OC REALTORS® Committees: Risk Management Forum

By Sherri Butterfield

Because the laws regarding cannabis are complex, complicated, and constantly changing, REALTORS® should avoid giving clients any legal advice in this area.

Two years ago, 2016 Orange County REALTORS® President Wayne Woodard wisely decided that Orange County REALTORS® needed a Risk Management Committee and asked Bob Hunt to be its first chair. In Bob’s words, the purpose of the committee is “to inform our members, as best we can, what risks are inherent in which kinds of business situations and what can best be done to avoid those risks.” Toward this end, on May 24, the committee, which is now chaired by Harrison K. Long, hosted a Risk Management Forum covering cannabis, and—in this, the fiftieth year since the passage of the federal Fair Housing Act—fair housing. What follows are some of the ideas offered during that forum.


Rinat B. Klier Erlich: Avoid giving your clients any legal advice regarding cannabis. This area of the law is complex, complicated, and constantly changing. There are changes in the law itself, changes in the tax code, and changes in licensing. And cannabis is a crime under federal law. For example, if you represent a buyer, do not help your client pick a place that would be “ideal for their business.” As a listing agent, avoid vetting tenants. And as a seller’s agent, you could have disclosure issues if you know that the property was a location for the manufacture of cannabis or if the property is next to a property that previously had something to do with cannabis.

The state Legislature encouraged passage of the recreational act because it wanted to collect taxes; however, the tax rate is so high that it has opened the door to a high-volume black market. Cannabis removed from a cultivation site is presumed to be sold and taxable. And the cannabis business is not eligible for any exemption. Licensing is handled by three different bureaus or departments, depending on whether the subject is testing, cultivation, or manufacturing, and there is a lot of overlap. Cannabis is a crime under federal law—the federal Controlled Substances Act—and the federal government can take the real property.

In a rental or lease situation, the concerns are that cannabis is illegal; that a property used for cannabis cultivation or manufacture might not be insurable; that you might need to collect the rent in cash because, under the Bank Secrecy Act, banks must report any suspicious activity; and lack of tenant control because it is difficult to evict a tenant based on violation of federal law. You may want to modify your lease language in the areas of permitted use, right to inspect, indemnification, and early termination. The irony is that the more you know, the less you can claim ignorance (as a defense), but the more you can protect yourself.

Use of a property to grow cannabis may make it unsuitable for subsequent uses. Cannabis has its residual issues and red flags. Because of the moisture needed to cultivate the plants, there may be mold. Processing of cannabis can create toxic fumes. Growing and irrigating cannabis may result in high utility bills for lights and water. Smoke and odors may have a negative effect on neighbors. If you see red flags, you should follow up, but you are required to disclose only what you know. Due diligent visual inspection of the licensee is limited and does not include “off the site” or “public records.”

Fair Housing

Lisa Dunn: REALTORS® are committed to fair housing.

Pam Pedego: Under the National Association of REALTORS® Code of Ethics, Article 10, we are bound to act both fairly and ethically. The Code of Ethics establishes a heart for what we do. It’s called compassion.

Dorinda Francois: We cannot discriminate based on ancestry or source of income. Fair housing means a diverse, inclusive environment for everyone. REALTORS® are the stewards of the right to own, use, and transfer private property; and our livelihood depends on maintaining a free, open market that embraces equal opportunity.

Lori Namazi: As a broker, host training sessions designed to create a culture of fair housing. Be careful about how you advertise. If on Facebook you are advertising only to your circle of friends, you may be discriminating. Share your travels with friends but make property available to everyone.