September 5th - 2003

Put your best (business practice) foot forward

As the incidence of grow house operations in Canada continues to increase, questions about the disclosure responsibilities and potential liabilities of REALTORS dealing with these properties are also on the rise.

As the incidence of grow house operations in Canada continues to increase, questions about the disclosure responsibilities and potential liabilities of REALTORS dealing with these properties are also on the rise.

The Canadian Real Estate Association has published a booklet entitled, “Grow Houses A National Problem, which contains guidelines for REALTORS on how to handle disclosure of these properties and avoid legal pitfalls.  Depending on the particular situation, disclosure of a grow house property may not be exactly straightforward for a REALTOR. However, OREA recommends that REALTORS make it a policy to always disclose.

As a recent CREA dispatch outlines, the legal obligations of a seller and his or her REALTOR to disclose information about a grow house property can vary depending on the particular situation.

For example, here are four legal principles related to disclosure:

  1. Sellers are generally not required by law to disclose known patent defects – eg., those which can be discovered in the course of a reasonable inspection.
  2. Sellers are generally required by law to disclose material latent defects –eg., those which cannot be discovered in the course of a reasonable inspection – which are known or should be known.
  3. Sellers are generally not required to disclose that a property has been used for criminal activities.
  4. The disclosure obligations of an agent generally do not exceed those of his or her principal.

So, the dilemma faced by REALTORS is this: If a seller is only required to disclose material latent defects which are known or should be known to him, does that obligation extend to disclosing a prior use of the property which may or may not have caused unknown damages? The best rule of thumb is always DISCLOSE, DISCLOSE, DISCLOSE. The following recommendations from CREA should provide some guidance:

Disclosure Responsibilities:

Sellers (and therefore listing agents) are obligated to disclose that a property was a grow house when:

  1. There is an actual material latent defect or which the seller knows or ought to know, or;
  2. The buyer asks a specific question or expresses a specific concern, or;
  3. The agreement of purchase and sale contains representations that the property was not used as a grow house or for criminal activities, or;
  4. There is some statutory requirement that this disclosure be made.

Rule 11

If none of the above criteria are met, there may be no legal obligation on the part of the seller to disclose the fact that the property was a grow house. But keep in mind that in Ontario, REALTORS must abide by the RECO Code of Ethics. Rule 11 of the RECO code states that a Member must discover pertinent facts. The fact that a property was used as a grow house is certainly pertinent.

Another issue is the question of structural integrity of a grow house. If the moisture permeated the walls, even though the surface has been cleaned up, there could be later developments such as mould. Once an insurance company discovers the property was used as a grow house, they could terminate or refuse to renew insurance on the property.

As well, if the REALTOR is representing both the buyer and seller as a dual agent, there is an agency obligation on the REALTOR to disclose all pertinent information to both parties. The REALTOR in this case must disclose to the buyer that the property has been used as a grow house. It is extremely important that sellers be made aware of this obligation before they agree to the dual agency.

Listing agents must make reasonable inquiries of the seller to determine whether the property has been used as a grow house. Buyer agents have a responsibility to protect their client buyers from the potential risks of a transaction. These agents should therefore be proactive in offering that protection.

Publishing grow house addresses

CREA’s dispatch also warns of another side to the grow house disclosure dilemma– publishing the addresses of known grow house properties. CREA advises real estate boards not to publish these addresses as doing so could result in potential legal liability. The fact that a property has been used as a grow house is not necessarily something that can be disclosed and anyone making this information public for real estate purposes could be liable.

The other problem with publishing the address of a grow house property is that addresses, because they can be linked to names, constitute “personal information” within the meaning of federal privacy legislation. Therefore, they cannot be disclosed without the consent of the owner.

For more information or to obtain a copy of the booklet, contact CREA at (613) 237-7111 or email info@crea.ca

Guidelines for grow house disclosure

What listing agents should do

If it has been determined that the property has been used as a grow house:

  1. Listing agents should have a full and frank discussion with sellers when a grow house is involved. Even if there is no legal obligation for the sellers to disclose the fact that the property was used as a grow house, disclosure is the best approach. Listing agents should ensure that sellers make an informed decision and document their consent. Listing agents who are unsure of how to proceed in any given circumstance should consult their lawyer.
  2. Ask the sellers whether the property has any defects which must be disclosed (eg. material latent defects).  If there are such defects, disclose them.
  3. Listen carefully to any questions or concerns expressed by the buyer’s agent.  Answer all questions truthfully.

What buyer agents should do

  1. Be aware that there may be no obligation on the part of the seller to voluntarily disclose that the property had been used as a grow house.
  2. Specifically inquire as to whether the property has been used as a grow house or for other criminal activities
  3. Specifically inquire as to whether sellers have knowledge of any defects, latent or patent
  4. Ensure that the agreement of purchase and sale contains a representation on the part of the sellers that the property has not been used for criminal activities
  5. Recommend to the buyers that a building inspection be done.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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