CREJ - Journal

7 / 32

May 2015 — Property Management Quarterly — Page 7
R ecreational and medical
marijuana are legal in Colo-
rado. However, this does
not mean that landlords
are required to allow the
drug on their property, not even
medical marijuana. In fact, allowing
marijuana creates risks to property
owners that all landlords should be
aware of before allowing it because
medical and recreational marijuana
are illegal federally.
Because all marijuana is illegal
federally, allowing a person to pos-
sess, sell or grow marijuana on a
property can put that property at
risk of seizure by the federal gov-
ernment. Additionally, an owner
who knowingly allows the posses-
sion, cultivation, use or distribution
of marijuana on his property is at
risk of being classified as a con-
spirator to a federal crime, which
carries a punishment of up to 20
years in prison and a fine of up to
$500,000. And, let’s not forget about
issues like mortgage obligations,
insurance, zoning and neighbors.
Fortunately for property owners
in Colorado, the federal authorities
have taken little action against Col-
orado properties when that prop-
erty is used in a marijuana business
that sells or grows marijuana in
accordance with state law. However,
that policy is simply that – a policy,
not a law – and thus the policy may
change without notice.
The marijuana industry in Colo-
rado is a very lucrative business.
The industry sells tens of millions
of dollars worth of marijuana per
month. In 2014, the recreational and
medical marijuana
industries were
collectively respon-
sible for around
$700 million of
retail sales. Thus,
many property
owners are inter-
ested in a piece of
that action.
Landlords in
Colorado have
two options: allow
marijuana or not
allow marijuana.
Either way, a land-
lord should ensure that his lease
specifies his intent to allow or not
allow it on the leased property.
Not Allowing Marijuana
When a landlord decides not to
allow marijuana, he should explic-
itly state in the lease that mari-
juana is not to be sold, grown, used
or possessed on the property. This
specificity has numerous landlord
benefits.
First, specifically stating that
marijuana is not allowed on the
property will give the landlord an
avenue for recourse in the event
that the tenant possesses, sells,
uses or grows it on the property.
Specifically disallowing marijuana
makes a breach of the lease clear
and eviction easier.
Second, in the event that a fed-
eral agency seizes the property as
a result of marijuana activity, that
specific clause could help prove
that the landlord did not knowingly
allow the illegal activity. This is
important because
when the federal
government seizes
leased property,
the owner may
assert an “innocent
owner” defense to
recover possession
of his property.
If the owner was
indeed ignorant
of the activity, but
not through will-
ful ignorance, the
seized property
may be returned to
the owner.
Allowing Marijuana
If a landlord decides that he
wants a piece of the marijuana
brownie, the landlord should ensure
that the lease has certain provisions
to protect from risks and nuances
associated with marijuana tenants.
Marijuana tenants often need
high levels of security. As such, the
lease should specify the security
provided by the landlord, methods
of obtaining additional security and
how the security systems will affect
the lease charges.
Additionally, certain marijuana
operations require increased electri-
cal and water capabilities. Marijua-
na-grow operations require a lot of
electricity and water in order to rep-
licate the appropriate conditions for
growing it. A good lease will ensure
that the tenant will pay for the
increased utilities, as well as control
how the building may be modified,
what modifications are allowed and
who will pay for the modifications.
Another major issue that land-
lords of marijuana tenants face is
how the tenant pays the rent. These
businesses are unable to work with
most banks and credit unions.
Accordingly, marijuana clients tend
to pay in cash because normal
banking services like credit cards,
debit cards, checking accounts, wir-
ing services, etc., are not available.
The landlord should specify in the
lease how the tenant may pay the
rent.
Also, physical damages to a prop-
erty from grow operations can
be significant. The required extra
water and electricity creates an
environment that is likely to cause
mold growth. Following the tenancy
of a grow operation, the repair and
remediation costs can be substan-
tial. Thus, in addition to increased
rent, an increase security deposit is
advisable as well as the unencum-
bered right of entry for inspection.
Finally, a landlord needs to ensure
that his insurance provider will
cover damages done by a marijuana
client. If additional insurance is
needed, the lease should specify
who will pay for it.
Other things to consider are how
the property’s lender will feel about
the activity and does the lease vio-
late the terms of your financing
agreement, as well as issues with
neighbors and zoning.
The decision of whether to rent to
a marijuana tenant is the choice of
the property owner. Either way, the
lease should specifically detail the
agreement of the parties.s
Donald
“Corky” Eby
Attorney, Robinson
and Henry PC,
Castle Rock
Kayla Weeres
Law clerk,
Robinson and
Henry PC, Castle
Rock
Legal