Court Allows Landlord to Lock Out Tenant from Cannabis Business During COVID-19 Pandemic

In a recent decision, a court refused a tenant’s application for relief after the landlord locked him out of his cannabis business during the COVID-19 pandemic, finding that the cannabis business had not been operating legally.

What Happened?

The tenant operated a retail cannabis store and bakery in Brampton, Ontario. His store opened in January 2019 and he sold cannabis to recreational and medical users.

The tenant had sub-leased the store from a restaurant by oral agreement that gave him possession of the property until April 30, 2021.

On March 17, 2020, the Ontario government declared a state of emergency in response to the COVID-19 public health crisis. Several regulations have been passed since then to identify which businesses can remain open during the state of emergency and how they must operate. O. Reg. 82/20 permits any business to operate remotely for the purpose of providing “goods by mail or other forms of delivery or making goods available for pick-up”. O. Reg. 128/20, which came into effect on April 7, 2020, deals specifically with licenced cannabis retailers and also permits authorized retail stores to offer curb-side pick-up and delivery services.

On April 5, 2020, the tenant closed his in-store operations but continued to provide delivery and curb-side pick up.

On April 21, 2020, the Peel Regional Police executed a search warrant at the tenant’s business and seized 3.3 kg of marijuana. Four individuals were charged under the Cannabis Control Act for unlawfully selling cannabis.

Neither the tenant nor his business were charged.

After the police completed their investigation, the landlord changed the locks on the tenant’s business and took possession of the premises.

The tenant brought an application for an order granting him relief from forfeiture and re-entry into his business. He also sought an interim order granting him relief from forfeiture pending the hearing of his application.

Parties’ Positions

Both the restaurant and the landlord opposed the tenant’s request for interim relief from forfeiture. Both took the position that the tenant was operating an illegal cannabis store. The landlord argued that the tenant had breached the lease, which stated that the tenant must “comply with the requirements of all laws, ordinances, rules and regulations of the federal, provincial and municipal authorities”.

The tenant, however, stated that his business was not illegal. He also argued that he and his employees and customers would suffer irreparable harm in the form of lost profits and lost wages if he was not permitted to resume operations. Finally, he argued that the balance of convenience favoured allowing him to continue to operate his retail store pending the final resolution of this proceeding.

Decision

The court stated that the real issue on the motion for interim relief was whether the tenant had established that he would suffer irreparable harm if he was not permitted to resume operations and whether the balance of convenience favoured granting him the relief sought.

The court first found that the tenant had not, in fact, been complying with the regulatory regime that governs the sale of cannabis in Ontario.

The court did initially accept the tenant’s argument that his business employed a large number of people and that his employees had all been out of work since the landlord changed the locks on April 21, 2020, stating:

“Undoubtedly, the abrupt closure of the store has had a devastating impact on [the employees] and their families. It will be very difficult for his employees to find other work in the midst of the COVID‑19 pandemic. I am sympathetic to those who worked for [the tenant] and the position in which they now find themselves.

I also accept that [the tenant] was making significant profit before his store was closed. So long as he cannot resume operations, he will be unable to make money and his brand will likely suffer. However, lost profits from a business that is not complying with a mandatory regulatory regime is not the sort of harm the Court should consider when deciding if an applicant will suffer irreparable harm […].”

As a result, the court found that because the tenant had not proven that his business was operating lawfully, he had not proven that he would lose a benefit to which he was legally entitled if the court did not make an interim order.

Additionally, the court found that allowing the tenant to resume operations would cause harm to the landlord. It stated that if the business re-opened without being in compliance with provincial regulations, there was a real risk that the landlord could be charged under the Cannabis Control Act for knowingly permitting its property to be used as an unauthorized cannabis retailer.

The court concluded:

“The Court cannot permit a cannabis business to operate, even on an interim basis, if it is not complying with the detailed regulatory scheme designed to ensure the safety of the public. The Court is also not prepared to create a risk that the landlord will be charged if the business resumes operations. The application of relief from forfeiture on an interim basis is therefore dismissed.”

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DBH Law recognizes that there continues to be a growing concern in Alberta and abroad about the spread of COVID-19. We have implemented several measures to reduce the risk and impact to our employees, clients and the community at large.

Please be aware that we are prepared to initiate business continuity protocol for remote work and communications. It is our priority to ensure business continuity for our clients while ensuring the safety of our people. We recognize that the outbreak of COVID-19 is an unprecedented situation globally and we wish to assure you DBH Law is equipped and prepared to maintain and continue business services to our clients during this pandemic.

Entering in to a commercial lease represents a huge financial commitment and comes with significant legal risk. Because of this, it is critical for both landlords and tenants to obtain the advice of an experienced commercial leasing lawyer when negotiating a commercial lease and certainly before finalizing any agreement.

At DBH Law in Calgary, our experienced commercial real estate lawyers help our clients manage the risks of commercial leasing by providing trusted guidance in all aspects of their leasing affairs.

Contact the experienced commercial real estate team at DBH Law in Calgary to see how we can help you through your commercial leasing matters. We work with our clients every step of the way, negotiating for you and protecting your interests in the event of a dispute. Please reach out to us online or by phone at 403.252.9937 to talk today.