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Marijuana: A Growing Real Estate Issue

by Chip Bell

The Residential Impact

How the larger cannabis industry currently exists affects residential and commercial real estate businesses differently. For those on the residential side, the implications are mostly tertiary – spillover affects from nearby commercial enterprises. However, there are some process changes that agents will need to be aware of, specifically in regards to leases.

According to IREM, if a lease is issued in a state in which marijuana usage and growth for individuals is legal, special considerations should be given, including but not limited to:

  • If your lease prohibits smoking, review to ensure language is not limited to tobacco.
  • Remember there are alternatives to smoking marijuana, and consider policy on those.
  • Consider exceptions for reasonable accommodation for medical marijuana use.
  • Growing marijuana plants can be expensive and can lead to other property issues. Consider lease terms related to such.
  • Review lease language for conflicts between state and federal laws.
  • Review lease language for security responsibilities.

Special considerations will also need to be made depending on property type, IREM pointed out in its whitepaper.

Community Associations – Because so many associations are silent on the prohibition of smoking on or around the property, new concerns about private property rights arrive with the introduction of recreational cannabis use. IREM suggests community associations review policies and how the allowed usage will affect other residents, particularly in regards to filtration; the various ways in which marijuana can be imbibed; and the limitations on when and where residents can partake. The ability to grow should also be addressed.

Multifamily Property – Bans restricting smoking in multifamily properties will extend to marijuana usage, but a request for reasonable accommodation for medical cannabis may be difficult to refuse, depending on state law. Another concern will be marijuana cultivation, as several states allow for individuals to be certified growers. If multifamily owners and managers are concerned, they may consider specific prohibitions against marijuana plants in the lease.

Federally Assisted Properties – On Dec. 29, 2014, the U.S. Department of Housing and Urban Development reiterated its stance that marijuana for any purpose is prohibited in federally assisted properties, stating specifically that Public Housing Authorities and affected building owners “must deny admission to those with a household member who is illegally using a federally controlled substance; and may not provide a reasonable accommodation for new tenants,” the whitepaper read. HUD clarified that eviction of such existing tenants is not an obligation, and for PHAs, exceptions may be made for the use of medical marijuana on a case-by-case basis.

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