California Cannabis: Challenging Excessive Liens and Assessments by Cities

Cannabis regulation in California is heavily focused on local control. We write and speak about this constantly. (See here, here, here, and here). As predicted, new lawsuits are cropping up all over the state challenging the authority of local governments to take certain actions as they pertain to cannabis. Our firm has generally discouraged clients from taking a litigious approach toward government regulation of cannabis, because the often meritless lawsuits we saw in the pre-MAUCRSA era rarely resulted in victory for cannabis entities, were largely detrimental to property owners, and turned the majority of local legislative bodies in California against the cannabis industry.

However, there are constitutional and statutory limits to what governments can do, and it is a fundamental part of our duty as attorneys to ensure that the rights of voters, property owners and tax-paying citizens are protected. This post focuses on one troubling practice we are seeing in California involving cities recording excessive fines and penalties against property owners who lease (knowingly or unknowingly) to cannabis tenants.

Local Governments Are Charging Property Owners Excessive Fines And Penalties And Recording Them Against The Property As A Lien Or Special Assessment

Cities generally have two goals when it comes to code enforcement: (1) compliance and (2) cost recovery. State law provides the vehicle for local governments to achieve these goals via Government Code sections 53069.4, 38773.1 and 38773.5, which enable cities to declare activity in contravention of the municipal code a public nuisance, take action to abate that nuisance, and then recover the cost of abating the nuisance via a lien or special assessment against the property. However, this practice is frequently abused. A staggering number of cities misinterpret these laws to mean that they are entitled to impose fines (sometimes up to $10,000 or $20,000 per day!) for municipal code violations against both businesses and property owners. If these fines go unpaid, the cities record them as a lien or special assessment against the subject property. The result is a massive fee, sometimes upwards of $1 million, tacked on to an owner’s property tax bill. If that goes unpaid for three years, the local government can seize and sell the property.

This is a nightmare for property owners leasing to cannabis businesses. We have spoken to many owners in this scenario who were either unaware that cannabis activity violated the local code, or unaware that their tenants were cannabis businesses. Upon receiving a notice of violation, these owners instituted unlawful detainer proceedings, and diligently pursued eviction of cannabis tenants. Despite this, cities continued to assess fines against the property owners until the cannabis activity was completely eradicated from the property. In the end, despite immediately acting to remove their tenants, these property owners were hit with hundreds of thousands to millions of dollars in unpaid fines and penalties. Most owners in this scenario are unable to pay, and are forced to give up their properties.

This practice, in most cases, is unlawful under our analysis. The Government Code does not authorize cities to attach liens or impose special assessments to collect outstanding nuisance fines or penalties. We are actively fighting for our clients who have been wrongly assessed excessive fines and penalties and are in jeopardy of losing their properties, and we will provide updates as these cases progress. Stay tuned.