What Happened: A shopping center lease required the tenant to: 

use the Premises solely for a tobacco, cigar, and vape store. In no event shall Tenant use the Premises for a head shop or other establishment selling or exhibiting drug paraphernalia, supplies, products, or other equipment including, but not limited to, rolling papers, roach clips, bongs, pipes, hookahs, needles and small spoons, straws or paper tubes, small mirrors, or razorblades (collectively, the "Prohibited Products"). . . . The sale of any Prohibited Products in the Premises shall constitute an immediate default hereunder and Landlord may, without notice and in addition to any other remedies at law or in equity, terminate the Lease, regain possession of the Premises, and immediately accelerate all rent due hereunder.

A few months into the lease, the landlord discovered that the tenant was advertising cannabidiol (CBD) and kratom for sale at the store and warned it to cease and desist or face immediate eviction. The tenant ignored the warning and began selling “Prohibited Products” as well, including bongs, pipes, and hookahs. So, the landlord changed the locks. When the tenant regained entry and continued to operate, the landlord super-glued and broke a key in the door and placed a concrete barrier in front of the entryway to keep the tenant out. It also removed the tenant’s property and placed it in climate-controlled storage. 

The tenant sued the landlord for damages, and the landlord asserted a counterclaim. After losing in state court, the tenant took its case to federal court. 

Ruling: The Texas federal court ruled that the tenant breached the lease and that the tenant and guarantor were jointly and severally liable for $197,376 in damages.

Reasoning: In selling CBC, kratom, and other “Prohibited Products,” the tenant violated the use provision, the court concluded, citing communications during the negotiation in which the tenant explored the possibility of selling CBC and kratom and the landlord gave an emphatic no while also emphasizing that it wouldn’t permit the sale of “ANY drug paraphernalia.” The tenant then backed off by agreeing to “operate on my business as u said . . . only tobacco leaf with vapes and cigarettes and some Accessories phones.” The strongly worded use clause was designed to enshrine that agreement. But the tenant didn’t honor that agreement and instead turned the store into a “head shop.”  

• SH Tobacco & Cigars, LLC v. Masters 96th LLC, 2024 U.S. Dist. LEXIS 212867, 2024 WL 4876960