International and domestic purchasers of properties for the purpose of renting should know the impact of the Cannabis Act, 2017, which legalizes the cultivation and use of marijuana. Unchecked cannabis usage can reduce the value of your investment.
Most rental units are condominiums, and sharing space with others who intend on cultivating and/or using marijuana can be a problem. Condo boards can either decide to do nothing and rely on existing bylaws, rules and regulations, requiring owners not to cause nuisance to others, or change the condo rules. The new law allows the smoking of cannabis where you can smoke. Accordingly, condo boards may determine to make the entire building “Smoke-free” and grandfather anyone who is smoking on the date the new rule comes into effect, with the understanding that this will end if the unit is sold. Medical exemptions may be granted on very specific terms.
If a unit is already rented, the tenant will likely have acknowledged that they agree to abide by the rules of the condominium corporation now and in the future. A tenant’s failure to comply with new rules regarding cannabis can lead to eviction by either the condominium board or the landlord, if they can demonstrate that the tenant is either bothering other tenants or damaging property.
There are clauses for new leases which provide the Landlord/owner the protection they need; make sure your lease agreement is updated. Your condominium board is your first and best line of defence when dealing with cannabis issues.
As a landlord or real estate investor, it’s essential to understand how the Cannabis Act, 2017 impacts your rental property and its value. Since the legalization of cannabis in Canada, there has been a need for property owners, particularly those renting out condominiums, to assess how cannabis cultivation and use can affect their investments.
In this article, we will explore the implications of the Cannabis Act, the steps landlords and condo boards can take to address potential issues, and how cannabis by-laws and other legal frameworks come into play for property owners and tenants.
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Understanding the Cannabis Act, 2017
The Cannabis Act legalized both the recreational use of cannabis and the personal cultivation of up to four plants per household in Canada. While these laws were a landmark shift for personal freedoms, they also created a set of challenges for landlords and property managers—especially when it comes to condominium living, shared spaces, and maintaining property value.
Here are some key elements of the Cannabis Act that landlords and property investors need to understand:
- Personal Use and Cultivation: The Cannabis Act allows individuals to possess up to 30 grams of dried cannabis in public and grow up to four plants per residence. While this seems straightforward, problems arise when cannabis use or cultivation affects other residents in shared buildings, such as condominiums or apartment complexes.
- Provincial and Municipal Variations: Each province and municipality in Canada has its own by-laws and regulations related to where cannabis can be smoked or grown. In Ontario, for example, the Smoke-Free Ontario Act prohibits smoking in certain public spaces, and some municipalities may have stricter rules regarding outdoor cultivation.
- Impact on Property: Cannabis cultivation can lead to property damage due to increased humidity levels, the risk of mold, water damage from irrigation systems, fire hazards from improper electrical setups, and even the possibility of burglary, as grow operations may attract unwanted attention.
Cannabis in Condominiums: A Special Concern for Investors
For landlords who rent out condominiums, cannabis use and cultivation pose unique challenges. Most condos are governed by condominium boards, which have the authority to establish by-laws and rules for the building’s operation, including cannabis regulations. The close proximity of units and shared air ventilation systems in condo buildings mean that cannabis smoke and odors can quickly affect neighboring units, leading to disputes and potential legal issues.
How Condo Boards Handle Cannabis
Condo boards generally have two options when it comes to managing cannabis use and cultivation:
- Relying on Existing By-laws and Rules: Many condo corporations already have rules in place to prevent behaviors that cause disturbances to others. Existing by-laws may include restrictions on activities that create nuisances, such as excessive noise, odors, or health hazards. In this case, condo boards may choose to rely on these existing rules to manage cannabis-related issues, particularly around smoke and odor complaints.
- Creating New Cannabis-Specific By-laws: Some condo boards may take a more proactive approach by implementing new by-laws or rules specifically related to cannabis. These by-laws can restrict or entirely prohibit the smoking of cannabis in units and common areas, or even ban the cultivation of cannabis plants inside individual units. In many cases, condo boards may also opt to make their buildings “smoke-free” altogether.
These rules often “grandfather” existing residents who smoke cannabis, meaning they are allowed to continue under specific conditions but are not permitted to pass these rights on if they sell the unit. Condo boards also tend to consider medical exemptions for tenants who use cannabis for medical purposes, though these are granted only under strict conditions.
Enforcing Cannabis-Related Rules
Once new rules are in place, tenants who violate cannabis restrictions could face eviction, either by the condo board or the landlord. Eviction may be justified if the tenant is disturbing other residents or causing damage to the unit or building through cannabis use or cultivation. However, enforcement of these rules can be a lengthy process that often requires landlords to demonstrate that their tenant’s actions have violated the by-laws or caused a nuisance.
Cannabis and Lease Agreements
Landlords should ensure their lease agreements are updated to reflect the legalization of cannabis and protect their properties from potential risks. The following clauses should be considered when drafting new lease agreements:
- Non-Smoking Clauses: Even if cannabis is legal, landlords can still include clauses in the lease that prohibit smoking inside the rental unit. This applies to both tobacco and cannabis. The lease should also specify whether smoking is allowed on balconies, patios, or other outdoor spaces, as these areas may still affect neighboring tenants.
- Cultivation Restrictions: Although the Cannabis Act allows up to four plants per residence, landlords can restrict or prohibit cannabis cultivation in their rental units. This is particularly important for preventing damage caused by grow operations, which can introduce moisture, mold, and electrical hazards into the property.
- Compliance with Condominium By-laws: If the rental unit is in a condominium, the lease agreement should explicitly state that the tenant must comply with all condominium by-laws, including those related to cannabis use and cultivation. This ensures that landlords are not held responsible for any violations caused by their tenants.
- Inspection Rights: Landlords should include clauses that allow them to inspect the property periodically, as permitted by the Residential Tenancies Act, 2006. This ensures that landlords can monitor compliance with the lease and identify any risks early, such as unauthorized cultivation or cannabis use that could lead to property damage or disputes with the condo board.
The Role of Insurance in Cannabis-Related Risks
One of the most overlooked aspects of cannabis legalization is its potential impact on insurance coverage. Landlords need to be aware that cannabis cultivation, even on a small scale, increases the risk of property damage, which could invalidate their insurance policies if not properly disclosed.
Common Insurance Risks Related to Cannabis Cultivation
- Water Damage: Cannabis plants require significant amounts of water, which can lead to leaks or water damage if proper irrigation systems are not in place.
- Mold: The high humidity levels associated with indoor cannabis cultivation can cause mold growth, which can be difficult and costly to remediate.
- Fire Hazards: Improper electrical setups, often used for grow lights and other equipment, can create fire hazards, especially in older buildings with outdated wiring.
- Burglary: Cannabis plants, especially large grows, can attract theft or burglaries, putting both the tenant and property at risk.
Disclosing Cannabis Cultivation to Insurers
Landlords are required to disclose cannabis cultivation to their insurers. Even though the Cannabis Act allows up to four plants, failing to inform your insurance provider about cultivation activities could result in the denial of coverage in the event of a claim. For example, if water damage or fire occurs due to cannabis cultivation and the landlord did not disclose this activity, the insurer may refuse to cover the damages.
It’s important to review your insurance policy and speak with your provider about how to mitigate these risks. In some cases, landlords may need to purchase additional coverage to protect against cannabis-related damages.
Municipal By-Laws on Cannabis
In addition to provincial and federal regulations, landlords must also be aware of municipal by-laws that may affect cannabis use and cultivation in their properties. Some municipalities have enacted stricter regulations regarding where cannabis can be smoked or grown, especially in high-density residential areas.
For example, in certain cities, smoking cannabis in public spaces, parks, or even on balconies may be prohibited. Similarly, some municipalities have introduced specific rules about outdoor cultivation, including where plants can be grown and how they must be enclosed or shielded from public view. Landlords should familiarize themselves with these local by-laws to ensure that their tenants are in compliance.
Conclusion
The legalization of cannabis in Canada has introduced new considerations for landlords and property investors. While the Cannabis Act allows personal use and cultivation, it is crucial for landlords to understand how these activities can affect their rental properties, particularly in condominium settings.
Updating lease agreements, enforcing condo by-laws, and mitigating risks through proper insurance coverage are key steps landlords should take to protect their investments. Being proactive in addressing cannabis-related concerns will help you maintain the value of your property, ensure compliance with the law, and create a safe and harmonious environment for all tenants.
If you’re unsure about how cannabis laws affect your property or need assistance updating your lease agreements, don’t hesitate to consult with real estate professionals or legal experts to ensure you’re fully prepared to navigate these new challenges.
Graham Alloway is the founder of both Alloway Property Group Ltd. and the law firm Alloway and Associates Professional Corporation, a distinguished firm with over twenty-five years of experience in the areas of real estate, banking and finance, and corporate law.
