“My Tenant turned my Million Dollar Property into a Grow House!” – Landlord’s Perspective on Tenanting a Property

SONY DSC September 26, 2016

Residential

I was recently approached by a Dear Friend who couldn't believe that after renting to various Tenants for over 10 years, His Brother’s Million dollar property had been converted into a Grow House by their most recent Tenant.

And the worst part? The Tenants were unidentified by their Real Estate Salesperson/Broker and are nowhere to be found.

As shocking as this may sound, it’s a reality for many Landlords who get too comfortable or are simply apathetic when it comes to screening and properly qualifying prospective tenants. Moreover, I’m finding that the majority of Landlords simply don’t care what their Tenants are doing as long as their monthly rent is paid on time.

It’s important to remember that there’s no friendship, loyalty, or trust when it comes to your Tenanted properties. Although I always encourage Landlords to treat their Tenants like gold, doing so shouldn’t result in the Landlord’s failure in checking up on their Property from time-to-time.

What you have to remember is, is that your property is like a business. Any successful business requires prudent management. In maintaining a sound Tenanted Property, it is important that both Landlords and Tenants be aware of their rights under the Residential Tenancies Act.

How to reduce your risk as a Landlord:

  1. Proper screening of your Tenants – (next Blog post will address how I conduct my own due diligence as a Landlord)

  2. Having a lease agreement signed outlining all of the terms and conditions of the contract – Many people either don’t do this or insert illegal clauses such as Pet Provisions or conditions requiring 6 months’ rent up front which are prohibited and are illegal clauses under the Residential Tenancies Act (subject to exceptions)

One of the most important conditions in the Lease agreement should be the requirement to have the property insured by the Tenant prior to the Landlord handing off the keys.

Many landlords don’t require Tenants to possess such insurance, but such insurance is inexpensive and protects both Landlord and tenant from many issues that may arise. Dean Sukhu from State Farm Insurance states:

“Most of the time for less than a dollar a day, a renter’s insurance policy will cover all of your property at its full replacement cost. Whether you rent a house or apartment, you can protect your possessions and you could end up saving thousands”.

A renter’s policy will ensure the tenant has protection that covers their personal belongings as well as liability for accidents. If personal belongings are stolen during a break-in or damage by a fire or severe weather, a renters insurance policy will allow the tenant to recover their value. If someone is injured during an accident in the rental property, the renter’s policy will help protect the tenant, their guests, and the Landlord in the case of a liability lawsuit. Moreover, Landlord Responsibility for the Tenant or Tenant’s guest’s actions which cause injury can be limited as a result of such a clause. More and more landlords today are realizing the importance of renters insurance and are including them as a part of the lease agreement.

If a Landlord is renting a property, failure to notify the Landlord’s Insurance Company that the property is being tenanted may result in a breach of the Landlord’s policy. For obvious reasons, Landlords should let their insurance companies know that the property is being tenanted so that in the event that an issue does arise, the Insurance Company will not be able to deny a legitimate claim

A very interesting case speaks volumes to the importance of such protection. In Taylor v Allard, Ont. Court of Appeal, the Tenant had possession of a single-family residential home. The Tenants were using a fire pit in the backyard when a drunk guest fell into the pit and was badly burned incurring $265,000 in damages. Both Landlord and Tenant were sued because of the occupational hazard. At trial, the Tenants and the Plaintiff were found 50% at fault for the injuries with the Landlord being held responsible for the remaining 50% in damages because he failed to take steps to remove the hazard. Interestingly enough, under the Occupiers Liability Act s.8 states that Landlord is “responsible for the maintenance and repair” of the premises. In this particular case, the courts stated that even if there was an express agreement that the Tenants were responsible for maintenance and repair, under the legislation, the Landlord cannot contract out of a Statutory Obligation to maintain and repair the property and thus cannot rely on s.8 to limit their liability. The decision in Taylor confirms that a Residential Landlord cannot contract out their obligations under the Residential Tenancies Act and thus cannot rely on s.8 of the occupiers Liability act to minimize their risk by having the Tenant sign a contract stating that they are responsible for maintenance and repair of the property.

Whether you’re covered or not, requiring the Tenant to possess such protection may absolve various types of liability from the Landlord’s perspective. And it’s more than likely that when you couple terms and conditions requiring insurance, allowing the Landlord to inspect the property (subject to the Residential Tenancies Act), and other provisions which are indicative of a prudent landlord, Tenants who are looking for a quick conversion will not want to be bothered with the hassles and will likely scout for another property.

  1. Monthly Inspections

As a landlord you have to understand that you must abide by the law - a Tenancy relationship involves a disposition of a Lease Hold Estate (property interest) which grants the Tenant exclusive possession of the property (unless otherwise agreed) and grants the Tenant with quiet and reasonable use and enjoyment of the property without interference or derogation from the grant.

There’s 2 types of checks I would recommend:

  1. A non-intrusive drive-by - Driving by the property without entering the premises on days like Garbage day to make sure that the garbage has been taken out. CREA has indicated that if there’s no garbage put out on the curb on collection day and this is frequent, this may be a sign that there is a grow house operating from within your property. In addition to this, I encourage Landlords to make nice with their neighbours. Checking up with your neighbours from time to time will also provide the Landlord with valuable information. Neighbours are always concerned with Tenanted properties as they understand that Tenants are typically short-term. As such, a nosy neighbour will more than likely tell a Landlord if they suspect anything suspicious – NEVER recommend a neighbour intrude on the property or make attempts to spy. I’ve heard that some grow ops have been fitted with explosive devices which set off in the event that an unwanted intruder makes an attempt to enter the premises. If you’ve ever got a suspicion, call Crime Stoppers. DO NOT ATTEMPT TO CONDUCT YOUR OWN INVESTIGATION.

  1. Conducting Physical visits to your property – this is more hands on and requires you to abide by the laws as set out in the Residential Tenancies Act. Remember that legally, you cannot enter a Tenanted premises without permission from your Tenant unless there is an emergency situation or if the Tenant willingly allows you to enter the premises when you stop by. Legally, a Landlord can visit their property provided that they give their Tenant 24 Hours written notice to carry out an inspection of the rental unit per the Residential Tenancies Act s.27 which states that the Landlord can inspect the property if:

the inspection is for the purpose of determining whether or not the rental unit is in a good state of repair and fit for habitation and complies with health, safety, housing and maintenance standards, consistent with the landlord’s obligations under subsection 20 (1) or section 161, and, it is reasonable to carry out the inspection” and Under s27(1) ss.5: “For any other reasonable reason for entry specified in the tenancy agreement. 2006, c. 17, s. 27 (1)”.

In reading this provision, if the Landlord and Tenant have inserted an “inspection clause” in the Lease Agreement, then the Landlord can with notice enter the premises from time-to-time.

When it comes to running a grow house, Tenants will not for example wrap up the entire project on a monthly basis in order to accommodate an Inspection by the Landlord. This costs money, is inefficient, and majority of Criminal Tenants will not want to deal with the hassles of agreeing to such a provision. Grow Houses typically involve major changes to the property. In one property, I saw that the Tenants had a total of 3 furnaces installed, they had cut a perfect circle in the foundation wall in order to by-pass the hydro meter, had run vent pipes from the basement to the main floor, from the main floor to the 2nd floor, from the second floor to the attic which led to an opening in the actual roof of the property.

If your paperwork is completed correctly, the majority of Tenants who are looking for a potential property to start a grow house will simply go to another property where they don’t have to deal with the hassles of dealing with a prudent and knowledgeable landlord.

Conclusion:

Understanding your rights, role, and responsibility as a landlord is fundamental in the successful operation of a Tenanted Property. The majority of the time, if Tenants see that their Landlord knows what they are talking about and understand their role, Tenants will be reluctant to overstep boundaries which could lead to issues. My experience dictates that when Tenants are readily willing to pay 6 months’ rent up front (not permitted under the Residential Tenancies Act), sign lease papers sight unseen, don’t ask very many questions, or are overly willing to co-operate with the Landlord, the Landlord should go further to insure that they aren’t opening up their home to a suspicious individual. Always conduct your own due diligence by taking IDs, Obtaining and verifying all information provided by the Tenant (i.e. Credit Report, Job Letter, References etc…). In my next post I’ll discuss how I screen my own prospective Tenants to insure a seamless, fruitful, and mutually beneficial relationship between myself and the Tenant.

DISCLAIMER:

Balwant (Ricky) Singh Rathore., BComm., LL.B (Hons.), Broker of Record – Public Choice Realty Inc., Brokerage is not a licensed Barrister or Solicitor. He is a law school graduate and licensed Real Estate Broker of Record.

The material on our website is intended to provide only general information and comment only. Members of our staff use their best efforts to ensure that the information found on our website is accurate and timely. However such information should be confirmed by the reader and should not be relied on as Legal advice.

Do not, under any circumstances, rely on information found on our website as legal advice. Legal matters are often complicated and a legal professional should be consulted.

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