Colorado and Washington are the first two states in the country to legalize the recreational use of marijuana. Amendment 64, the Colorado law legalizing marijuana, has just recently taken effect. Landlords, tenants and property managers in Colorado are assessing the effects this new law has on the real estate assets which they own, lease or manage. Among other things, Amendment 64 legalizes recreational use and marijuana possession, and provides a regulatory framework for Colorado’s new marijuana industry.
Can landlords still legally prohibit tenants from using marijuana on leased property? YES, because marijuana possession and use is still illegal under federal law. Although a tenant has certain rights to use, possess and grow marijuana under Amendment 64, a landlord’s prohibition of marijuana on its leased property will be upheld IF such activities are expressly prohibited or restricted by the landlord.
If your goal is to PROHIBIT marijuana use, growth or sale on your leased property, now is a good time to review and update your lease forms and your rules and regulations. The best way to ensure that your tenants understand that marijuana is not allowed is through specific language included in your lease documentation. Also, you should confirm that your lease documents specifically prohibit the sale and growth of marijuana. You may consider adding language to your form lease or rules and regulations specifically prohibiting marijuana use “in any form” in, on or around the property. Be clear that a violation of any of these restrictions will be considered a default under the lease and will allow the landlord to exercise all remedies available to landlord.
If a landlord desires to ALLOW marijuana use, sale or growth on its property, we advise careful consideration of the parameters of Amendment 64 and any rules and regulations put in place under that law. Further, before making the decision to allow marijuana use, sale or growth, landlords should understand the implications of federal law, given that marijuana use, sale and growth is still categorized as a criminal act under federal law. In fact, Colorado’s two largest banks have publicly stated that, in order to comply with federal law, they are unlikely to refinance or offer new commercial loans secured by properties that lease to marijuana businesses even though federal banking regulators recently made announcements which some experts proclaimed as a “green light” for banks to do business with the marijuana industry. Most, if not all, loan documents already contain default provisions regarding a lessee’s violation of state or federal laws, and requirements that borrowers periodically inform lenders concerning the identity and business purposes of existing tenants and new occupants/lessees of their properties, which provisions will allow banks to enforce their “no marijuana” stance against existing borrowers if the banks chose to do so.
Whether you decide to allow or prohibit marijuana on your property, now is a good time for you to consider this issue, and to develop lease provisions or rules and regulations which address risks that may arise in the future.
Laws and regulations, both state and federal, responding to the adoption of Amendment 64 are still being developed. As such, the regulation of the drug itself is occurring in a very fluid environment. Therefore, while the information set forth above is current, please watch for further updates as new developments occur.