Insurance insights

Cannabis cultivation in rentals

Finding out that tenants have been cultivating cannabis at the rental property can prove costly for landlords. Can landlords look to their insurance if their investment property is damaged because of cannabis being grown on-site? Read on to find out…

The scale of the issue

According to the 2022–2023 National Drug Strategy Household Survey, 2.5 million people (approximately 11.5 per cent of Australians aged 14 and over) reported having used cannabis in the previous year. This makes cannabis the most widely used illicit drug in the country.

While some of the demand for cannabis across Australia is met by small-time growers with a few potted plants, the supply market also attracts large-scale operators and organised crime gangs – and both require places to cultivate crops.

Cannabis crops and rentals

As well as rural farms and set-ups in commercial premises and on industrial estates, cannabis is also grown in residential properties. The properties used for cannabis cultivation are either leased or bought and can be converted into a grow house within a day.

According to Victoria Police, criminals looking to establish a crop house seek out residential properties that:

• have an adjoining garage with internal access to the house

• are located in medium-density suburbs

• are located in multicultural suburbs where residents are less likely to report crime

• have no CCTV on neighbouring houses.

This describes a lot of private residences – including rentals. Criminals will often target rental properties as it can be advantageous to lease, rather than own, the premises.

The aftermath for landlords

Thankfully, it is not an everyday occurrence, but when a landlord discovers their investment property has been used as a grow house, they can be left with a substantial bill.

Water damage, fire damage, chemical residue, unpaid utility bills, damaged ceilings, modified plumbing, re-wiring, fortifications, thefts and break-ins – these are all potential issues for landlords who discover their rental has been used to cultivate cannabis.

And the chances a criminal will be overly concerned with leaving the rental in the same state it was in at the start of the tenancy, or with paying for any damage, is slim. It is more probable they will disappear in the middle of the night never to be seen or heard of again, leaving behind a trashed house and unpaid rent.

Landlords can be left thousands, even tens of thousands, of dollars out-of-pocket from loss of rent and damage.

The damage explained

Properties turned into grow houses can suffer significant, even serious, damage. Here is a snapshot:

• Water pipework modified. Cannabis plants require constant watering, so growers often alter plumbing without a licensed plumber.

• Holes in walls – Ceilings are cut and walls knocked through to run makeshift irrigation systems.

• Water damage – Poor plumbing, hydroponic systems and overwatering lead to leaks, rising damp, rot, corrosion and mould.

• Dodgy electrical works – High-intensity lights and hydroponic systems require power. Growers often tamper with meter boxes and run unlicensed wiring, increasing the risk of fire and safety hazards.

Additional risks

Aside from the physical damage, landlords may also face:

• Accidental, malicious or intentional damage

• Break-ins and theft of landlord-owned contents

• Rent arrears

• Hazardous chemical residues requiring specialist clean-up

What about insurance?

If a rental has been used to grow cannabis, the landlord will quickly realise the bond won’t cover the costs. Many landlord insurance policies don’t cover drug-related losses or exclude claims relating to commercial or illegal activity. However, EBM RentCover is not a typical insurer…

EBM RentCover: protection that goes further

EBM RentCover is one of the few landlord insurance providers that covers drug lab clean-ups and losses related to the rental being used for drug production without the landlord’s knowledge.

Depending on the policy (and subject to terms and conditions), policyholders may be able to claim for:

• drug lab clean-up (covers damage to contents and building, including specialist cleaning if required) – up to $70,000

• water damage (noting that mould may be excluded) – up to $70,000 for contents and up to the sum insured for the building

• fire damage – up to $70,000 for contents and up to the sum insured for the building

• structural damage – up to the sum insured for the building

• accidental damage – up to $70,000

• malicious damage – up to $70,000

• intentional damage – up to $70,000

• theft – up to $70,000

• loss of rent – up to six weeks if the tenant absconds owing rent, or up to 52 weeks for denial of access

• legal liability – up to $30 million.

The bottom line

No landlord or property manager would knowingly lease to a criminal, but it can and does happen. If the rental is used to grow cannabis, damage and loss costs can be significant. Some landlords will have to absorb the financial blow themselves due to policy exclusions. Others, including those insured by EBM RentCover, will have safeguards in place.

Want to learn more about this policy feature? Talk to a member of our Expert Care team about protecting your investment property – 1800 661 662.

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are here, contact 1800 661 662 if you have any questions.