Australia: Smoking Gun: An Important Reminder For Property Managers

Police recently charged a man over the discovery of a $600,000 cannabis crop inside a house in Kingsgrove.

The man was charged with cultivating a commercial quantity of cannabis using a sophisticated hydroponics set-up. Two rooms and a garage were used to grow the plants, where heaters, ceiling exhaust fans and fluorescent lights had been installed. Police stumbled across the cannabis crop after they were called to the house when it caught on fire. Whilst the exact cause of the fire is still being investigated, police say it is likely that the equipment being used to grow the cannabis overheated.

The implications of this sort of activity for managing agents can be severe. It is most often the case that the people involved will rent a property, and live elsewhere. Their activities are often well planned, and they themselves present very well to the managing agent.

Consider the following example of an agency in Chatswood acting as a managing agent for a non-resident owner with respect to a residential house property. The managing agent was approached by an apparently respectable tenant who paid three months rent and the bond in cash in advance. References were checked, however the process did not uncover the elaborate detail with which the operation had been planned, including arranging appropriate references to respond to searches, and the application was approved.

It transpired that the tenant commenced growing a fast crop marijuana operation within the property. He made the property inaccessible from the outside and stole electricity and telephone services from the street. The managing agent suspected that something was wrong when he could not gain access when calling the property to request the lawns be mowed. When returning to the property, the managing agent found that the property had been raided by police and the tenant had been caught and bank accounts frozen.

The property had sustained a considerable amount of damage due to the irrigation set up and the vandalisation of internal fittings by the police in the search. Cannabis was being dried in the roof space then stored under the floors. A claim was made by the owner against the managing agent for the total refurbishment of the property. This was resited; however a commercial settlement was eventually reached.

In this example, the managing agent did not carry out adequate background checks on the tenant. It appeared that references, if checked more thoroughly, would have revealed a potential problem. The reference of a person purporting to be a former employer was not cross-checked nor was an enquiry of a former landlord followed up. In saying this however, the people involved in this activity are often so well practised that they simply arrange for one of their associates to pretend to be a former landlord or employer. The important thing is to make all reasonable enquires and document those enquires. If three references are given, then you must ensure that all three referees are contacted. References should be checked for each prospective occupant. It is also suggested that, where possible, a prospective tenant’s previous tenant ledger be reviewed, together with a recent pay slip and bank statement.

In addition to carrying out thorough background checks of prospective tenants, agents should be encouraged to conduct regular inspections of managed properties. If on these inspections the agent discovers anything unusual, such as unkempt lawns, or windows covered in plastic or cardboard, then further enquiries should be made immediately. Logistically, regular inspections of managed properties may well be impossible, especially if you manage a large portfolio. In this instance, perhaps properties that have been recently tenanted could be reviewed in the first few weeks after the tenant moves in.

Landlords should review their insurance policies to ensure that they include relevant landlord insurance which in most cases should cover any damage or default caused by tenants. The costs to the agency, from damaged properties, quite clearly, have the potential to be enormous. This potential cost must be weighed up against the expense and logistical difficulties in carrying out a program of regular inspections. Police estimate that at any one time there are 10 to 15 such properties being used in the Sydney basin. The activity is on the increase right now.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.