Real Estate Chronicle

The economic impact on the real estate industry of home-based marijuana growing operations.

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Here is another very good reason to quit smoking: home-based marijuana growing operations not only reduce the market value of the properties they are carried out into – they also inhibit market values of neighboring properties as well! This is so, because most grow-ops are controlled and run for the benefit of organized crime, and these types of activities attract a lot of thugs who tend to fill the neighborhood at odd hours, so that the charm of home-sweet-home all of a sudden changes drastically for the worse. The Organized Crime Agency of British Columbia says that organized crime controls 85 percent of the marijuana cultivation and distribution in B.C. You might as well as live next to Sing-Sing.

In addition to spectacular natural scenery, super natural places to discover and two bustling metropolitan centers like Vancouver and Victoria, as well as boasting one of the mildest climates in Canada, British Columbia holds one other record – although this one is very seldom publicized on tourism websites: it is home to the ‘B.C. Bud’, one of the most sought-after varieties of marijuana.

Marijuana cultivation accounts for up to five percent of Canada’s GDP in British Columbia alone, which means that the crop is worth more than the local mining and logging industries combined. In 2004, there were an estimated 17,500 grow labs in British Columbia, producing pot worth up to CAD $7 billion. The number of grow-ops busted by Police in British Columbia more than doubled between 1999 and 2004, from 1,251 to 2,908.

To think that legalization or decriminalization would change anything is absolutely ludicrous, in Canada at least, since what is produced in Canada is destined for the United States. A pound of marijuana in British Columbia is worth about CAD $2,500 locally. That same pound of marijuana in Seattle can fetch up to CAD $7,500. Organized crime recognizes that. Because of this, the problem is getting bigger, not smaller, and it is impacting more and more the local residential real estate industry.

At the level of the individual property owner, grow-ops cause in many cases irreversible structural damage. As these properties are invariably rented by growers for several months and then abandoned, in many instances the homes have holes in the walls for vents to get rid of much of the moisture, concrete foundations are damaged to accommodate rewiring that may be required to steal electricity to run the operation, and the artificial high humidity level and heat generated by the 1000-watt lamps employed in the operation, as well as the chemicals used to grow marijuana faster, cause toxic mould and structural damage to the inner components of the walls (so called ‘black mould’). Besides, indoor grow-ops also pose a serious fire hazard, because marijuana cultivation requires much more electricity than a typical residential home. Illegal electrical hookups pose a serious safety risk for those in and near the home.

Human health risks can result from the mould sometimes associated with marijuana hydroponic cultivation, the chemicals used to foster plant growth, and the relatively high concentration of carbon dioxide and carbon monoxide suspected to exist in some grow-op dwellings. Many of these safety concerns are exacerbated by the fact that grow ops are generally located in high-density areas.

In addition, property owners must contend with the stigma - the consequence of an unusual, distressing event or circumstance such as a criminal activity - that attaches to properties formerly used for pot farming. This is especially evident when time comes to sell, as stigmatized properties are worth less because Buyers are reluctant to consider them. Prior to entering into a Contract to sell real estate the Seller is required to disclose to the Buyer any latent defects the Seller is aware of. Failure to disclose will not affect the consent of the parties, but will have similar consequences as misrepresentation. Likewise, Buyers who fail to disclose to a lender that the property they are about to purchase (with the lender’s money) has been used for marijuana growing commit a criminal offence under Section 380 of PART X (FRAUDULENT TRANSACTIONS RELATING TO CONTRACTS AND TRADE) of the Criminal Code.

And finally, with the increasing number of new homes and condominiums being used for marijuana farming, the companies who offer home warranties in British Columbia have begun suspending coverage on homes identified as grow-ops. Since 1999, all residential builders in B.C. must arrange for home warranty insurance before they can obtain a building permit. The legislated home warranty insurance covers two years on labor and materials, five years on the building envelope and ten years on the structure. But homes that have been used for purposes "other than residential" can have exclusions to their warranty. Since the houses are invariably damaged by the moisture, mould, bad wiring or other alterations made for a grow operation, companies that provide the warranties are sending inspectors to the homes, and then suspend coverage in whole or in part.

Luigi Frascati

luigi@dccnet.com

www.luigifrascati.com

Real Estate Chronicle

# posted by Luigi Frascati @ Monday, June 19, 2006