Have you decided to rent out a space to a tenant for their cannabis activities? As both a landlord and tenant, understanding the specs of California’s cannabis leases becomes crucial in order to avoid unwanted problems.
Here’s a summary of Canna Law Blog’s experiences in dealing with said leases and in turn, what should be considered:
1) Review Each City Individually in Terms of Cannabis Stance
According to the blogpost, before getting hold of a cannabis lease, renters and landlords are required to understand the local area’s retrospect under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). Simply put:
“Landlords need to understand that not all cities allow both medicinal and adult-use cannabis activity [and] should require that their tenants seek out and secure local approval as part of their lease performance obligations.”
2) Understand The Difference Between A Provisional And Annual License
Landlords should be able to differentiate between provisional and annual state licenses. Although getting a state license is deemed easy, it’s the “timing” aspect that requires attention. The difference between a provisional and annual license is that first could take weeks, whereas the second (often preferred) could easily take over a year.
3) Change is State’s Viewpoint Trusted as Unpredictable
Landlords and renters must be watchful of the regulations imposed by the state. Given that both local and state levels are prone to changing their mind in relation to cannabis legalization, renters especially need to be careful, as producing anything that goes against regulation can lead to serious consequences.
4) “One licensee/Premises” Rule
The One licensee/Premises Rule implies that only one license holder can take part in the cannabis activity within a given space. This is often misinterpreted, allegedly leading to “multiple licenses of a single tenant to be housed in a single premise.”
5) Cash Payments Lead to Mortgage Agreement Violation
Since cannabis firms don’t have access to financial services (i.e. banks), landlords may have to collect cash payments, with rare cases of a check – where the latter gets assessed by the bank. This is deemed a problem because the document states that one cannot take part in illegal activities on the property and because the bank isn’t too supportive of cannabis, this results the mortgage agreement getting violated.
6) Security and Access Measures Taken and Insurance Coverage
Landlords now have to assess a number of measures taken by the tenant. This could include specific security installation (provided in the form of a diagram), ID badges for facility access (limited entry) and signs depicting restrictions, and finally, “commercial general liability insurance” with surety bonds attached.