The proliferation of medical marijuana dispensaries in cities such as Vancouver and Toronto has prompted city councillors to crack down—albeit in different ways—on these illegal businesses. While Vancouver has sought to limit the number of dispensaries through a licensing scheme, Toronto has begun placing responsibility for proliferation on landlords. Commercial landlords in Toronto should be careful about renting to dispensaries and consider adding language to their standard forms of lease to protect themselves in the event of enforcement action by the city.
Background
Access to medical marijuana is regulated under the Marihuana
for Medical Purposes Regulations1(MMPR), with some
licences still existing under the now-repealed Marihuana
Medical Access Regulations2. Storefront
dispensaries are not licenced under either regime and therefore do
not operate legally. In Allard et al v Canada, the Federal Court
declared the MMPR regime unconstitutional, citing patients'
right to access marijuana for medical purposes.3
Although some argue that this decision justifies dispensaries
supplying medical marijuana to patients, these unlicenced
dispensaries remain illegal for the time being.
However, in Vancouver and Toronto, local police have taken a
largely hands-off approach. As a result, both cities have seen a
surge in the number of dispensaries. While Vancouver has sought to
address the issue by way of a by-law delineating how and where the
businesses can operate,4Toronto has taken a different
approach. Toronto city council recently announced the debate over a
potential licencing regime would be deferred until details of the
proposed federal legislation are made available.5 In the
meantime, the city has been targeting the illegal businesses, and,
importantly, their landlords.
In May 2016, the City of Toronto and the Toronto police distributed
notices of unpermitted use to dozens of landlords whose tenants
operate dispensaries.6According to the city, marijuana
dispensaries are in violation of zoning by-laws. Landlords renting
to an illegal operation face fines of up to $50,000 for a first
conviction, and up to $25,000 per day for subsequent convictions if
they continue to not comply.7
Notices of unlawful activity distributed concurrently by the
Toronto police threatened landlords whose tenants operate
dispensaries with the possibility of prosecution under the
Controlled Drugs and Substance Act8or other
provincial statutes, including the Civil Remedies
Act.9 Last month, the Toronto police raided 43
dispensaries. The first round of raids was followed in late June
with more enforcement activity, resulting in 34 dispensaries being
shut down.10 There are reports that marijuana dispensary
owners, store clerks and their landlords were
charged.11
What can landlords do?
Due Diligence
Landlords can protect themselves by doing diligence on prospective
tenants. Before entering into a lease, landlords should perform
robust business and legal diligence searches. These searches can
include everything from Google searches to corporate and bankruptcy
searches to police background checks. In particular, landlords
should be aware of tenants purporting to operate pharmacies and
alternative medicine practices. For existing tenants, landlords
should regularly inspect the leased premises pursuant to the terms
of their leases.
In this context, the tenant's illegal acts could result in
liability for the landlord; therefore, there is an increased onus
on landlords to conduct their own due diligence. Zoning and licence
by-law offences are typically "strict liability"
offences, meaning that liability can attach even where the landlord
had no knowledge of the wrongdoing. As a result, landlords may need
to do additional due diligence to ensure tenants' legal
compliance, including making inquiries as to permitted use under
zoning by-laws and ensuring tenants have the necessary business
licences.
Adapted Lease Provisions
Landlords should also ensure that their leases provide them with
sufficient remedies to deal with tenants' legal non-compliance.
Landlords should seek to ensure they have the ability under the
lease to step in and cure (or otherwise address) legal
non-compliance on the part of the tenant before it results in
liability for the landlord. In that vein, landlords should consider
tailoring the default provisions of their leases towards potential
by-law infractions, for example by including landlord rights to
cure the tenant's non-compliance at the tenant's
cost.
Landlords should also make sure that the notice and cure periods
for such defaults under the lease track the notice and cure periods
that might be specified in an enforcement order from the city or
other governmental authority. A landlord does not want to be served
with an enforcement order that gives it three days to comply while
the lease default provisions allow the tenant five days to
comply.
Bottom line
Although the dispensaries remain illegal, it is unlikely
landlords in Vancouver will be targeted by by-law enforcement, as
the city has taken a regulatory approach to managing the
dispensaries. Further, Vancouver police have stated they will not
be targeting medical marijuana dispensaries unless there is a
public safety concern.12
In Toronto, however, the city and Toronto police have put landlords
on notice as to the presence of dispensaries on their property,
making it incumbent upon them to take steps to remove these illegal
businesses.
The authors wish to thank summer student Erika Woolgar for her
help in preparing this legal update.
Footnotes
1 SOR/2013-119.
2 SOR/2001-227, as repealed by Marihuana for Medical Purposes
Regulations, SOR/2013-119, s 267.
3 2016 FC 236.
4 See: http://vancouver.ca/doing-business/medical-marjiuana-related-business-regulations.aspx.
5 See: http://www.theglobeandmail.com/news/toronto/toronto-city-council-committee-turns-away-marijuana-advocates/article30627296/.
6 See: http://www.theglobeandmail.com/news/national/toronto-targets-landlords-in-pot-shop-crackdown/article30089082/.
7 Planning Act, RSO 1990, c P13, s 67(2)(a).
8 SC 1996, c 19.
9 SO 2001, c 28, s 8(1).
10 See: http://www.theglobeandmail.com/news/toronto/toronto-city-council-committee-turns-away-marijuana-advocates/article30627296/.
11 See: http://www.metronews.ca/news/toronto/2016/06/15/toronto-marijuana-shop-operators-have-first-day-in-court.html.
12 See: http://vancouver.ca/police/policeboard/agenda/2015/0917/1509C01-2015-112-Marijuana-Dispensaries.pdf.
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