Merlin News

Cannabis Factories: The Enemy Within

When recently approached by Broker's Monthly for our comments on the increasing proliferation of Cannabis Factories in the UK, we were delighted to oblige. The transcript of the comments by Andrew Dear, Director of Technical Services at AMG, appears below.

"Many people who purchase buy-to-let properties see it as a route to financial success. However, a naive or unwary landlord may find out the hard way that this can also be a route to financial ruin.

Whilst wear and tear has to be expected when letting out a property, many landlords are totally unaware of the damage that can be caused by a growing number of tenants who rent properties for illegal purposes, such as setting up cannabis factories.

Landlords do need to ensure that they protect themselves from this relatively new type of risk. It is estimated that last year, there were nearly 500 insurance claims from landlords for damage caused to their property; this year, the number of claims is expected to be even greater.

Landlord checks
Before letting out a property, a sensible landlord should always seek references from a prospective tenant - but many fail to check their authenticity.

Often, only a deposit is paid at the outset of the rental period from which a deduction will be made for "breakages" at the end of the tenancy. And if tenants offer twelve month's rent in advance, in cash, not many buy-to-let landlords will turn this down.

But it is often this type of "jackpot" tenant that poses the greatest risk to landlords: they may want to use the property for illegal purposes. The paying of deposits and a substantial amount of rent in advance ensures that no trail is left to connect them with the property.

Damage incurred
So how do these tenants damage a property?

In order to cultivate cannabis plants, a massive amount of electrical equipment is required. Holes are knocked through walls and drilled through floors to accommodate the equipment.

Often, a landlord will not realise that something is amiss until the twelve month's rental period has expired, and having not heard from the tenants, calls on the property to find the damage and devastation left behind.

On occasions, something goes wrong mid term. The cannabis factories are not necessarily occupied twenty-four hours a day and sometimes, whilst unoccupied and often due to the massive concentration of electrical equipment, a fire can break out with devastating effects. This is the first time that a landlord realises that his house was being used as a cannabis factory.

Insurance coverage
So, if a landlord makes a claim on his policy, is he covered for this type of damage? Not necessarily so.

Many landlord/tenant policies specifically exclude damage caused by the actions of tenants. But even where a policy does not specifically exclude damage by tenants, there is a debate as to whether the claim is covered.

Some insurers will accept claims for fire damage under the fire peril, on the basis that the insured is an innocent victim of a fire no matter how it started. However, where a fire has not occurred and the repairs are confined to making good the electrical wiring, walls, floors and decorations "damaged" by the tenants' activities, the position becomes less clear.

If the policy provides accidental damage cover, then (subject to no exclusions applying) the landlord should not have any problem in recovering the cost of the repairs from his insurers. However, it is rare for a landlord/tenant policy to provide accidental damage cover.

Generally, policies are on a standard perils basis and at best, the claim is submitted under the malicious damage peril of the policy. Some insurers accept such claims, but the majority refuse to do so, citing the fact that the "damage" was not malicious, with any spite or reckless intent, but purely in the perpetration of an illegal act, i.e. to install equipment to grow cannabis plants. There is therefore a possibility that the landlord's claim may fail.

In the absence of any accidental damage cover (although again, exclusions have to be checked), there is little doubt that all insurers exclude any damage caused to the dwelling by the police during a raid upon the property. Damage caused by the police is not malicious, but in the furtherance of their legitimate enquiries.

Lessons to be learnt
Firstly, landlords must secure references from prospective tenants and check out their authenticity. Failure to do so could involve breach of the reasonable care condition.

Secondly, they should not be seduced by tenants readily paying cash for deposits and months of rent in advance. In fact, they should treat these tenants with caution.

Thirdly, they must regularly inspect their properties, ideally, at least every month and more regularly if policy conditions require so.

From a broker's perspective, it is important that you pass on the above tips to your landlord clients. It would also be wise to check the policy covers to ensure that this provides suitable cover should it transpire that your Client's property has been utilised as a cannabis factory".

Issued for and on behalf of :-

AMG
Stratton Court
Bromborough
Wirral
CH62 3PW

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