Law Times

www.lawtimesnews.com Law Times / January 21, 2008 Page 13 FOCUS Grow houses: the liability of landlords I t would be interesting to know how many landlords and lend- ers, or their lawyers, appreciate that should a tenant or other oc- cupier use the property for an ille- gal purpose, such as a grow house, they or their clients could lose their interest in property entirely. "It's certainly not something that the practising bar has seized upon," says Dennis Daoust of Toronto leasing boutique Daoust Vukovich LLP. Which means the subject is be- low the radar for many clients. "More and more people are becoming landlords but they're not thinking about this," says Lindsay Goldberg of Lang Mi- chener LLP's Vancouver office. "Banks and businesses may be a little better informed, but not so the average guy." The culprits here are obscure provisions of the Controlled Drugs and Substances Act (CDSA). Under these provisions, the federal government may apply for an order seizing and restrain- ing any "offence-related property", pending the outcome of an al- leged offender's criminal trial. On conviction, the government may apply for complete forfeiture. An "offence-related property" includes any property used in any manner in connection with the commis- sion of a crime under the CDSA. In the case of a grow house, the government's burden is to establish reasonable grounds to believe that a property has been so used. If the government satisfies the onus, the court may make a restraint order "prohibiting any person from dis- posing of, or otherwise dealing with, any interest in the offence- related property specified in the order other than in such manner as may be specified in the order." "Such an order serves to prevent the disposition of offence-related property pending a criminal trial and preserves it so that the Crown in the event of conviction can seek forfeiture as part of the sentence," Goldberg says. The federal government has taken the position that the CDSA empowers it to tie up and confis- cate property even from those not charged with any offence. Such a party has 30 days from sentencing to apply for a declaration that their interest survives the forfeiture. The difficulty is that the inno- cent party faces a reverse onus that consists of showing that it is inno- cent of collusion or complicity, and that it "exercised all reasonable care to be satisfied that the property was not likely to have been used in connection with the commission of an illegal act." Two recent cases from British Columbia, Scotia Mortgage Cor- poration v. Leung and Maple Trust Company v. Walton, are instructive. Both cases involves foreclosures of alleged grow-ops. "The Crown argued that a CDSA restraint order prevents mortgage lenders from foreclosing on their security before the criminal proceedings are concluded — po- tentially for many years," Goldberg says. "The reasoning was that the mortgages themselves were subject to future forfeiture, and would pre- sumably make the same argument against a landlord seeking to exer- cise remedies against a tenant." Fortunately, both the B.C. Su- preme Court and the Court of Appeal ruled that clearly innocent lenders should not be delayed in their realization proceedings. "And that makes sense," Gold- berg says. "Because in the absence of something glaring, it's absurd to say that large financial institutions would be involved in such illegal activities." Still, the CDSA provides no guidance for a landlord or lender seeking to establish that have met the onus required for avoiding for- feiture. "You'd think, for example, that a mom-and-pop owner who simply sits back and collects rent would be in the same position as the successful mortgagees in the B.C. cases, where the courts took a practical approach to the issue." Daoust says. Still, he adds, it's better not to take the chance. "All landlords need to monitor their properties and exercise their rights to inspect them," he says. HANGING IN R eal estate lawyers have seen their practices transformed many times in recent years. The influx of title insurance, electronic reg- istration, and the securitization of property has both stretched their boundaries and changed their practice. But the property-leasing lawyer seems to have survived intact. Part of the reason for this may be the species' ability to survive in various legal market environments. Examples of the breed include Dennis Daoust and Natalie Vuk- ovich, who head up Daoust Vu- kovich LLP, a property-leasing boutique; Stephen Messinger and Stephen Posen thrive at Minden Gross LLP; Bob MacDonald re- mains a fixture at Blake Cassels & Graydon LLP, while Sheldon Dis- enhouse has joined Fraser Milner Casgrain LLP, from now-defunct Goodman & Carr LLP. Still, survival is a matter of degree. "The larger the law firm, the less prestigious or valued are the prop- erty-leasing lawyers, because their practice has become increasingly commoditized," Messinger says. "Property-leasing is just like title work or traditional transactional- commercial conveyancing, which have little in the way of fee premi- ums to offer to the big firms." Which is not to say that prop- erty leasing lawyers don't add val- ue. After all, their province is the rental-income stream, the most important element in a capital- market-intensive environment. "Keeping an income stream go- ing in a commercial property is like cultivating a garden because leases keep turning over," Daoust says. "We add value by evaluating the income stream and examining the reliability of the rent rolls as part of a purchasers' due diligence, provid- ing a balance to operating costs au- dit police that tenants may retain, interpreting important clauses in commercial leases, and preparing lease-restrictions reports." Daoust has noticed that today's institutional owners are less entre- preneurial and more conservative than their predecessors. "There are more levels of approval required to get a decision," he says. But even as institutions enhance their real estate portfolios, expand- ing in-house legal departments encroach on the business. "We still get the overflow and bet-the-farm work, but we're also always look- ing for growing developers as new clients," Daoust says. The other alternative is to take advantage of the interdisciplinary nature of today's real estate transac- tions. "We're thinking about add- ing environmental and municipal law specialists to go with our core group and our litigation lawyers," Daoust says. While the work is steady, prop- erty-leasing is hardly a growth in- dustry for lawyers. "I'm busy all the time working on our clients' more significant leases," says Bob MacDonald of Blakes. "But it's a very specialized practice that hasn't expanded significantly over the years." Protect your clients. Recommend TitlePLUS ® title insurance. * TitlePLUS title insurance and you, together we make real estate real simple. *Underwritten by Lawyers' Professional Indemnity Company (LAWPRO ® ). Contact LAWPRO for brokers in Manitoba, Saskatchewan and Alberta. ® Registered trademark of Lawyers' Professional Indemnity Company. NICE BACKYARD. Too bad their neighbours have as much right to it as they do. Visit titleplus.ca or call 1-800-410-1013 for more information. TPLawTimeHPColour 10/19/06 4:22 PM Page 1 BY JULIUS MELNITZER For Law Times ROUND-UP LT *Pages 1-16.indd 13 1/17/08 7:18:48 PM

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