Liquor License Lessons

June 16, 2003

Albano
For any restauranteur or related establishment within the alcoholic beverages industry, a primary asset of the business is the alcoholic beverage liquor license itself. A common misnomer among restaurateurs and licensees is that the holding of a license is a right. However, in the eyes of the Alcoholic Beverages Control Commission ("ABCC") and local municipal license commissions, the operation of a liquor license is a privilege, which remains subject to modification, suspension or in some instances revocation. For some individuals contemplating the purchase of a restaurant, tavern, hotel, package store or other establishment dependent upon a liquor license, the thought of securing a liquor license is secondary. This may lead to disappointment, as the laws in Massachusetts governing the procedure for obtaining a liquor license, and those governing the sale and delivery of alcohol, are specific and strict. Once a liquor license is obtained, preserving the license must be a primary concern in any successful business venture.

We have all read of the success in the greater Springfield area associated with the newly heralded "Entertainment District" on Worthington Street, and likewise the revitalization of the riverfront. The fundamental vantage point for any business venture within these locations has been dual, securing a proper location and ensuring that a liquor license is available for use.

The law in Massachusetts governing the granting of liquor licenses is known as the Liquor Control Act (the "Act"). The laws under the Act constitute the bible for any liquor license commission in any given municipality. Although the Act is governed and regulations promulgated by the ABCC in Boston, broad authority is provided to the local license commissions. In theory, the license commissioners in any given municipality have a better understanding as to what may be in the best interest of the municipality and in the opinion of the licensing authorities, there is an adequate number of places at which the public may obtain, the various sorts of alcoholic beverages for either sale or consumption.

In a Town, the Board of Selectmen (normally three people) also wear the hats as the license commissioners. In a City, the license commission is appointed by the mayor, which in the past has been comprised of three members. Recent changes in the law now provide for a license commission of five, which would remain subject to mayoral appointment and confirmation by the city council.

In some municipalities, obtaining a liquor license may be problematic due to the number of licenses currently issued and outstanding. Under the law, each municipality has quotas on the number of licenses that may be issued, as determined by the population within the municipality. For this reason some municipalities do not have licenses available to issue, which ultimately drives up the price of a license subject to sale. In some situations, all alcoholic liquor licenses have been sold to new licensees in excess of Two Hundred Thousand ($200,000.00) Dollars. The majority of these licenses typically have been sold to national restaurant or hotel chains which can absorb the high cost.

Under the Act, retail liquor licenses are broken down into three categories: (i) On-Premise commonly known as a pouring license; (ii) a Special License commonly referred to as a "One Day License"; and (iii) an Off-Premise License, more commonly known as package store license. Liquor Licenses fall into one of four categories, all alcohol, wine only, malt (beer) only or wine and malt.

Simply applying for a liquor license does not guaranty the issuance. There are strict laws and application procedures which control the issuance of a liquor license. When a license is issued, an individual is also appointed as its manager. The manager must be at least twenty-one years of age and a citizen of the United States. He or she must be granted full authority and control over all business relative to alcoholic beverages being served on the license premises.

License applicants (i.e. officers, shareholders or managers) are barred from holding an interest in a liquor license if they have been convicted of a crime. For example an On-Premise license which includes those issued to restaurants, hotels, bars, taverns and clubs may not be issued to a person who has been convicted of a violation of a federal or state narcotic drug law. Likewise, an Off-Premise license (i.e. package store) may not be issued to any applicant who has been convicted of a felony. The local licensing authority may not approve an application for a license if it determines that an applicant fails to comply with the provisions established by state law, ABCC regulations or any other reasonable requirement. Such a decision by the local license commissions is appealable to the ABCC.

Once an establishment has obtained a liquor license, additional approvals from the local license commissions and ABCC are required for specific matters. In the event the licensee wishes to expand the licensed premises, change the manager of record, transfer a beneficial interest in the license (i.e. change stockholders), pledge the license as collateral for loans, or naturally any contemplated sale of the license, approval under the Act is required.

The privilege of holding a liquor license remains subject to modification, suspension or in some instances revocation in the event that there is an infraction against the laws governing the liquor license. Some common offenses are service alcoholic beverages to minors under the legal drinking age of twenty-one and violating established hours of operation. A liquor license must also be renewed on an annual basis. Failure to renew a license through the local licensing commission and paying the appropriate fee may result in suspension of the license or revocation. The direct result of any suspension of a license is the requirement that the license be surrendered to the license commission for a period of time (i.e. normally days) to which no alcohol may be served at the licensed premises. Needless to say, this could become a financial nightmare for any license holder who is required to shut down for an extended period of time.

In summary, licensees should not take for granted the ability to own and operate a liquor license in the Commonwealth of Massachusetts. The use of a liquor license is a privilege, which can be stripped if a licensee is not familiar with, or does not comply with the laws governing the sale and delivery of alcohol within the Commonwealth. Special care must be taken to safeguard this precious commodity.

Kenneth J. Albano, Esquire is a partner in the firm of Bacon & Wilson, P.C. and has extensive experience in business, commercial and municipal law. He can be reached at 413-781-0560 or kalbano@bacon-wilson.com

by: Kenneth J. Albano, Esquire

BusinessWest
July 2003