Can a Landlord Take the Risk? Leasing to Dispensaries and Growers
When choosing a commercial tenant, one’s knee jerk reaction may be to avoid cannabis businesses entirely. But before writing off what could be a valuable opportunity, here are a few considerations for landlords:
- Use and Licensing: First, a landlord should review details about their potential tenant’s business. Whether the tenant is a producer or a retailer, their use of a landlord’s property should be limited to allowances under mandates issued by Health Canada and each level of government. If a tenant is not operating their business lawfully, their landlord can be liable. To address this, a landlord should have the tenant provide copies of all necessary permits, including those required under the Cannabis Control and Licensing Act [1].
The lease should also require the tenant to maintain required licenses, continuously for the term, as well as comply with all relevant laws and regulations, both general and cannabis-specific. Specific reference to federal and provincial cannabis legislation should be included, and some requirements should be specifically addressed in the lease to avoid confusion. For example, although the landlord may be responsible for waste removal, the lease should clarify that the tenant is solely responsibility for compliance in removal of cannabis-related waste.
- Insurance: Even though operating cannabis businesses are now legal, insurance policies may not cover cannabis-related risks. A landlord should review their existing policies’ scope with this in mind and confirm that this type of tenant will not void coverage. If added coverage is needed, a landlord may wish to adjust rental rates or other lease terms. The tenant should be required to maintain and provide proof of adequate insurance coverage, specifically compatible with their business activities.
- Other Tenants: A landlord should review leases with existing tenants to ensure that a new lease to a cannabis business does not violate any existing agreements.
- Nuisance: Though it should be confirmed, a typical nuisance clause dealing with noise, odors, etc. may cover cannabis-specific concerns. However, a landlord should consider adding that in the event of a nuisance caused by the cannabis business, the tenant must take extra steps required by the landlord (above and beyond those required by any regulations) to remedy the nuisance. For example, should other tenants be affected by a cannabis smell, a landlord remedy may require the tenant to improve their ventilation.
- Maintenance and Restoration: If a tenant is a grower, their lease should be customized to address the specific mold and humidity issues such operations can create. The tenant should be required to mitigate these risks as much as possible and to fully restore the leased property from these and all other impacts of the business at the lease’s end. The lease should also be clear on the tenant’s sole responsibility for any increased utilities and necessary alterations to the property (along with removal of same), such as specific security measures required for growers.
- Building and Premise Security: Regulation surrounding required security for commercial spaces storing cannabis products requires businesses to invest in additional security. A landlord should consider outlining this requirement and clarifying that the onus is on the tenant to organize and pay for required security personnel or systems, required under their operating jurisdiction.
- Landlord Access and Seizure: Regulation of access to cannabis facilities will restrict the generally broader (emergency or reasonable notice) landlord access rights normally in place under commercial leases. In addition, in consideration of regulations and licensing requirements, the usual landlord remedy of seizure and sale of a tenant’s goods to recover unpaid rent may not be available to a landlord who is not themselves in the cannabis industry, as they would risk criminal charges for unlawful cannabis possession.
- Termination: Since there is risk to the landlord, a landlord may wish to include enhanced termination provisions, such as allowing an end to the tenancy if the insurance coverage or the tenant’s permits expire or are cancelled or if the tenant faces criminal charges.
A new and regulated industry can be intimidating, but there are ways for landlords to manage their risk rather than miss out on opportunities entirely. If you’re considering a cannabis tenant, our lawyers are well versed in cannabis intricacies and would be thrilled to help you navigate them.
Learn more: https://segev.ca/cannabis-law-regulations/
For assistance please contact Alon Segev at [email protected] or 604-629-5400.
Disclaimer
***The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances. This blog post does not constitute legal advice or other professional advice and may not be relied upon as such. **
[1] [SBC 2018] CHAPTER 29
