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Disclosing a Marijuana Grow House

by | Sep 2, 2022 | Disclosures

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

Q:  I am a listing agent.  The sellers are getting a divorce.  Wife lives in the property and husband has moved out.  While I was holding the home open, a neighbor visited and advised me that the husband had previously grown marijuana at the property.  Do I have to disclose this and if so, how?

A:  Yes, this must be disclosed.  The first step will be consulting with the sellers to determine their knowledge about the previous use of the property.  If they admit to the prior growth, they need to disclose it on the Transfer Disclosure Statement or Seller Property Questionnaire.  Irrespective of whether they disclose it, it is highly recommended that you disclose it on your Agent Visual Inspection Disclosure.  It should be disclosed as follows:

  • Neighbor advised agent during an open house that the property may have previously used as a greenhouse growing marijuana.
  • Agent has not and will not investigate or verify this information.
  • Buyer should conduct their own investigation regarding this matter.

The issue is a material fact and must be disclosed.  However, by using this three-part disclosure, the agent is disclosing the fact, disclaiming any personal knowledge of it, and advising the buyer to undertake a complete investigation of this issue during their due diligence period.

PRACTICE TIPS

SELLER’S AGENTS:  Agents are advised to be cautious in handling these types of disclosures where there is no personal knowledge.  If an agent makes the disclosure without stating that the agent has no personal knowledge, the agent has now adopted the statement as their own and will be liable to the parties if it is incorrect.  For example, in a case several years ago, an agent advised his buyer that a property was one acre, when it was slightly less.  Because the agent did not advise the buyer of the source of the disclosure (i.e., Multiple Listing Service), the agent became liable for that statement, which was incorrect.  This exact issue is discussed in detail in Salahutdin v. Valley of California (1994) 24 Cal.App.4th 558.

BUYER’S AGENTS: 

  1. If an agent representing a buyer receives a disclosure such as described above, it is recommended that the agent advise the buyer in writing of the disclosure and recommend that the buyer undertake any inspections the buyer deems necessary to satisfy themselves regarding the condition of the property.
  2. Properties used as grow houses can have hidden damage due to electrical wiring modifications, and excessive heat and moisture in the growing process resulting in mold, dry rot and related issues.
  3. The agent should not investigate the issue on behalf of the buyer.  For example, the agent should not ask neighbors or go to the police station if the above-referenced disclosure is made.  The buyer needs to undertake that investigation.

RESOURCE:  CAR Legal Memo “Marijuana Issues for REALTORS®” at

https://www.car.org/riskmanagement/qa/miscellaneous-folder/marijuanaissues

ATTORNEY-CLIENT PRIVILEGED COMMUNICATION. Do not forward to Sellers, Buyers or third parties. This Broker Alert is for the exclusive use of clients of Broker Risk Owners and Management. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices