As more landlords continue to open up there retail and warehouse spaces and facilities to Maine's Medical and Adult Use cannabis program licensees, landlords have begun to craft a variety of cannabis specific provisions and riders in their lease agreements. One of these provisions is requiring cannabis businesses to adhere to "strict compliance" with all laws, rules and ordinances.
What is strict compliance? Strict compliance may be defined in the lease. However, if it is not defined, strict compliance generally means adhering to something without exception or deviation.
Under United States v. Bilodeau, 2022 WL 225333 (1st Cir., Jan. 26, 2022), the United States Court of Appeals for the First Circuit addressed the issue of "strict compliance" in a criminal case involving Maine Caregivers. The First Circuit disagreed with the District Court's "strict compliance" standard. The Court pointed out that "the potential for technical noncompliance is real enough that no person through any reasonable effort could always assure strict compliance." Bilodeau does not apply to commercial leases. However, the First Circuit reminds us of the difficulty of adhering to a strict compliance standard, adding "[w]ith federal prosecution hanging as a sword of Damocles, ready to drop on account of any noncompliance with Maine law, many potential participants in Maine's medical marijuana market would fasten fearful attention on that threat." You could replace "federal prosecution" with "landlord terminating the lease" and the same fear would be applicable.
Cannabis businesses should never agree to an undefined strict compliance standard in a lease. A minor violation of the Medical or Adult Use cannabis statute or rules may give the landlord the ability to terminate the lease. Strict compliance provisions create tremendous uncertainty for cannabis businesses– especially when the statutes, rules and ordinances in Maine's cannabis industry continuously evolve. In some situations involving non-compliance, the State of Maine and municipalities are willing to work with cannabis licensees to resolve an issue without fines or other enforcement actions. Some leases do provide the tenant the ability to "cure" a default, which may include failing to abide by the strict compliance standard. However, the ability to cure is typically limited to a small period of time, which may not be sufficient to resolve the alleged issue.
If your landlord is proposing a "strict compliance" provision, you may want to propose removing the strict compliance standard, defining it, or replace it with "substantial compliance." Substantial Compliance can be defined as "compliance with the substantial or essential requirements of something (as a statute or contract) that satisfies its purpose or objective even though its formal requirements are not complied with." For example, under substantial compliance, a licensee who fails to update Maine's Office of Cannabis Policy on adding additional security cameras to their facility would be in technical violation of Maine's Adult Use Cannabis Program Rules but would still be in substantial compliance because the licensee maintains a compliant security system consistent with Maine's Adult Use Cannabis Program Rules.
It is recommended that you have a lease reviewed by an attorney before signing. Commercial leases are complicated documents and it is important before signing a lease that you understand all the terms and conditions, including but not limited to those terms and conditions that would allow the landlord to terminate the lease.
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John M. Burke manages the firm's Maine cannabis law practice. Mr. Burke advises and represents the firm's clients throughout Maine in both the Medical and Adult Use cannabis programs in a wide range of Maine cannabis law matters. In addition to Mr. Burke's Maine cannabis law practice, Mr. Burke advises and assists the firm's clients in a variety of industries on various intellectual property matters throughout the United States. Learn more about John Burke by clicking here.
Caseiro Burke is a boutique law firm that specializes in intellectual property law and cannabis compliance and licensing in the State of Maine. We offer clients creative, cost-effective and reliable legal solutions in all intellectual property and Maine cannabis law matters.