New York State increases potential liability of commercial landlords based on illegal activities of tenants

Longstanding New York law prohibits the use of leased premises for illegal purposes. As discussed below, the habitual use of a leased premises for an illegal trade voids a lease, and a landlord is permitted to initiate eviction proceedings to address such use. A recent change to New York’s Real Property Actions & Proceedings Law places additional burdens on commercial landlords and exposes them to potential liability for the actions of their tenants.

The recent change came as a result of the Marihuana Regulation & Tax Act (“MRTA”), which legalized recreation adult cannabis use in 2021. Earlier this year, New York enacted a series of measures to address unlicensed cannabis dispensaries, including increasing the potential liability of commercial landlords renting to tenants who sell cannabis without a license at leased premises. This article discusses the background of the law addressing illegal trade in leased premises, and the recent updates implemented by the State.

Longstanding law
New York Real Property Law Section 231(1) voids leases where a tenant or occupant occupies leased premises is used “for any illegal trade, manufacture or other business.” “The term ‘use’ of premises for illegal purposes implies doing something customarily or habitually upon the premises.” 436-438 Assoc. v. Alvardo, 41 Misc. 3d 1225(A), 1225A (N.Y. City Civ. Ct. 2013). Historically, Real Property Law Section 231(1), and its companion statutes under the Real Property Actions & Proceedings Law (“RPAPL”), were invoked to address prostitution, gambling, and the sale of illegal drugs, often in residential units. In the commercial context, landlords have relied on this statute to evict a wide range of illegal businesses including illegal manufacturing and sale of counterfeit trademark apparel (1165 Broadway Corp. v. Dayana of N.Y. Sportswear, Inc., 166 Misc. 2d 939, 940 [N.Y. City Civ. Ct. 1995]) and the sale of elephant ivory with an expired license (Metropolitan Fine Arts & Antiques, Inc. v 10 W. 57th St. Realty LLC, 162 AD3d 514, 515 [1st Dept. 2018]).

Real Property Law Section 231(2) provides that a landlord who knowingly permits its premises to be used for such unlawful trade, manufacture or business is liable for any damages stemming from such activity. Accordingly, landlords who learn about illegal activity at their leased premises should act diligently.

New law and increased potential liability for commercial landlords
Effective May 2023, the State Legislature enacted a new provision, RPAPL Section 715-a, specifying that “the use or occupancy of premises customarily or habitually for the unlicensed retail sale of cannabis or products marketed or labeled as such shall constitute an illegal trade, manufacture, or other business” for the purposes of Real Property Law Section 231. There are two specifications of this new statute which particularly affect commercial landlords.

First, under RPAPL Section 715-a(1), authorized enforcement agencies, including the cannabis control board and the state attorney general, may serve a written notice requiring that a landlord make a court application for the removal of a commercial tenant from the leased premises based on the tenant’s unlicensed sale of cannabis products, in violation of Article 6 of the Cannabis Law or Article 222 of the Penal Law. If the landlord does not make such an application within five days, the enforcement agency itself is authorized to file a petition to evict the tenant and to name the landlord as a respondent in the proceeding.

Second, under RPAPL Section 715-a(2)(b), upon finding a violation, a Court may “impose and require” payment from a landlord “who has been found to have knowingly permitted such a violation,” in the form of “a civil penalty not exceeding five times the amount of rent charged, owed, or paid, which may be calculated from the date the owner or landlord respondent received notice of the violation to the date the unlicensed activity is abated.” In April 2024, the State Legislature enacted this potential civil liability for commercial landlords, increasing the amount previously included in the statute.

At least one commercial landlord has initiated a lawsuit against a tenant under the new law. In Gur Assoc. LLC v. Convenience on Eight Corp., 82 Misc. 3d 1105, 1113 (N.Y. City Civ. Ct. 2024), the court rejected the tenant’s argument that the landlord did not meet its burden of proving that cannabis products were sold to the landlord’s witness because the products were not tested for marijuana. The court ruled that the landlord’s circumstantial evidence of the sale of cannabis at the premises, which included photographs of signage and the witness’s testimony that a salesperson gave him a hashish oil-infused cigarette, was sufficient “even without proof of laboratory tests or field tests.” The court ultimately awarded possession of the premises to the landlord and authorized the issuance of a warrant of eviction.

To date, there are no reported decisions of Courts imposing a civil fine against a landlord under this new law. But such decisions can be expected with increased attention on unlicensed cannabis shops. Last week, the Governor’s Office announced that as of July 9, the Office of Cannabis Management Task Force padlocked 164 illicit stores and issued 252 notices of violation throughout the state.

Due to the potential liability under both the longstanding New York law, and the recent additions, commercial landlords should act quickly upon learning of illegal activity at their leased premises.

Robert P. Yawman is a partner with the law firm Adams Leclair LLP. Adams Leclair LLP is a litigation law firm that concentrates its practice in a broad range of commercial and construction advocacy throughout upstate New York. Based in Rochester, the Adams Leclair team of dedicated attorneys provides our valued clients with specialized counsel, honed by decades of experience handling disputes and trying cases.

Rob can be reached at [email protected] or through the firm’s website at www.adamsleclair.law