Commentary: Legal implications of cannabis in Canadian commercial real estate

Significant impacts incoming in the commercial real estate segment upon marijuana legalization

Commentary: Legal implications of cannabis in Canadian commercial real estate
The discourse surrounding cannabis legalization has shifted into a higher gear since Justin Trudeau’s ascension as Prime Minister, and nowhere is this more apparent than the massive impact that legal marijuana will have upon commercial real estate, “including as it relates to the landlord/tenant relationship, and environmental and municipal matters.”

Writing for, attorneys Joseph Grignano, Jonathan Kahn, Tara Piurko, and Grace Smith of Blake, Cassels & Graydon LLP outlined the legal and procedural intricacies that the commercial real estate segment must be aware of; Bill C-45 (the Cannabis Act) does not have all the answers because “the provinces, territories and municipalities, under their own authorities, can set additional restrictions related to production, sale and consumption.”

“Careful thought must be given prior to leasing premises for the production, distribution or sale of cannabis. This is particularly true of multi-tenant commercial properties. Tenants in the cannabis business should not be held to a higher standard as compared to other tenants and, as such, they should assume responsibility to rectify reasonable and justifiable complaints by others (but not necessarily those that are unreasonable or ungrounded),” the authors wrote.

“At a minimum, tenants who intend to produce, distribute or retail cannabis from their leased premises should ensure that their leases do not afford their landlord automatic or unfettered termination rights should a neighbouring tenant take issue with odour, smoke or other issues related to the tenant's business operations,” the lawyers explained, adding that the lease agreed upon must have built-in mechanisms to correct such issues.

Another important aspect is safety, especially when it comes to the physical security of the crops.

“The parties to the lease will want to think about and be clear as to who will bear the responsibility for safety, security and any related property upgrades. For example, slab-to-slab construction and steel mesh sheets attached to the underside of structural joists may be required to ensure security between interior party walls.”

“Finally, as a further exercise of cost and risk allocation, landlords and tenants will want to determine who will bear the responsibility for upgrading properties to comply with relevant standards in relation to fire and electrical safety, humidity and moisture control, waste management and ventilation,” the authors concluded.

“If fixtures and improvements are made to the premises in this regard, ownership must be designated as well as responsibility for removal upon the expiry of the lease term.”

A fuller explanation of these legal implications can be viewed here.