California Cannabis: New Law Allows Municipalities to Fine Landlords Without Notice

Prior to the enactment of AB 2164, California law required cities and counties to grant a person responsible for a continuing municipal code violation a reasonable time to remedy the violation before the city or county could impose fines or penalties when that violation pertained to building, plumbing, electrical, or other similar structural and zoning issues that did not create an immediate danger to health or safety. Cal. Gov. Code section 53069.4.

In June, California’s Fifth District Court of Appeal interpreted Government Code section 53069.4 to require the County of Fresno to provide a cannabis cultivator a reasonable time to abate cultivation activity before imposing a fine. See Thao v. County of Fresno, Court of Appeal of the State of California, Fifth Appellate District, Case Nos. F072276, F073035, Filed June 28, 2018 (unpublished).

Apparently, the state legislature didn’t like that, because earlier this month, Governor Brown signed AB 2164 into law, which amends Government Code section 53069.4 and allows local governments to eliminate the “reasonable time period” to correct a code violation in cases of cannabis cultivation. According to the bill’s author, this removes at least one monetary incentive for illicit grows to continually move while giving local governments the ability to bring meaningful penalties on willfully illegal growers.

While it may sound reasonable, in practice this new law will have drastic impacts on unwitting landlords who may or may not know that cannabis cultivation is occurring at their property. Even the most sophisticated property owners are befuddled by California’s new regulatory scheme, unsure of whether cannabis activity is authorized as a matter of right in all jurisdictions (it is not), or whether they are even allowed to prohibit cannabis use or activity in their leases (they can).

We have been assisting a number of property owners facing excessive fines and penalties imposed by cities due to unlawful cannabis activity by their tenants (see here for more on that). Some cities impose strict liability against property owners for their tenants’ code violations, rack up fines of $10,000 per day, and then record the fines as an assessment on the property owner’s tax bill. This can result in a tax bill for hundreds of thousands to millions of dollars, non-payment of which results in sale of the property by the county.

Providing a reasonable period of time to correct a violation like cannabis cultivation ensured that property owners, who generally cannot proactively inspect property that is leased to a tenant (and therefore may be unaware of illegal activity) could take action to eliminate unlawful activity before it became an insurmountable financial burden. Now, property owners face serious and immediate risks and must take steps to ensure they are not held liable for unlawful cultivation activity by their tenants.

Fortunately, AB 2164 includes a “safe harbor” that requires cities and counties to provide a reasonable period of time to correct a violation prior to the imposition of administrative fines or penalties if all of the following are true:

1. A tenant is in possession of the property that is the subject of the administrative action;
2. The rental property owner or agent can provide evidence that the rental or lease agreement prohibits the cultivation of cannabis; and
3. The rental property owner or agent did not know the tenant was illegally cultivating cannabis and no complaint, property inspection, or other information caused the rental property owner or agent to have actual notice of the illegal cannabis cultivation.

So, if you are a commercial landlord and want to protect yourself from municipal fines and penalties without warning, make sure that either (1) your tenant is lawfully cultivating pursuant to all local and state laws, or (2) you are complying with items 1-3 above. Otherwise, the consequences of city or county action can be painful.