How should an MMJ business respond to this?
How should an MMJ business respond to this?

A number of Washington cities and counties are moving to shutter medical marijuana dispensaries (“access points”) and collective gardens as the July 1, 2016 drop dead date set forth in Senate Bill 5052 approaches. So far, King County, Pierce County, Tacoma, and Seattle have all moved to close access points and collective gardens not in “strict compliance” with RCW 69.51A. Needless to say, this is impacting medical marijuana landlords and tenants.

Commercial landlords are issuing notices of eviction and filing for unlawful detainers by the bucketloads against their medical marijuana business tenants. Landlords allege that their tenants breached the lease by engaging in “illegal activity.” The Landlords seeking evictions are following in the footsteps of local government shut downs due to the “illegality” of medical marijuana activity and seek to terminate their leases to avoid municipal heat and any resulting liability.

But what if the landlord and the tenant agreed in their lease to accommodate medical marijuana activity? What if an addendum to the lease specifically allows for retail sales of medical marijuana? What if a medical marijuana tenant has operated as an access point or collective garden at a given location for a number of years before these government attempts to close them ? If any of these are the case, the eviction and unlawful detainer actions are not slam dunks by any means.

Unlawful detainer for a commercial tenant is controlled by RCW 59.12. The grounds and notice requirements for unlawful detainer are contained in RCW 59.12.030. Once a landlord serves a tenant with a notice of eviction and the tenant fails to vacate, the landlord can file a complaint for unlawful detainer and request a show cause hearing in front of a court commissioner. At the show cause hearing, the landlord and tenant present their sides of the story as to why the tenant should or should not be evicted. If there is at least one material fact in dispute at the show cause hearing, the court will deny an immediate eviction and set the matter for trial. Unlawful detainer actions usually arise from a tenant’s failure to pay rent and those cases tend to be cut and dry. Rarely does an unlawful detainer proceeding concern an breach of lease allegation due to illegal activity, and rarer still are unlawful detainers in the commercial medical marijuana context.

Here are some things to consider regarding unlawful detainer in the wake of recent local government action relating to cannabis:

  1. Legality of Medical Marijuana. The standard lease agreement usually contains a clause forbidding illegal activity on the property, making illegal activity a fundamental breach of the lease. Given the way things have gone for MMJ in Washington, a landlord should have available to it several arguments in support of their argument that medical marijuana activity is in fact illegal and therefore constitutes illegal activity in violation of the lease. The Kent case highlights the power of cities and counties to ban medical marijuana through land use actions, and the court of appeals clarified that qualifying patients’ entitlement to an affirmative defense does not mean medical marijuana is or ever was decriminalized in the state of Washington. The Reis case also affirms as much. And with SB 5052 forcing the closure of MMJ collective gardens and access points by July 1st of next year, and with local governments interpreting SB 5052 and the case law to mean any commercial marijuana activity without an I-502 license is an illegal activity, landlords do not lack legal ammunition against an MMJ tenant. Though SB 5052 carves out a path to legitimacy for existing MMJ businesses by folding them into I-502, arguing the current legality of medical marijuana under state law is not going to be a tenant’s best argument in an unlawful detainer action.
  2. Waiver. If the leasehold at issue contains a clause allowing for medical marijuana activity, the tenant has a viable affirmative defense of waiver. Even without such a clause (and even if the contract expressly prohibits illegal activity), the tenant may have a good argument that the landlord waived its right to terminate the lease for MMJ by knowingly and intentionally contracting and/or allowing for medical marijuana activity as a permitted use.
  3. Equitable Estoppel. Equitable estoppel, another affirmative defense, has three elements: (1) an admission, statement, or act inconsistent with the claim afterwards asserted; (2) action by the other party on the faith of such admission, statement, or act; and (3) injury to such other party resulting from allowing the first party to contradict or repudiate such admission, statement, or act. Equitable estoppel will be a strong defense for an MMJ tenant if the landlord knew and approved of the tenants marijuana activity from the inception of the lease, but is now claiming illegality as a breach of the lease. The tenant in that sort of a situation should be able to show that it rented its space in reliance on the landlord’s acceptance of its engaging in an MMJ business.
  4. Unclean Hands. Unclean hands generally stands for the proposition that a party seeking relief from a court is not entitled to that relief if it has itself engaged in unethical or unlawful conduct relating to the subject of the lawsuit. A landlord that knowingly acquiesced to MMJ activity on its property in exchange for rental payments is in real danger of its claims being denied based on an unclean hands defense. 
  5. Illegal Contract. Most interestingly, where MMJ activity is allowed under the leasehold, we think some landlords may try to argue that the entire lease should be cancelled because it is essentially a contract for illegal activity and thus unenforceable. Some courts have held that a contract is not illegal if the illegal activity is only incidental to the main purpose of the contract. Other courts have held that any illegal activity stemming from a contract, incidental or not, renders that contract unenforceable. This defense needs to be tested by the Washington courts in a medical marijuana context.
  6. Cure. If a tenant cures an alleged default by complying with a lease’s cure period (if it has one) or within the statutory cure period set forth in RCW 59.12.030(4), the tenant may be able to survive the unlawful detainer. For most MMJ businesses in jurisdictions moving to shut down MMJ businesses right now, cure will likely require eliminating the MMJ activity altogether. On the other hand, landlords will likely argue that breach because of illegal activity is not a breach capable of cure where it is a fundamental breach of the lease, making any cure irrelevant.

If you are issuing or are in receipt of a complaint for unlawful detainer, you must be sure to act quickly because these actions involve various hard and fast timelines governed by statute. Most importantly you should gear up to face face a whole host of complicated issues arising from Washington state’s convoluted cannabis laws.

  • LIESELOTTE JOINES

    Informative suggestions . I was fascinated by the facts – Does someone know if I could obtain a sample 1999 OMB SF 269 document to fill out ?