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Will your investment go up in smoke?

Landlords in Ontario have spoken and they want marijuana use and growth by tenants in their units banned immediately upon legalization—and, perhaps unsurprisingly, the reasons are largely financial.

However, proscribing use while leases are binding—as well as the legislation stipulating that Canadians can only smoke recreationally in their private residences—has rendered the situation hazy.

As with cigarette smoking, landlords will be able to prohibit marijuana use in their rental units once the lease is up, although that will do little to pacify them in the near-term with legalization looming.

William Blake, an experienced landlord of over 20 years and a senior member of the Ontario Landlords Association, says tenants are often bothered by plain cigarette smoke. As a landlord, he often has to intervene, but when tenants refuse to stop smoking, complainants threaten to break their lease and move out.

“A lot of people will say that’s a tenant’s right, but the reason most landlords feel this way is not for moral reasons at all,” said Blake. “Landlords have to protect the rights of their tenants, so it will put landlords in a difficult situation.”

In addition to potentially losing tenants, another issue at play for landlords, says Blake, is the cost of readying a unit for new tenants once the smoking tenant has moved out.

“After they move, the cleanup cost can be very expensive and hit us in the pocket book and bank account,” he said. “To fumigate and get it cleaned can cost up to $5,000. For a corporate landlord with economies of scale, $5,000 is still a lot of money, but if you have an investment property, $5,000 can eat up your entire cash flow and budget for the year.”

Zolo Realty sales agent Geoff Malisa says cigarette smoke devalues properties and he doesn’t see why marijuana would be treated any differently.

“I lump it together with cigarettes, so it could have an effect on property,” he said. “When I’m showing clients condos or single-detached homes and the tenants are smoking in the unit, because it was allowed in their lease, instantly if you bring a non-smoker into the property, some people get headaches or feel some sort of effect. It hurts the resale value. It gets into the carpet and the furniture, and if you’re showing a home with a carpet, those things need to be replaced. Cigarettes have a negative effect on resale value and I can imagine people would have the same viewpoint about marijuana. It’s case-by-case, but most people would agree it would have a negative effect on resale.”

Malisa noted that leases are binding, therefore, landlords face an uphill battle.

“Currently with leases that are structured now, you can include a condition for tenants not to smoke on the premises,” he said. “If there’s no indication of it, then by law tenants are allowed to smoke, but you’re not allowed to change anything mid-lease until it expires. But there are many proponents of landlords being able to change leases to ban marijuana smoke as soon as the law comes into effect.”

Alex Balikoev, a Core Assets Real Estate sales agent, is in favour of banning recreational marijuana use inside rental units because the smoke can travel into other units or hallways.

“I think it’s the right thing to do, and it sucks for someone who’s smoking, but it’s a benefit to most of the occupants and tenants who don’t smoke, so it’s certainly a good thing,” said Balikoev.

Balikoev also says that condo rentals are still regulated by condo corporations and not provincial legislation—meaning condo investors should have more leeway with enforcing a ban.

“It will be up to the condo corporation to prohibit smoke in the unit,” he said.

Article by Neil Sharma, reproduced from Canadian Real Estate Wealth magazine.

Both Canadian Real Estate Wealth and REP magazine are excellent online publications that we highly recommend for all sorts of real estate information.

https://www.canadianrealestatemagazine.ca

 

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