Since the passage of Proposition 215, medical marijuana dispensaries are popping up all over Sacramento County. Throughout Sacramento County, businesses operating medical marijuana dispensaries are leasing commercial premises. These businesses are not licensed to dispense medical marijuana and are leasing space in areas not zoned for such dispensaries. What is a landlord to do when it receives a Notice of Violation from the County that one of its tenants is illegally operating a medical marijuana dispensary on its property? That is exactly the situation faced by a local commercial landlord who is being sued by the County of Sacramento and is facing a judgment for the sum of the County’s attorney’s fees and costs of the litigation. FiftySeven Madison, LLC is being sued by the County of Sacramento for nuisance and various code violations. The County is seeking to collect monetary damages and attorneys’ fees and costs incurred by the County. FiftySeven Madison, LLC is also a party to an administrative action and could be assessed substantial fines and penalties.
Receiving such a Notice of Violation puts a landlord in a precarious situation. There are no great options when a landlord faces exposure to a lawsuit, with the attendant costs to defend versus the expenditure of valuable monetary resources to give notice of breach of the lease to the tenant and risk a loss of rental income. Either way, the landlord’s rental income from this tenant will go up in smoke.
Under current law, the tenant operating a medical marijuana dispensary in Sacramento County will be shut down. Typically, the tenant vacates the leased premises and re-opens under another name in another location. Since the vacating tenant is usually an under-capitalized business entity, the landlord will more than likely never collect the rent owed under the lease. Of course, if the lease was guaranteed by a person with assets, the landlord may be able to file a lawsuit and ultimately collect the sums owed under the lease. But, the landlord will still have a vacancy to fill and will have to expend resources on the hope of collection in the future.
Landlords are wise to minimize their risk in these situations. Whenever a landlord receives a Notice of Violation from the City or County about one its tenants, or it has knowledge that a tenant is conducting illegal activities on its property, the landlord should immediately serve the tenant with a Notice to Perform (i.e. stop the illegal activity) or quit the leased premises. If the tenant fails to stop the illegal activity, the landlord should follow through with an unlawful detainer to remove the tenant from the premises.