Minden Gross LLP lawyers Michael Horowitz and Steven Birken provide suggestions on clauses for landlords to include when considering to incorporate cannabis into a tenant's permitted use.
Incorporating Cannabis into a Permitted Use? Leasing Considerations for Commercial Landlords
Originally published on Canada Cannabis Legal by Michael Horowitz and Steven Birken on July 26, 2018.
With recreational cannabis soon becoming legal in Canada, businesses are inevitably looking for ways to capture a piece of what is certain to be a very large pie. As such, landlords are being approached by future retailers, producers, and the like, with requests for the ability to incorporate cannabis into their respective retail or industrial uses. In order to adequately protect themselves, there are a number of provisions in a commercial lease that landlords should put their minds to if a tenant wishes to incorporate cannabis into their permitted use. Below are suggested considerations for five clauses which are traditionally included in commercial leases:
- The “Use” Clause
A landlord ought to know the tenant’s intended use of cannabis on the property. Is the tenant in the process of applying to become a licensed producer, or is the tenant applying (in provinces where permitted) to be a licensed cannabis retailer? In either case, the use should be limited to activities authorized by Health Canada or provincial/municipal permits. Landlords should request copies of appropriate licenses and/or permits before executing a lease and should be aware of illegal operations, especially storefront cannabis sales, attempting to lease their space.
- The “Compliance with Laws” Clause
A Tenant’s use must comply with all applicable laws, which should include, without limitation, federal, provincial, municipal and other governmental legislation, bylaws and regulations. Specifically referencing the federal Access to Cannabis for Medical Purposes Regulations, and the soon-to-be federal Cannabis Act, its regulations, as well as the applicable provincial cannabis laws, should become commonplace in these scenarios.
- The “Waste Removal” Clause
Regardless of whether the landlord or the tenant is generally responsible for waste removal, it should be made clear that the tenant is solely responsible for complying with all applicable laws and regulations concerning the removal of any waste associated with cannabis (production, retail, etc).
- The “Nuisance” Clause
Standard nuisance clauses generally prohibit Tenants from causing a nuisance (i.e. by way of fumes, odours, noise, etc.). In cannabis-specific Leases, the nuisance clause should specify that if the Tenant’s use of the property results in any undue fumes or odours, the tenant may be required to take extra measures as the landlord deems appropriate, including, for example, installation of additional ventilation equipment, over and above what is required by the regulations.
- The “Insurance” Clause
Any tenant who intends to incorporate cannabis activities as part of its permitted use ought to be obligated to advise its insurer of such under the lease, and should be required by the landlord to obtain any additional insurance coverage as the tenant’s insurer may require or recommend.
These provisions are just some of the considerations at play for a landlord when faced with a tenant who desires to incorporate cannabis into its permitted use. A different set of considerations exist for residential landlords and condominium boards who wish to control home cultivation and use.