Cannabis commercial lease agreements
Signing a commercial lease can be an exciting step toward realizing operational goals in your Washington cannabis business. However, if a lease is not analyzed and completed correctly, the agreement can leave either the landlord or the tenant, or both, with additional headaches and liability. Understanding the nuances of the cannabis commercial agreements is crucial for both parties alike.
Whether you are a small business owner looking to secure your first retail or business space, or a property investor seeking to maximize your returns, having a firm grasp of the legal framework surrounding cannabis commercial leases can make the difference between a successful business venture and a costly endeavor. It’s important to note that usually, both parties have the same goal and that is to use the property for the stated purpose in a way that benefits both landlord and tenant alike. If the agreements are negotiated correctly, you’ll be left with a situation where when one succeeds, the other will likely succeed as well.
For the most part, commercial landlord-tenant relationships are governed by statutes and basic fundamentals of contract law in Washington state. More often than not, courts will defer to the Commercial Lease Agreement and other applicable agreements between the parties before looking to any statutory default provisions. This stance makes lease agreement negotiations and drafting more important than other instances such as residential lease agreements.
Key points in Washington cannabis commercial leases
In order to ensure your Washington cannabis commercial lease is a mutually beneficial endeavor, here are some key points that both sides need to consider:
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Lease term and renewal options
The lease term is the backbone of any commercial lease agreement. It outlines the duration of the lease and sets forth the rights and obligations of both parties during that period. In Washington state, lease terms are highly customizable and can range from short-term agreements to long-term leases spanning several years. Additionally, both parties should pay close attention to renewal options to ensure there is flexibility to extend their lease if desired and needed.
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Rent and additional costs
Negotiating rent and additional costs is often a sticking point in commercial lease agreements. Landlords typically seek to maximize their rental income, while tenants aim to keep costs manageable. It’s crucial for both parties to clearly define the base rent, any annual increases, and the allocation of additional expenses such as property taxes, maintenance fees, and utilities.
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Use clause
The use clause specifies how the leased premises can be utilized by the tenant. It’s essential for both parties to ensure that the intended use aligns with the zoning regulations and any restrictions outlined in the lease agreement. Additionally, landlords may include provisions to protect the integrity of the property and surrounding businesses.
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Cannabis friendly provisions
The cannabis industry is well known for its regulatory oversight and compliance requirements. Both parties should be aware of applicable state and local regulations and compliance requirements. Many of these requirements can be specifically addressed in the lease agreement so there is no question as to the rights and obligations of each party.
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Repairs and maintenance
Determining responsibility for repairs and maintenance can prevent disputes down the line. Commercial leases often allocate these duties between landlords and tenants, with landlords typically responsible for structural repairs and tenants responsible for interior maintenance. Clarity on these obligations can help avoid confusion and ensure that the property remains in good condition throughout the lease term.
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Assignment and subletting
Businesses evolve, and sometimes tenants may need to assign their lease or sublet the premises to another party. Landlords usually retain the right to approve or reject assignments and subleases to maintain control over their property and ensure the new tenant is financially stable.
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Termination and default
Despite best intentions by both parties, lease agreements can sometimes be terminated prematurely due to unforeseen circumstances or breaches of contract. It’s essential for both parties to understand the conditions under which the lease can be terminated and the remedies available to each party in case of default.
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Notaries and other compliance
Even though most commercial lease disputes are determined by the contract, commercial lease agreements must still comply with state and local laws governing landlord-tenant relationships. In Washington, lease agreements must be notarized to have their full force and effect. Additionally, other use-specific statutes and regulations should be considered and incorporated into the drafting of commercial leases. As noted above, one example is for licensed cannabis businesses in Washington. These businesses must have additional protections and oversight to remain in compliance with state and local laws and regulations.
Ensuring a successful relationship
Navigating the complexities of commercial lease agreements in Washington requires attention to detail and a thorough understanding of not only the legal landscape, but also the goals, aspirations, rights, and obligations of both the landlord and the tenant.
Negotiating and drafting a well thought out commercial lease can make the difference between a thriving business and a beneficial relationship between the landlord and tenant or a costly nightmare.
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For more on cannabis commercial leases, check out the following posts:
