New Yorkers are by now not strangers to the seemingly sudden proliferation of unlicensed cannabis shops all over New York City.  Commercial landlords should be aware of recent New York City and State legislation targeting landlords who lease their properties to unlicensed cannabis tenants, which is intended to assist in enforcement of New York’s cannabis licensing regime.  Landlords are advised to strongly consider these and other risks associated with leasing to unlicensed cannabis tenants, and to carefully monitor how tenants are actually using their properties.

New York City Legislation

The New York City Council recently voted to pass legislation, which is expected to pass into law imminently, that will penalize commercial landlords for knowingly leasing a commercial premises to “unlicensed sellers” of cannabis, cigarettes, electronic cigarettes, and tobacco products.  The law will impose civil fines on landlords for each time they are found to violate the law—$5,000 for the first offense and $10,000 for subsequent violations.  Landlords should note that, under this legislation, they may assert as an affirmative defense their commencement of eviction proceedings against such unlicensed sellers.  Once passed, the law will be codified as Section 10-186 of the New York City Administrative Code.

New York State Legislation

In addition to the new City law, the New York State legislature has amended the Real Property Actions and Proceedings Law (RPAPL) to allow agencies enforcing the State cannabis laws to, upon five days written notice, compel landlords to commence eviction proceedings against commercial tenants that are using the property to sell cannabis without a license in violation of Article 6 of New York’s Cannabis Law and Section 222 of the Penal Law.  If the landlord fails to initiate eviction proceedings after the five-day notice period or fails to diligently prosecute the tenant after initiating proceedings, the law authorizes the enforcing agency itself to initiate eviction proceedings “as though [it] were the owner or landlord of the premises.”  RPAPL § 715-a-1.

The new amendments to the RPAPL also authorize a penalty on landlords that are “found to have knowingly permitted such a violation” by a commercial tenant, with potential penalties reaching as high as triple the rent charged over the course of the violation.  See RPAPL Section 715-a-2(b).  Only landlords who are not otherwise subject to a civil penalty under the Cannabis Law would be subject to such a penalty.

The Cannabis Law has also been amended to allow for more robust enforcement.  A landlord who merely permits unlicensed cannabis activity on its property is exposed to liability for doing so and can be made a defendant in an enforcement action.  See NYS Cannabis Law § 16-a-1(a).  Moreover, the law authorizes the naming of properties themselves as defendants in enforcement actions and permits the State Attorney General and Office of Cannabis Management to file a lis pendens against the property. See NYS Cannabis Law § 16-a-1(b) and (d).  If an action is brought against the property itself, the recorded owner can be compelled to turn over the names of any other owners, lessors, and lessees involved in the property so that they can also be brought in as defendants to the enforcement action. See NYS Cannabis Law § 16-a-1(f).

The Cannabis Law also authorizes enforcing agencies to obtain other stiff injunctive relief against landlords that could result in the shuttering of the property to the extent necessary to abate unlicensed cannabis activity.  See NYS Cannabis Law § 16-a-2–7.  The law authorizes enforcing agencies to seek preliminary injunctions, temporary closing orders, temporary restraining orders, and permanent injunctions.  Crucially, a permanent injunction would become a lien upon the property, and that lien would be given priority over an existing mortgage lien.  That should be concerning to any landlord with a mortgage on their property, as this may trigger a default under the terms of the mortgage.

Our experienced Litigation and Real Estate teams at Moses Singer regularly advise clients with respect to lease disputes, leasing, and regulatory disputes and will continue to monitor this rapidly evolving landscape.