|A decision by the British Columbia Court
of Appeal released last month is a reminder of the effect a marijuana grow
operation (grow-op) can have on real estate and real estate values. |
Back in 1996, Heinz and Elfrieda Lindner were approached by their long-time
friend Robert Williams, who was a licensed mortgage broker. Williams told
the Linders of an opportunity to invest $65,000 in a second mortgage on a
rented property said to be valued at somewhere between $425,000 and
$450,000. The title was subject to an existing first mortgage of $291,000 at
Based on these figures, it was Williams' opinion that there was sufficient
equity in the property to make the loan secure.
Within a year, the owner had defaulted on the mortgage. The interior of the
building had been trashed due to a marijuana grow-op, but it was not clear
whether that had occurred before or after the second mortgage had been
Following foreclosure proceedings in 1998, the second mortgage lenders lost
They sued (and settled with) their own lawyer and the owner of the property,
but the negligence case against the mortgage broker and his company went to
trial and then to appeal.
Both courts agreed that the broker had been negligent in saying that the
second mortgage was a good one and the investment secure, but there was no
evidence that the loss had been caused by Williams' negligence.
Since no one testified when the grow-op had started, it might have begun
after the mortgage was given. In that case, the loss would not have been
caused by the broker's misrepresentation. The case against the broker was
dismissed at trial and on appeal.
Just how common are grow-ops in Canada, what effect can they have on the
subsequent value of the house, and what kind of damage can result from this
type of agricultural operation in a residence?
Judging from press reports, grow-ops seem to be increasingly common in the
real estate marketplace. Last week, a prominent Brampton realtor was charged
with participating in a scheme to orchestrate house sales, fraudulently
register titles, lease the houses as residences, and turn them over for
Across the country, estimates are that there may be as many as 50,000
grow-ops currently running.
In order to gauge the impact of grow-ops on real estate values, I spoke last
week to Toronto real estate educator and appraiser Barry Lebow. He told me
that a grow-op current or past can have a drastic effect on the value of
Once a residence has been used as a grow house, he said, it is virtually
impossible to sell as-is. The house becomes stigmatized.
Mould contamination is inevitable in the drywall and other components of the
building. It requires a thorough environmental analysis and cleanup.
He says the house is okay to buy, but only after it has been given a
thorough bill of health by an environmental engineering firm.
In addition, since the electric meter is usually bypassed in a grow-op and
the house is often rewired illegally to support high-intensity lights, major
electrical work will usually be necessary to restore the house to electrical
Unless it is totally rehabilitated, a grow house may be impossible to
finance and insure. Mortgage lenders and insurance companies may stay miles
away from this kind of risk. Insurance companies may also be reluctant to
pay claims arising from this sort of activity.
Two years ago, Gurkirat Takhar sued the British Columbia Insurance Company
for damages to his property caused when a tenant established a grow-op
inside. The B.C. small claims court awarded Takhar $10,000 on the basis that
the tenant's activities constituted vandalism without the owner's knowledge.
However, that may not be the case with every policy.
The 50,000 grow-ops in Canada today can be compared with the estimated
100,000 Canadian houses that once had, or still have, urea formaldehyde foam
Standard form Ontario house agreements still contain a no-UFFI warranty. But
even though grow-ops can be far more hazardous to homes than UFFI, it has
not become a standard practice for real estate agents to insert clauses in
agreements of purchase and sale warranting that the house was never used for
growth or manufacture of illegal substances.
The Ontario Real Estate Association's forms manual contains a clause of this
type, but I've never seen it used.
But given the growing seriousness and frequency of the problem, I wouldn't
be surprised if a clause like this soon becomes commonplace. In fact, it may
be risky for buyers not to use a marijuana-free warranty.
Bob Aaron is a Toronto real estate lawyer. He can be reached by e-mail at
firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818. Visit
Additional articles by Bob Aaron