State Adopts Cannabis Safe Harbor Rule in AB 2164
Today, we look at recent legislation related to cannabis, safe harbor and the landlord/tenant relationship. Many municipalities were adopting strict liability ordinances related to cannabis and these ordinance were targeting landlords out of possession. The State took measures to assist landlords in the management of their properties.
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State Adopts Cannabis Safe Harbor Rule in AB 2164
By: D. Keith Dunnagan, Esq.
2018 was a busy year as it related to the statewide legalization of cannabis. It started off with the first fully legal dispensaries opening for business on January 1, 2018. Shortly thereafter, former US Attorney General Jeff Sessions revoked the Cole Memorandum which signaled potential greater enforcement of cannabis related crimes at the federal level. Not long thereafter federal authorities raided and seized nearly 100 homes in Sacramento related to unlawful cannabis activities. At the same time counties and cities across California began enacting and/or enforcing local ordinances aimed at restricting cultivation of cannabis. In the latter half of 2017 the City of Sacramento adopted Ordinance No. 2017-0047 which created significant administrative fines when the cannabis cultivation at a residential dwelling violates the ordinance.
Many of these ordinances created strict liability for not only the tenant but also the property owner/landlord who may have been unaware that the tenant was using the property for cannabis cultivation. As these changes rolled out, landlords where having to get more creative on how to protect their investment from a potential fine. More landlords began doing routine maintenance tasks on their own, creating more direct lease language related to cannabis activities in the lease, or directing utility bills to the landlord and seeking reimbursement from the tenant in the form of additional rent to cover the charge – all in the name of being able to monitor the property use without violating quiet enjoyment rights. This placed an increased burden on the owner/landlord, but one that was necessary.
Even with the landlord becoming more involved in the monitoring of the property we still saw several instances where the landlord, despite taking reasonable steps to monitor and insure compliance with the law, was still be penalized for the tenant’s cannabis related activities. The unfortunate reality was that the ordinance was putting the landlords in a very vulnerable spot – monitor the property at a level that would require the landlord to breach the tenant’s right to quiet enjoyment under the lease and subject that landlord to a potential lawsuit or risk receiving an enormous administrative fine related to a tenant’s cultivation activities.
The California Assembly responded and passed AB 2164 which is codified at Government Code § 53069.4. While the statute allows for continued use of administrative fines it will also help owners/landlords so long as they take reasonable steps to insure compliance. Under the law as drafted prior to the levy of the administrative fine allowed by law, the owner/landlord has to be provided a “reasonable period of time for the correction or remedy of the violation prior to the imposition of the administrative fines…”. However, this statute works more as a safe harbor then anything else. In order for the cure period to exist the owner/landlord must satisfy three items: (1) a tenant is in possession of the property subject to the fine; (2) the owner did not know or have actual notice of the illegal cultivation; and (3) the owner can provide evidence that the lease agreement prohibits cannabis cultivation.
Most of the situations that we see the owner truly did not know of the cannabis activities and a tenant is always in possession. Satisfying the third condition is the most difficult. Most leases do not have an actual prohibition against cannabis cultivation. They usually prohibit illegal activities – but that is a trap as some form of cannabis cultivation is legal in nearly every jurisdiction by state law in California now. Without taking the time to insure that the proper restrictions are placed in the lease the owner may be unnecessarily restricting their ability to get the protection of the AB 2164.
With the adoption of this statute you should be reviewing the lease you and your client’s use to make sure that it complies with this new statute. That could be the difference between a six-figure fine and an opportunity to cure without the fine.
The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at firstname.lastname@example.org. Our flat fee consult for new clients may get you the answers you need for the questions you have.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.