Four or More? Practice Tips for Transactions Involving Cannabis Properties #534
CATEGORY: Legally Speaking
TAGS: Cannabis Cannabis Act Contract of Purchase and Sale Property Disclosure Statement Real Estate Council of BC (RECBC)
It has now been over two years since Canada moved to legally regulate the production and sale of cannabis for recreational use. While households can legally have up to four cannabis plants each, with exceptions made for those who have a license to grow medical cannabis, questions remain about the duties of real estate agents in transactions involving properties where cannabis is or was grown. As the cliché goes, the answer to most of these questions is: “It depends.” However, there are steps buyers’ and sellers’ agents can take to minimize risks for their clients in such transactions.
Two cases decided by the BC Supreme Court in 2019 illustrate potential pitfalls when dealing with properties where cannabis was grown.
In Owen-Jones v. Vasir, 2019 BCSC 2002, the buyer attempted, unsuccessfully, to avoid the consequences of his own failure to complete the purchase of a home in Delta.1 When the seller sued, the unrepresented buyer argued that there had been an undisclosed cannabis grow operation at the home, and he was therefore entitled to the return of his deposit. The buyer also counterclaimed against the seller’s real estate agent, alleging non-disclosure of the grow op.
The Court found that the seller’s agent had disclosed verbally to the buyer that there had been an incident involving damage caused to the home by a tenant, allegedly connected with a cannabis grow op, some eight years earlier. The Court found this was not a representation made by the seller’s agent and was instead simply a statement of the seller, conveyed through the agent. There was nothing false or misleading about the statement. In the result, the seller was entitled to keep the deposit and consequential damages, and the buyer’s claim against the seller’s agent was dismissed.
In Beacock v. Moreno, 2019 BCSC 955, the buyer sued the sellers and the limited dual agent for failure to disclose the prior use of the property as a cannabis grow operation.2 After purchasing the property in 2005, the buyer had undertaken extensive mold remediation.
The Court found that the agent could only have known about the prior grow op 1) from any prior dealings with the property, 2) from the sellers, or 3) from any obvious signs at the property which would indicate there had been a grow op. The agent was found not to have had any knowledge or reason to suspect a prior grow op in the circumstances.
The buyer was unsuccessful against the limited dual agent in this case but was successful against the sellers in fraudulent misrepresentation. The sellers, who did not appear at trial, were held to have had knowledge of the grow op from the Property Disclosure Statement they had received in their purchase of the property only a year earlier, in 2004.
Note that although both these cases pertained to transactions that took place prior to the enactment of the Cannabis Act on October 17, 2018, there is no reason to believe they would be decided differently today.
The writer is not aware of any BC court decisions concerning disputes over properties where cannabis was grown, where the subject transaction took place after October 17, 2018. Therefore, we must look to the Real Estate Rules, in particular Rule 5-13, and to the general framework in long-established case law on material latent defects.
When acting for sellers, it is a good idea to review the Real Estate Rules regarding disclosure, as well as the Real Estate Council of BC’s answers to frequently asked questions about the duty to disclose the presence or past presence of cannabis plants. Sellers’ agents should review with their clients the common law duties of disclosure in respect of any material latent defects that render a property unsafe or unfit for habitation. In situations that do not fit neatly in the scenarios in the Council’s FAQs, sellers’ agents may refer their clients for legal advice about the scope of disclosure they need to make.
Buyers’ agents will usually have detailed discussions with their clients about their needs, and what types of inquiries should be made into the property. When reviewing with the buyers any information provided by the sellers, buyers’ agents’ advice to their clients should take into account:
- whether the buyers have concerns about their ability to obtain mortgage financing or property insurance;
- any disclosure or indication of material latent defects that may be present and which may be costly or even impossible to remediate;
- any concerns about stigma and valuation of the property; or
- the potential for further criminal activity at a property where cannabis has been grown.
A diligent buyers’ agent will make inquiries of the sellers and any other available sources, in respect of the buyers’ plan for the property. A buyers’ agent may want to discuss with their clients whether a contractual warranty clause respecting the manufacture or growing of illegal substances should be included in the Contract of Purchase and Sale. A buyers’ agent should also recommend that their clients retain appropriate experts such as inspectors to investigate any defects. Any such discussions or advice should be documented in writing if possible.
|Owen-Jones v. Vasir, 2019 BCSC 2002.
|Beacock v. Moreno, 2019 BCSC 955.
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