Real Estate Talk:
Income property and cannabis

The smell of cannabis can be a deterrent to a sale

By Joseph Marovitch

June 30, 2021

I show income properties of six units or more to many clients. Many times, upon a visit to the property, an odour of weed permeates the air in the hallways. Upon a visit to each unit, it is immediately clear where the smell comes from. Many times, buyers do not mind and understand that cannabis is legal.

If the buyer finds the rate of return to be worth the investment, the investor will buy the property, invest little or no money and simply collect the rents. In other situations where the investor intends to renovate the building and evict the tenants, there too a sale occurs.

However, most of the time, for investors who intend to maintain the property and keep the tenants, the smell of cannabis is a deterrent. The odour can keep away potential new tenants, cause the rents to remain low, cannabis can discolour the walls, the smell can permeate into other units that do not smoke, and cause numerous other problems. The solution is to state in the lease that no smoking is permitted in the apartment. Currently, the law does not permit smoking of any nature in the common areas.

… most of the time, for investors who intend to maintain the property and keep the tenants, the smell of cannabis is a deterrent.

On October 17, 2018, cannabis was legalized in Canada. However, laws were created to ensure both safety and joyful use of all premises in an apartment building, such as:

• Cultivation of cannabis for recreational use is prohibited
  .
• Each unit in an income property can only have up to 150 grams of dried cannabis regardless of the number of occupants
  .
• Smoking cannabis is prohibited in common areas of any shared residence unless a specific smoking room is designated. However, a landlord can state in each lease that no smoking is permitted anywhere in a shared residence.

For the purpose of resale, level of tenants, and increased value of rents, I would advise no smoking permitted anywhere in the building.

It should also be noted that every tenant has the legal right to have peaceful use and enjoyment of their unit and the common areas. Therefore, any lessee who disturbs another lessee’s use of the premises can be liable and subject to punitive action by the Tribunal administrative du logement (TAL) including fines and/or cancellation of their lease.

‘For the purpose of resale, level of tenants, and increased value of rents, I would advise no smoking permitted anywhere in the building.’

For further information contact me, the TAL or go to: tal.gouv.qc.ca/en/the-dwelling/cannabis

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Next article: Pricing strategy for the September market as the pandemic recedes

State of the market

According to an article in the Financial Post, the RBC affordability measure indicates that the average buyer must now spend 52% of their income to cover the costs of a typical home in Canada and that this is the highest it has been since 1990. Another factor coming into play is rising interest rates.

The pandemic, with the effect of reducing the number of available properties over a one-year period, has driven the price of homes through the roof. As is usually the case, property prices do not decline, they increase slow or fast but they increase. With the new high plateau for property prices and the rising interest rates, it has become exceedingly difficult for the average person to be a homeowner since homes are expensive and borrowing costs more.

‘… the RBC affordability measure indicates that the average buyer must now spend 52% of their income to cover the costs of a typical home in Canada and that this is the highest it has been since 1990.’

The Silver Lining

However, this is a two-edged sword. As much as it may be difficult to purchase a property for buyers, it will become just as difficult for sellers to sell. If prices are out of reach and interest rates compound the issue, sellers may, after realizing they have a problem selling their home as well, reduce the price and compromise more. If this is the case, everything should balance out after a time. We may even see a correction in the real estate market.

Have a great week!

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