis operations are inspected by a municipal building official
Require municipalities to register remediation work orders on the title of a former grow operation – this is especially noteworthy, as it will allow a home’s status to be cleared once the necessary repairs are complete
Mandate that all licensed home inspectors receive training on how to spot the signs of a former marijuana grow operation
Restrict the number of plants that a homeowner can grow to one from four in units that are 1,000 square feet or less
OREA President David Reid says that establishing an actual process for removing a home’s stigma gives sellers some recourse, and will better protect buyers of former grow sites. It will also improve their standing in the eyes of insurers and lenders.
British Columbia is still developing legislation, if you have any questions please call me 250.981.4208 Read more
