Yesterday, Reuters reported on California federal law enforcement authorities’ latest effort to crack down on medical marijuana businesses.  Though medical marijuana is legal under California state law, it remains illegal under federal law.  In recent months, federal authorities have sent hundreds of letters to California property owners/landlords of properties housing medical marijuana businesses, demanding that marijuana activities at their properties be terminated.  In absence of compliance with the demand, the letters threaten institution of civil forfeiture proceedings against the properties, and criminal charges against the owners/landlords.

Under federal law, real property used to commit or facilitate the commission of violation of federal drug laws is subject to forfeiture by the government.  Apparently, given the legality of medical marijuana on the state level, many owners/landlords are not aware of their exposure under federal law.  The article referenced above describes how using this threat (as well as the threat of criminal prosecution) has proven more effective and less costly than other avenues of enforcement.  In many cases, the threat of forfeiture will spur the property owner/landlord to evict the medical marijuana business tenant, thereby accomplishing the authorities’ goal of shutting down the operation.  According to the article, targeting owners/landlords has led to the shutdown of hundreds of medical marijuana businesses. 

Significantly for property owners/landlords, while eviction spares the owner/landlord of the risk of losing the property to forfeiture and also criminal prosecution, it also comes with its own costs for owners/landlords.  These include significant legal expenses, and potential exposure to state law civil claims from the medical marijuana business tenants. 

This approach seems to be a broad and coordinated effort among federal authorities in California.  In contrast, while federal authorities in Colorado have also targeted property owners/landlords of medical marijuana businesses, their efforts have been much focused.  Thus far, at least, only properties located near schools have come under federal scrutiny in Colorado, with the United States Attorney’s office in Colorado sending out letters to groups of owners/landlords of such properties on multiple occasions.  These letters also threatened seizure of property, and have been effective in causing the owners/landlords to ensure that the medical marijuana activities in their properties cease. 

It is unclear whether federal enforcement efforts targeting landlords will spread in Colorado.  Colorado has a much more extensive regulatory system for medical marijuana than does California, which many believe has contributed to the largely hands-off approach of federal authorities in Colorado.  However, the apparently broad use of real property forfeiture proceedings in California, or at least threats of doing so, should serve as a reminder to property owners/landlords in Colorado that allowing their properties to be used for medical marijuana activities, even in full compliance with Colorado law, places them at risk of losing their properties in federal forfeiture proceedings.  Criminal prosecution of owners/landlords is also a possibility. 

The Colorado legislature recently adopted a bill amending the Colorado Common Interest Ownership Act (CCIOA).   House Bill 12-1237, which currently awaits Governor Hickenlooper’s signature, overhauls the record keeping requirements imposed upon Colorado’s property owners’ associations under CCIOA.   Generally speaking, the requirements of this bill are more detailed than CCIOA’s old provisions on record keeping, and speak to topics previously covered such as financial records and records of member and board meetings.  In addition, the bill addresses additional types of records and clarifies which records must be provided and must not be provided to members upon request, and which records can, at the association’s option, be withheld. 

Some of the new types of records specifically addressed in the bill include records related to construction defects.  The bill requires that property owners’ associations keep records of claims for construction defects and amounts received pursuant to settlement of those claims and that those records be made available to members upon request.  The bill also requires that when action is taken by the board of directors without a meeting, the property owners’ association maintain all written communications among the board members that are directly related to those actions, which presumably includes emails.  These records must be provided to members upon request.

The records that the board of directors may withhold, at its option, include, among other things, communications with legal counsel that are otherwise protected by the attorney-client privilege, records related to an executive session of the board of directors and records related to transactions to purchase goods or services that are currently under negotiation.  Those items that must be withheld from members include personal information related to employees or members (salary, medical information, bank account information, phone numbers, email addresses, drivers license numbers and social security numbers).  Because email communication is so prevalent today, property owners’ associations will need to take precautions not to disclose email addresses of its members under the new bill.  Note, however, the email addresses of board members must be provided to any owner who requests the information. 

Assuming this bill is signed by Governor Hickenlooper (and not challenged by referendum), its provisions will take effect January 1, 2013. 

This article in today’s Denver Post discusses how, despite some regional variation in vacancy rates and rents, the statewide trends suggest optimism among property managers and landlords concerning future demand. 

The recent uptick in multi-family housing construction in some parts of Colorado indicates that developers may be feeling the same way. 

It will be interesting to watch whether this results in sustained multi-family growth. 

 

A last minute bill has been introduced in the Colorado Senate.   Colorado Senate Bill 12-181, introduced last week by State Senator Lois Tochtrop, proposes new requirements related to construction projects in Colorado.  These proposed changes are not favorable to property owners in Colorado and will limit the ability of property owners to negotiate business terms in their construction contracts.  SB 12-181 is set for a hearing before the Senate Business, Labor and Technology Committee on Wednesday, May 2, 2012. 

SB 12-181 applies to “Building and Construction Contracts” which is defined as any contract subject to Title 38, Article 22 of the Colorado Revised Statutes, Colorado’s mechanics’ lien law.  SB 12-181 contains the following points:

  • Colorado Law Must Apply.  Any provision in a Building or Construction Contract for work to be performed in Colorado that makes the contract subject to the laws of another state or contains a dispute resolution provision governed by the laws of another state, is void and unenforceable. 
  • Parties Cannot Contract Around Colorado Mechanics’ Lien Law.  Any provision in a Building and Construction Contract that requires a contractor or subcontractor to waive its right to file a mechanics’ lien or claim against a payment bond prior to being paid is void and unenforceable.
  • Payment to Subcontractors and Suppliers Required Within 7 Days.  All principals, general contractors and subcontractors must pay their subcontractors and material suppliers within seven days of receipt of services.
  • Mandatory Interest Penalty; Costs and Attorney Fees Award.  A 1.5% monthly interest penalty applies to all unpaid amounts, and subcontractors and suppliers who successfully sue to collect this interest penalty will also be entitled to collect their costs of suit, including attorney fees.
  • Monthly Progress Payments Required; Retainage Amounts Capped.  Property owners or parties responsible for payment must make monthly progress payments to the general contractor unless the Building and Construction Contract specifies otherwise, and owners or payment parties may only reserve as retainage a maximum of 5% of each payment.
  • Change Orders.  General contractors must submit the costs of any change orders to owners for payment within 30 days of the change order.  Owners or payment parties will be required to pay at least 50% of any disputed change order amounts.