California Cannabis Leases: Assignment Headaches
Last month, I wrote a post explaining some of the issues buyers of cannabis businesses face when dealing with the landlords for the purchased business. In a nutshell, leases almost always contain clauses restricting assignment and subletting, and these clauses will often note that certain changes of control of the cannabis tenant are considered assignments requiring landlord pre-approval.
I discussed this concept at a high-level in the context of M&A transactions in that last post, but today I want to get a bit further into what these provisions mean and look like.
First, let’s look at the difference between assignment of a lease, and subletting under a lease. In general terms, in a sublease situation, the original tenant lets the new subtenant lease a part of the leased premises. The original tenant still stays a tenant and there are now two agreements – the master lease and sublease. In an assignment, the original tenant transfers its entire interest in the lease to a third party who becomes the new tenant – there remains only one lease. Notably, assignments don’t necessarily release the assigning party from liability and so an assignor will want that specific language in the assignment agreement.