Get Extra Protection Against Tenant Use of Premises for Illegal Activities

New local laws may make landlords pay for tenants’ illegal business.

In response to the proliferation of unlicensed smoke shops in the central business district, New York City recently adopted a law banning commercial landlords from knowingly leasing retail space to smoke shops that sell unlicensed marijuana, cigarette, or tobacco products. New York City Local Law 107 of 2023 also requires landlords to ensure that they lease commercial properties only to licensed businesses. Penalties under the law include $5,000 for a first offense and $10,000 for a second and each subsequent offense.

Of course, this kind of concern isn’t confined to New York City. Any state or municipality across the country may enact a law directly holding landlords accountable for the unlicensed activities of tenants, whether targeting cannabis or any other form of illegal business. In addition to performing due diligence and carefully vetting the business of prospective tenants, landlords can also implement leasing safeguards to insulate themselves against the risk of liability under Local Law 107-type laws.  

Lease Clause Fortifies Illegal Use of Premises Protections

There should already be provisions in your lease that require tenants to comply with all applicable laws while refraining from using the premises for unlawful activities. However, a veteran leasing attorney from New York City, the domain of Local Law 107, has created a “belts and suspenders” provision that he’s advising clients to add to their new leases and amendments to tighten these existing protections. Our Model Lease Clause: Strengthen Lease Bans on Use of Premises for Illegal Activities, incorporates that advice. Specifically, the clause:

• Requires the tenant to expressly represent, covenant, and warrant its compliance with the lease provisions requiring lawful use of the premises;
• Makes any violation of those provisions, whether material or immaterial, substantial or insubstantial, minor or otherwise, a material default triggering any and all of the landlord’s remedies under the lease;
• Makes the tenant strictly liable for any such violations—that is, just committing the offense establishes liability regardless of whether the tenant acted with intent, recklessness, gross negligence, negligence, etc.; and
• Requires the tenant to indemnify the landlord for any costs the landlord incurs as a result of the tenant’s violation, which would include but not be limited to fines under Local Law 107.