Zeidel & Associates Enters the New Frontier with Recreational Dispensary Lease in NYC

Situation

Zeidel & Associates represented an organization in a lease for one of the first recreational marijuana dispensaries in New York City. The organization is controlled by a nonprofit, which qualified it for this historical opportunity, as the city reserved the first 10 dispensary licenses for nonprofit groups or applicants with their own or relatives with marijuana convictions.

Approach

Zeidel & Associates had anticipated that the landlord would raise objections regarding the leasing of space to a dispensary, considering that under federal law, cannabis is still classified as a controlled substance, therefore, its possession, distribution, sale and use are prohibited, regardless of state laws. These legal complexities create issues related to banking, the landlord’s acceptance of potentially “tainted” rent payments, and the unlikely possibility of government seizure of the property. Furthermore, since the lease technically provides a location for “illegal” activities, it could put the owner in default on its mortgage or other agreements.

Despite the risks, the landlord was not concerned, and the lease negotiation proceeded smoothly. Zeidel & Associates carefully examined and revised the lease, making changes to protect its tenant-client from issues typical of retail leases and others specific to a cannabis dispensary lease, as the initial draft did not address the unique legal position of cannabis.

To close the transaction by the end of the year, Zeidel & Associates collaborated with the landlord to tackle issues related to this new use of retail space, including restrictions in the building’s condominium documents, security concerns related to the potential congregation of customers outside the store, and the challenges posed by insurance and banking-related limitations on cannabis use. The landlord had broad discretionary rights regarding the use of this retail space, which it exercised in favor of the tenant.

Result

Zeidel & Associates completed the transaction under a tight deadline, and our client was able to open for business in a portion of the space to start generating revenue while finishing the build-out. While handling a cannabis lease is a new frontier for the real estate market, the firm’s deep understanding of the New York City real estate market and extensive experience working with tenants and landlords enabled them to partner successfully with the landlord to expedite the transaction. The client’s developer/partner has already retained Zeidel & Associates to represent it on a second dispensary lease in New York City.