Cannabis farms: Landlords must be on high alert

A preventative approach is key to protecting commercial property from being exploited for cannabis cultivation, writes Martin Edwards. Cannabis cultivation in rented properties is an increasing trend in the UK, as highlighted by a number of high-profile drug raids. While everyone has heard horror stories of farms being discovered in residential property, it is also worth reflecting on the risks for landlords of commercial premises – both in terms of potential criminal sanctions and costs. Legislative sanctions Landlords can face prosecution under section 8 of the Misuse of Drugs Act 1971 (“the 1971 Act”) if their premises are used as cannabis farms. The penalties include a maximum of 14 years imprisonment and/or a fine. While knowingly allowing this activity is a clear offence, a landlord may also be found to have committed an offence if it is shown that they have “turned a blind eye”. Bear in mind that if the landlord is a property company, then under the 1971 Act, each director, manager or other officer of the company can be guilty of this offence, as well as the company. Cannabis is a controlled drug and those involved in premises that are used to produce or attempt to produce it fall within the jurisdiction of section 8. The courts also have powers under the Anti-Social Behaviour Act 2003 to issue closure orders, which have the practical effect of physically sealing the premises for up to six months. While closure orders are used for premises associated with class A drugs, the authorities also have the power to seek these orders where there is suspicion of class A drugs being on the premises, which may, of course, include cannabis farms. Preventative measures The clear message for commercial landlords is to take steps to try to prevent this type of illegal operation by close vetting of tenants. Checks on payslips, bank statements, accountant references and fraud-prevention checks should all be carried out. It is also best practice for landlords to conduct regular inspections of all properties in their portfolio. Commercial landlords will normally have reserved an express right to inspect their premises and can sometimes do so without any prior notice or warning if it can be argued to be a case of emergency. As cannabis operations do not need a lot of space and require limited manpower, a landlord should make sure that they check the whole of their premises carefully. Warning signs to be aware of include excessive fortification of the property, blacked-out windows, peeling wallpaper and paint caused by humidity, a pungent smell, excessive use of deodorisers and fertiliser or soil present inside the building. Other responsibilities In addition to the potential criminal sanctions, there are also good commercial reasons for landlords to keep a close eye on their portfolio. To accommodate a cannabis farm, tenants will often make significant structural changes to allow for more space to grow greater numbers of plants. It will be very costly to reinstate the premises and this is entirely at the landlord’s cost. Remember, unless the insurance policy specifically states that it covers these kinds of changes – which is extremely unlikely – the landlord has to foot the bill. Moreover, if a landlord has allowed their premises to be used for illegal purposes, buildings insurance cover may be declared void. This is particularly important to note as these grow operations, by their nature, present an increased risk of structural damage or destruction by fire. Cannabis farms also use large amounts of electricity and landlords may be liable to pay any outstanding utility bills or at the very least have the difficulty and inconvenience of disengaging with service suppliers after illegal tenants have been evicted. The nature of such operations also involves the use of large amounts of water. Consequential damage to the fabric of the property arising from arrangements of hydroponics is yet another cost to be borne by the landlord in order to restore the property to a condition fit for future reletting. This is as much of a concern if the property is empty as well as tenanted. A landlord will have responsibilities to anyone else trespassing on its empty property under the Occupiers Liability Act 1984. Lease end and cost implications The fact that a tenant may have been arrested or even imprisoned will not bring their lease to an end. The landlord will still need to take steps to formally terminate the agreement. Landlords would ordinarily be able to take immediate steps to repossess the property in these circumstances, relying on rights in the lease to forfeit the agreement for breach of the illegal or immoral user provisions. A tenant may have to take similar action themselves, where they have sublet to third parties who are carrying on this illegal activity. A tenant who does not take this action potentially faces the same criminal sanctions as above with the additional risk of loss of tenancy. As well as the risk of criminal sanctions, cannabis cultivation can have severe financial implications for a landlord, incurring costs that can easily run into thousands of pounds. This is why it is essential that the correct prevention activity is carried out in the first instance. By doing so, proprietors can be more confident that they are not only protecting their property but they are also safeguarding the local community from the distribution of illegal substances. Martin Edwards is a partner and head of real estate disputes at Shakespeare Martineau