Marijuana and Colorado Real Estate : A brief overview for those who are Sellers, Buyers and Landlords
- Can we permit grow operations in our properties? YES
- Can we permit sale of marijuana operations in our properties? YES
- Can we permit personal recreational consumption in our properties? YES
- MUST WE PERMIT ALL THE ABOVE? NO
Marijuana and Colorado Real Estate vs the ADA
Really? Even when the tenant is also a patient who has been prescribed marijuana for a disability? Yep, it appears to get a bit hairy when the American Disabilities Act (ADA) requires a landlord make “reasonable accommodation” for a person with a disability, but actually it’s not hairy at all. When reasonable accommodation meets federal law, federal law wins. A landlord does not have to make reasonable accommodation to allow a disabled person to smoke or otherwise consume marijuana in Colorado real estate because under federal law, it is still illegal to smoke, cultivate or consume marijuana. Most leases in this area have a clause prohibiting the tenant from engaging in illegal behavior on the premises so you may not even have to spell out your “pot rules” to the incoming tenants in order to evict them if they are caught growing or consuming marijuana. – Although I would if I were you. What should be spelled out to the tenants is WHY you prohibit the behavior. It’s not because they are of a certain religion or race, it’s not because they are in a same sex relationship… And the prohibition of the marijuana must be consistently enforced by the landlord to protect the landlord from a lawsuit concerning discrimination of a protected class in Boulder County.
What are the issues involved with marijuana and Colorado real estate?
An increase in crime associated with a cash based business: Actually a small risk around here!
Neighborhood relationships: Behavior associated with numerous visitors or being under the influence, smells etc.
Guard dogs! (Say no more)
Mold as a side effect of growing. Marijuana requires water. Grow operations have been found in all sorts of poorly ventilated spaces, resulting in property damage, mold and health concerns.
Fire risk associated with increased lighting, wiring, ventilation.
Water damage as a side effect of growing – stained carpets, warped wood.
Electrical code infringement associated with new lighting/wiring configuration – DIY home improvement to facilitate a healthy growing environment.
Insurance coverage: You may not be covered if you KNEW about the illegal activity (EG: electrical work that was done for the set up). Prohibiting illegal activity is the easiest way to deny knowledge.
Mortgage called due: All mortgages have triggers for default, which include deterioration of condition and known illegal activity. Right now with loans at 3-6% there is little incentive for lenders to call the full mortgage amount due… But what happens if interest rates rise to 10% or more? (There is greater risk in commercial property of this happening.)
Drug Asset Seizure Risk: Also of small risk, but possible. Criminals are not supposed to benefit from fruits of the forbidden activity. A lease is the right of the tenant and in the 1980’s the fed’s took the position of going for Fee Title (seizure) of the property. For example a mixed use building is home to a cocaine business and the fed’s determined that the landlord knew about it (charged higher than market rent – took it in cash etc). If that landlord had equity in the real estate, it was worth seizing. The fed’s took the title! And that begs the question…
Is being a Landlord or Property Manager or Real Estate Agent money laundering, if the job involves a deal where the buyer/tenant is running a grow operation?
If the definition of money laundering is converting cash into something the criminal can use, then paying rent at market rate doesn’t count. If you sold the tenant a car (for their cash) then the tenant sold the car and put the money in the bank, then yes. However, if the business owner paid earnest money in cash, then there might be an issue. (If you work with me you will get the run down on how you can legally and safely bring your funds for use as EM or down payment and closing costs… And cash is not one of the acceptable methods!)
Realtors, if you are worried that helping a grow operation buy or rent real estate is crossing some sort of line, don’t. The short answer seems to be that if a lawyer can “assist a client in conduct that the lawyer reasonably believes is permitted by [these] constitutional provisions and the statues, regulations, orders, and other state or local provisions implementing them” * then a Realtor can too. * Rule 1.2 Scope of Representation and Allocation of Authority Between Client and Lawyer
Last question (from me to you because I know you are curious too)…
Why don’t the feds prosecute marijuana consumers, growers, sellers in Colorado if it’s against federal law?
Yes, in theory federal law trumps state law. We assume the feds could/would prosecute, but it hasn’t been really tested. They do not have unlimited resources, therefore have to pick and choose what they enforce (investigate and prosecute). What we do know is that they are much more likely to investigate and prosecute if:
- There are minors involved (EG: Too near a school)
- Other criminal enterprises are involved
- It spills into other states
- Is being used as a pretext for selling other illegal drugs
- Enforcement stops associated violence
- The growing is occurring on public lands
- Possession or use is on federal property
If the state (Colorado) is enforcing its own law and has sufficient law to start with, the fed’s will likely turn a blind eye. They have already determined (and mentioned) that they will not target large scale commercial enterprises (“Walmart distribution style”) but at the end of the day they can do whatever they want to!