Cannabis Legalized

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On October 17, 2018, it will become legal to purchase and grow small quantities of marijuana in Ontario. Nonetheless, the prospect of purchasing a home that has been used to grow marijuana may continue to provoke an emotional response from some buyers. As such, it's important to understand whether this is a concern for your client and to take appropriate steps to protect their interests.

When representing sellers, you must understand what information must be disclosed versus what information may be disclosed, at the seller's discretion. As their representative, your role is to understand and explain the issue to assist your clients in making an informed decision.

Please keep in mind, cannabis legalization does not impact the laws that dictate when disclosure is required. The information below outlines the existing requirements. On the eve of legalization of cannabis in Canada, it is fundamental that registrants understand these concepts.

Stigmas vs. defects

To understand the disclosure requirements, it's important to remember the distinction between stigmas that relate to a home's past and physical defects in the property.

Stigmas

A stigma is a non-physical attribute of a property that may trigger a negative emotional or psychological response in a potential buyer. However, the events or circumstances that prompt the response do not necessarily have any bearing on the function or appearance of the property. Examples include a home that was previously occupied by a notorious criminal, or, a home where a suicide occurred.

What facts may constitute a stigma will vary from buyer to buyer, depending on their sensitivity regarding certain issues. For example, one buyer may believe a home where a single marijuana plant was legally grown is stigmatized, while another buyer may have no concern whatsoever. In Ontario, there is no requirement on sellers to disclose the existence of facts that may elicit stigmas in buyers. However, the buyer's representative can make specific inquiries about issues that are important to their client.

For more information about stigma, see this Registrar's Bulletin.

Defects

A defect, on the other hand, is a physical attribute of the property. Physical defects fall into two broad categories:
•Patent defects are readily visible or can be identified during a home inspection that does not involve making holes in the structure or removing access panels. For example, damage or visible stains may suggest a water leak from the roof or a bathroom overhead. There is no requirement for the seller to disclose patent defects.
•Latent defects are not apparent and may not be easily discoverable, even by a home inspector or other expert. If the latent defect poses a serious risk to the health and safety for those who live in the home, it must be disclosed by the seller. Examples of latent defects that must be disclosed include structural problems that render the residence dangerous to occupy or, wear or damage to utility systems that places occupants at risk.

Marijuana and property damage

It's important to understand the difference between patent and latent defects as it applies to cannabis cultivation.  Growing marijuana inside a dwelling may not necessarily cause physical damage to a property. If there is no physical damage or if the damage has been fully remediated, and therefore free of any defect, the home's history is still a potential cause for stigma if it is a concern for the buyer.

Working with sellers

Before listing a property, it's important to discuss with the seller any issues with the property that may be relevant to the sale.

If growing marijuana has damaged the property to the point that the home is unsafe to live in, and the defect is not obvious to the naked eye, it's a latent defect that must be disclosed.

The issue is less clear-cut if the property was previously used to grow marijuana but is not damaged in any way. Ontario's Courts have determined that sellers don't have to proactively disclose the history of their home during their ownership of it, even if the property carries a stigma. However, there's nothing to stop a buyer from trying to sue the seller for failing to disclose the stigma. Even if the lawsuit is unlikely to succeed, the seller could still face a long, costly legal proceeding.

As a listing sales representative you should talk to your seller client about the trade-offs of proactively disclosing the home's history to potential buyers. Keep in mind that a seller may not know what happened in their home before they owned it.

A buyer's sales representative may also specifically ask whether the home has ever been used to grow marijuana. In this case, there are two options: you may either answer truthfully, or decline to answer the question and direct the buyer to conduct their own research. The choice of these options lies exclusively with the seller.

Even if you, as a sales representative, are not comfortable with the seller's disclosure strategy you must respect and follow their direction. In this event, your options are to comply with the seller's wishes, or, to decline to continue working with the seller and step away from the trade. Under no circumstances can you disclose a stigma without the seller's consent.

Working with buyers

When you're representing a buyer, it's your responsibility to work with your client to ensure the property is suited to their needs. A key component of that is a clear understanding of what they want and need in a property, and what they absolutely do not want.

During these conversations, if the buyer has made it clear that they do not want to purchase a home where marijuana has been grown, there are several actions you should take to ensure their wishes are met.

First, when the buyer is interested in a property, you can make direct inquiries to the seller's representative. As discussed in the "working with sellers" section, the seller's representative may opt to answer the inquiry, or, direct you to conduct your own research.

Second, no matter what response the seller provides, it's advisable to conduct independent research into the property's past. This could include a simple online search of the address, or obtaining other public records regarding the property. Many municipalities or police services maintain registries of residences that have been used to grow marijuana illegally. However, it is likely this research will uncover only major grow-ops, not the small-scale growing of a few marijuana plants.

Third, you may try to include in your offer a seller's warranty that the home was not used to grow marijuana. Typically, and for obvious reasons, these types of warranties should only cover the period of the seller's ownership and occupancy. Depending on the language of the contract provision, if the seller refuses to agree with the warranty, it may indicate that the property was used as a marijuana grow-op, or, it may simply mean that the seller doesn't know what went on in the property before they bought it.  In either case, you will need to have further discussions with your buyer client.

Conclusion

Although the legalization of cannabis does not significantly alter the existing disclosure requirements, many buyers and sellers will have questions about what this means for them. All registrants should understand the new legislation, as well as the existing rules around defects and stigmas, and be prepared to discuss the matter with their clients.