Negotiating a Lease for a Tenant Obtaining a Liquor License? Important Things to Consider

Countless issues to consider when entering into any lease and some very specific additional considerations when you are signing the lease to open a restaurant.  This article doesn’t address all of those issues, but is limited to specific considerations when you intend to obtain a full, on-premises, retail liquor license (not simply a beer and wine licenses) in connection with your restaurant.  In order to obtain a retail liquor license, the applicant needs to be the property owner, a lessee or a management company.  When applying to the State Liquor Authority (“SLA”) a written copy of the lease must be included.

Licenses are issued to a specific licensee for a specific location.  Accordingly, fully understanding who you are representing and where they are planning on doing it is critical before you begin the lease negotiations.

WHO?

  • Who is the Tenant?  There are specific rules regarding who may or may not be licensed to sell alcoholic beverages in the State of New York.  Generally the tenant under a lease is an entity, but the SLA will require disclosure of all officers, directors, managers as well as all individuals with a direct or indirect ownership interest in the entity seeking a license.  By law, certain individuals are prohibited from selling alcohol, including, but not limited to persons convicted of a felony or certain misdemeanors; persons under the age of 21; police officials or individuals owning a direct or indirect interest in a liquor manufacturer or wholesaler.  It is important to know the complete corporate structure of your tenant before signing a lease and making an application to the SLA.
  • Does the Lease Contemplate Percentage Rent?  Often restaurant leases include not only payment of a base rent, but permit the landlord to receive a percentage of the Tenant’s income as additional “percentage rent”.  If the landlord is receiving percentage rent it must be disclosed to the SLA.  If that percentage is in excess of 12%, the SLA may require that the landlord (and therefore all of the officers, directors, managers and direct and indirect owners of the landlord) be named as a co-applicant.  In addition, a landlord with an interest in a liquor manufacturer or wholesale distributor, would be prohibited from being a co-applicant for an on-premises retail license.

WHERE?

  • Location, location, location.  The most important factor in real estate is also one of the most critical issues in whether or not you will be able to obtain a liquor license.
    • The 200 foot rule.  There is an absolute prohibition on the issuance of an on-premises liquor license to a premises on the same street or avenue within 200 feet of a building occupied exclusively as a school or house of worship.  Nursery schools and colleges are not considered “schools” for the purpose of this rule.  The 200 feet is measured from as the crow flies from the center of the nearest entrance of the church or school regularly used for ingress to the center of the nearest entrance of the leased premises regularly used for ingress.  Important factors to consider in this rule are: (a) is my proposed location on the same block or avenue.  If not, the rule does not apply; (b) is the other premises used exclusively as a school or house of worship; and (c) where is the closest entrance regularly used for ingress.
    • The 500 foot rule.  The general standard for approving an application for a liquor license is that it is to be granted absent good cause shown.  That burden shifts if there the proposed restaurant is in a city, village or town having a population of 20,000 or more and there are three or more existing on-premises licenses and operating establishments within 500 feet of the proposed leased space.  Unlike the 200 foot rule, the 500 foot rule is measured in a radius.  If the 500 foot rule applies the burden shifts the to the applicant to show that the proposed establishment is in the public interest.
    • Know your predecessor.  It is important to note that where a license for a particular premises has been revoked, the SLA has the discretion to refuse to issue a license for such premises for a period of two years following the revocation.

It is common for a lease to contain some period of free rent period.  As Tenant’s Counsel you will want to tie that time frame to the period of time it is likely to take to obtain a liquor license.  You may also want to negotiate a contingency permitting the Tenant to terminate the lease if it is unable to obtain a license.  A landlord is unlikely to agree to have the deal be contingent for any significant period of time so knowing the hurdles you face in obtaining the license is important.  The parties may compromise by making the lease contingent upon obtaining local community board approval or, provided it works with the tenant’s business model, obtaining a beer and wine license.

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