New York City Local Law 107 of 2023 prohibits commercial landlords from knowingly leasing retail space to smoke shops that sell unlicensed marijuana, cigarette or tobacco products. While, to date, enforcement efforts have been aimed at the thousands of unlicensed smoke shops in New York City, and not their landlords, Local Law 107 requires landlords to ensure that commercial spaces are leased only to licensed businesses. As such, owners of commercial properties are advised to take care to investigate an incoming tenant and restrict improper use so as to avoid liability.
Pursuant to Local Law 107, City and State agencies that conduct inspections for unlicensed marijuana or tobacco sales, such as the New York City Police Department (NYPD), will provide a written warning to property owners requiring the owner “to ensure that the unlicensed sales…are ceased.” Owners have 15 days to appeal the written notice, which, if unsuccessful, then constitutes presumptive evidence that the owner has knowingly leased commercial premises in violation of the law. Subsequent violations will result in the issuance of a civil summons to the owner, which carries a fine for $5,000 for the first violation after a written warning and $10,000 for each subsequent violation.
Local Law 107 dovetails with the New York State Legislature’s recently-enacted Real Property Actions and Proceedings Law (RPAPL) Section 715-A and Cannabis Law Article 2, Section 16-A. RPAPL 715-A authorizes state enforcement agencies, including the Attorney General or the New York State Office of Cannabis Management (“OCM”), to issue a written violation to an owner or landlord requiring them to commence eviction proceedings against a retail tenant engaged in the unlicensed sale or distribution of cannabis products. If the owner or landlord fails to initiate a proceeding against the tenant within five days, the enforcement agency may then bring a proceeding against both the owner/landlord and the tenant. If the court judge finds a violation, RPAPL 715-A authorizes the immediate removal of the tenant and the imposition of a civil penalty against both the owner/landlord and the tenant, in an amount up to three times the rent charged during the violation.
Cannabis Law Section 16-A gives state enforcement agencies the additional power of shutting down unlicensed smoke shops by suing landlords in Supreme Court for preliminary injunctions, temporary closure orders, temporary restraining orders and permanent injunctions. If the court finds that the landlord “intentionally” permitted the unlicensed smoke shop to operate, it may fine the landlord up to $10,000 a day for each day of the violation. An owner can defend itself against a Local Law 107 and/or an RPAPL 715-a violation by commencing a proceeding to evict its unlicensed tenant.
Alternatively, owners may elect to work with their tenant to become licensed. OCM, which was created in 2021 after New York State legalized recreational marijuana, is currently issuing Conditional Adult-Use Retail Dispensary (CAURD) licenses for “justice-involved” individuals to open licensed retail dispensaries. As of August 1, 2023, there are seven fully licensed, and over one hundred provisionally licensed, CAURDs in New York City.
You should consult with your Rosenberg & Estis, P.C. attorney to review your lease to determine the best strategy for defending against a violation, either by serving appropriate notices and initiating eviction proceedings, or ascertaining whether your tenant may be eligible to become licensed as a CAURD.
Rosenberg & Estis will provide updates as the implementation of these City and State laws continue to develop and as we gain greater clarity regarding how the enforcement of the new laws plays out in the Courts.
If you have any questions, please feel free to contact your trusted R&E attorney or Adam Lindenbaum, Member of the firm’s Litigation Department, or Harris Davidson, Associate in the firm’s Litigation Department, both of whom authored the above.