Over the past five years, the legalization of recreational cannabis has swept across a significant portion of the country, bringing with it lucrative opportunities for purchasers, sellers, landlords and tenants of commercial property. Along with these opportunities come various issues that any sophisticated owner or operator of real property must take into account when evaluating whether to pursue the opportunity considered. Those issues should manifest themselves in the commercial lease or purchase and sale agreement. Some examples of such issues are below.
Every owner and tenant seeking to use property for cannabis-related uses should consider whether there is an existing mortgage or deed of trust affecting the property. Since recreational cannabis remains illegal under federal law as of the date of this article, and most loan agreements allow lenders to default the borrower if illegal activities are conducted on the property, there is a risk that the lender will put the borrower in default, foreclose on the property and evict the tenant. This is obviously a significant risk for the owner who may lose his property and the tenant who could lose its leased premises after investing significant sums of money to build the space out for its intended use.
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