Legalized marijuana impacts a surprising number of real estate transactions

There is a logistics battle going on in America as various states have legalized marijuana for medical or recreational use, conflicting with federal law which asserts the use is illegal. This battle makes vulnerable a surprising number of real estate transactions, from residential and commercial to leasing, and it is notable than over half of the nation’s one million Realtors reside in jurisdictions with locally legalized marijuana.

At the “Medical Marijuana Laws Impact all Real Estate Transactions” session during the 2014 REALTORS® Conference & Expo, panelists took on the topic and its implications, and Realtors should be aware of the laws so they can best represent their clients. The National Association of Realtors (NAR) has no policy or position on the issue.

A shifting public opinion

According to the National Conference of State Legislatures, 23 states and the District of Columbia have passed comprehensive laws permitting the prescribed medical use of marijuana, 11 states have laws permitting limited possession and use, and three states permit recreational use. Federal law prohibits the use, possession or sale of marijuana for medical or any other use.

The change in state laws appears to be following a shift in public opinion. According to the Pew Research Center, a slim majority now supports the legalization of marijuana. In 1969, only 12 percent of Americans said the use of marijuana should be legal; in 2014 the number was 52 percent.

Landlords better pay attention

“While the legalization of marijuana has more obvious implications for residential and commercial property managers who have to deal with a variety of landlord-tenant issues, it’s also creating challenges for community and condominium associations and federally assisted rental housing,” said panelist Megan Booth, senior policy analyst for the National Association of Realtors®.

According to Booth, as laws change, multifamily properties and condos may be required to add lease addendums or modify their association rules to clarify policies on marijuana cultivation, distribution and use.

REALTOR Magazine added that Booth pointed out that federal law gives the government the right to seize finances and property that are connected to illegal activity, including drugs. “So technically, landlords who let tenants grow weed in their apartments or smoke it on site for any purpose run the risk of having their real estate property taken from them.”

Panelists also dove into concerns regarding liability and disclosure issues for agents and property owners, property damage and remediation, as well as health and safety risks.

What about properties where weed is being grown?

Panelists also expressed that additional considerations should be taken for properties where marijuana is being grown, such as potential impacts on neighbors, tenants and properties, including smoke and odors, mold from the high humidity levels needed for growing, expensive utility costs for lights and water, and even the possibility of explosions during manufacturing of related products.

Realtor Pauline Aunger said there are similar concerns about marijuana growing operations in their Canadian provinces where national law permits the possession and use of medical marijuana; however, a production license is required to grow marijuana for medical purposes.

Aunger said illegal marijuana growing operations in apartments, homes and commercial spaces are becoming a common challenge for Canadian police and for property owners who lease those spaces to tenants and could face property damage and legal risks from their tenant’s growing activities.

Aunger recommended that property managers make planned visits to their leased properties on a frequent basis to ensure tenants aren’t violating marijuana laws. She also said Realtors® should disclose to potential buyers if a property was used for growing marijuana.

Where to learn more

So you don’t have to dig too deep for the laws in your area, The Institute of Real Estate Management recently released a white paper with additional information about marijuana legalization laws and their impact on commercial spaces. Be familiar with it, discuss it with your broker, and be sure that you’re covering all of your bases not only to best serve your clients, but to decrease your liability.