As the New York hospitality industry recovers from the pandemic, many current and would-be business owners are interested in selling or buying a business with a liquor license. Those interested in the purchase and sale of a bar, restaurant, liquor store, or other venue with a liquor license should be aware of how the process generally works.

Understand What Is Being Sold

            Deals for the purchase and sale of a business usually include either a sale of the business entity (“Stock Deal”) or specific assets held by that business entity (“Asset Deal”). In a Stock Deal, the buyer is purchasing interest in the business itself (the ownership shares). The buyer essentially steps into the business as the new owner. The buyer purchases the shares, and the business goes on as it did before. All of the assets and liability the business has accumulated continue.

            In an Asset Deal, the buyer is purchasing specific assets from the business. A new business is created with substantially all of the assets of the old but only those liabilities that the buyer agrees to accept.  Before purchasing either the shares or the assets of a business, the buyer should do a lien search to see if the assets are subject to a security interest.

Are Liquor Licenses Transferrable?

A common misconception is that a seller transfers the liquor license to the buyer. Although many refer to “transfer” applications in New York, in reality a transfer only occurs in a Stock Deal. Because the old entity continues in business, the corporation or LLC must make a corporate-change application and obtain advance approval from the State Liquor Authority (“SLA”).  Currently, in a Stock Deal it is illegal for the buyer to take over the business and collect its business until the corporate-change application has been approved. Because there is no new business, a temporary permit is not available. On the other hand, the Stock Deal is not subject to the 500-foot law.

In an Asset Deal, there is a new entity. The buyer must apply for a new license and the old license must be surrendered. However, the business can continue. The buyer is eligible for a temporary permit, provided the old license is either surrendered or put in safekeeping with the SLA.  Unfortunately, unless the buyer has another license (which only happens with an on-premises license), the business operating under a temporary permit must purchase all alcoholic beverages COD.

When there are three or more on-premises licenses within 500 feet of the proposed premises, the law provides that the SLA cannot issue an on-premises liquor license, unless the license would serve the public interest. A “transfer” application for an on-premises liquor license does not add to the proposed number of such licenses within the vicinity. An application for a newly licensed location does. Because of this, a “transfer” application does not face the same scrutiny as a totally new premises. However, the SLA will not issue the temporary permit until the 500-foot hearing has been held and there is a finding that the public interest will be served by the issuance of the license.

When Does the Deal Close?

            Because a person cannot sell alcohol in New York without the requisite permit or license, the purchase and sale of a licensed business should not close until the buyer has permission to sell alcohol.

            Obtaining a liquor license is never a guarantee. The SLA may deny a buyer’s application for a liquor license for a number of reasons including, but not limited to, the applicant’s inability to qualify for the license, the location was the subject of repeated violations, and the failure to report “silent partners” and other investors. Moreover, a temporary permit is no guarantee that a permanent license will issue. A violation while operating under a temporary permit can result in the permanent license being declined. Closing on a temporary permit is sometimes desirable for parties, but the parties should understand the risk.             Before selling or buying a business with a liquor license, understand the options, the upside and the down.