Wisconsin Lawyer: Practice Tips: How to Buy a Liquor Store or Other Business with a Retail Alcohol Beverage License:

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    Practice Tips: How to Buy a Liquor Store or Other Business with a Retail Alcohol Beverage License

    Is your client thinking about buying a restaurant, a grocery or convenience store, or a bar or liquor store? For these businesses, a retail alcohol beverage license is an essential asset. Here are some tips to help ensure the license is appropriately transferred to the buyer, following the issuing authority’s procedures.

    Aaron R. Gary

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 84, No. 11, November 2011

    A retail alcohol beverage license is often an important asset of a restaurant, grocery store, or convenience store. For businesses such as bars and liquor stores, it is an essential asset. In representing a client in the purchase of a business that holds a retail alcohol beverage license, attorneys must be careful to ensure that the license is appropriately transferred to the buyer and that any commitment of the buyer is contingent on proper transfer of the license. This is because a transfer of a license can be made only with the blessing of the issuing authority, regardless of the terms of any agreement between the parties. As an increasing number of municipalities reach their “quota” for issuing new retail liquor licenses or impose local restrictions on issuing new licenses, it becomes increasingly important for counsel to be aware of the limitations on private parties to control the destiny of an existing license.

    The License Issuance Process

    The statutes recognize five types of retail alcohol beverage licenses, as summarized in the accompanying table. In this table, beer also includes flavored malt beverages such as hard lemonade and wine coolers, and intoxicating liquor means wine and distilled spirits. (See Figure 1: Types of Retail Alcohol Beverage Licenses Recognized by Statute.)

    Each type of retail license is issued by the municipality (city, village, or town) where the retail premises are located.1 Having (or applying for) a Class “B” retail beer license is a prerequisite to obtaining a “Class B” retail liquor license.2 Therefore, many municipalities issue “combination” Class “B”/“Class B” licenses. Only “Class B” liquor licenses are subject to a statutory quota on the number of licenses that a municipality can issue.

    The issuance of a retail license is a matter in which the public has an interest, and so the public has an opportunity to provide input before a license is issued. Before issuing a retail license, the municipal clerk must publish newspaper notice of the license application.3 Certain information, including information relevant to the applicant’s fitness to hold a retail license and the location where alcohol beverages will be sold, must be included in a retail-license application.4 A retail-license application is open to public inspection.5 A municipality must wait at least 15 days after receiving an application before it can issue a retail license (although a municipality in Milwaukee County can establish a different waiting period).6 In addition to the newspaper publication, appropriate notice of the public hearing at which the municipality will review or take action on a license application must be given under Wis. Stat. section 19.84(2), part of the state’s open meetings law.7

    This process allows the issuing municipality to assess the applicant’s fitness to hold a retail alcohol beverage license and to evaluate the appropriateness of the proposed location for the retail establishment. The process also ensures an opportunity for public comment on these issues. A municipality has a great deal of discretion in issuing retail alcohol beverage licenses based on many factors, including its perception of the applicant’s fitness, the appropriateness of the location, and the public welfare.8 In Brill v. Salzwedel, the court explained that “[t]he licensing authorities are entitled to know the personnel of those directly interested in the business for the operation of which the municipality grants the license. The emphasis is upon the personal qualifications of the licensees and those in control of the liquor business…. [T]he public is entitled to know who is actually in control, both as to ownership and management in any branch of the liquor traffic required by law to be licensed.” 9

    Figure 1
    Types of Retail Alcohol Beverage Licenses Recognized by Statute

    Type of retail license Type of alcohol Type of sales Type of business
    Class "A" Beer Exclusively sales for off-premises consumption Package stores like liquor, grocery, or convenience stores
    Class "B" Beer Primarily sales for on-premises consumption; but off-premises sales OK Taverns, bars, restaurants
    "Class A" Intoxicating liquor Exclusively sales for off-premises consumption Package stores like liquor, grocery, or convenience stores
    "Class B" Intoxicating liquor Primarily sales for on-premises consumption; some off-premises sales OK Taverns, bars, restaurants
    "Class C" Wine only Exclusively sales for on-premises consumption in restaurants Restaurants only

    Transferring a Retail License

    When a business that holds a retail license is sold, the law does not allow the new owner to avoid public scrutiny. A retail license cannot simply be transferred to a new owner as part of a private transaction. With limited exceptions, retail licenses are not transferable to another person.10 Temporary exceptions apply if the licensee dies, becomes bankrupt, or becomes disabled.11 However, “[t]he outright sale, transfer, or assignment of a liquor license is illegal and unenforceable except as specifically authorized by statute.”12 A retail license is not normally assignable, and transferring the license is at the discretion of the licensing authority: “Parties cannot [by contract] bind or interfere with the exercise of the discretion of the licensing [authority].”13 Accordingly, if a retailer sells his or her business, the buyer must go through the municipal licensing process to obtain the business’s retail license. As with the original issuance of a license, the municipality has substantial discretion in deciding whether to allow the license to be transferred to the new owner.

    Additional resources

    Attorneys must be careful in advising the buyers of existing retail businesses, because the buyer cannot simply have the retail license transferred or assigned with the rest of the business assets. An agreement to transfer the retail license from the seller to the buyer or otherwise generate rights to the license in the buyer might be effective between the seller and the buyer, but it is not enforceable against the licensing authority and it is not effective to create operational rights under the license for the buyer.14 Therefore, in contracts for the purchase of an existing retail business, it is customary to include conditions related to the buyer’s ability to obtain issuance or transfer of a retail license from the municipality.15 The possibility that a retail license might not be issued is also an important consideration in drafting or reviewing a contract for a new retail business, such as a lease agreement for the proposed location of the premises to be licensed.16 In making an offer to purchase a retail establishment, it is important to carefully draft contingencies related to the granting of the retail license and the assumption of the lease or execution of an acceptable subsequent lease agreement.

    Although the state statutes provide the framework and guidance for issuing retail licenses, municipalities actually issue these licenses according to their local ordinances, and so it is essential that attorneys advising buyers of existing retail businesses review local ordinance requirements. (General retail-license issuance requirements under local ordinances for Wisconsin’s three most populous cities can be found in Milwaukee Ordinance section 90-5, Madison Ordinance section 38.05, and Green Bay Ordinance sections 33.03 and 33.04.)

    Many municipal ordinances specifically address retail-license transfers. For example, the Madison ordinance specifies that a retail license cannot be transferred to another person, and ownership or control of a corporate licensee cannot be transferred, without application to and approval by the common council.17 A transfer-of-ownership form used for transferring a retail license is available on the city of Madison’s website. The form, which is essentially a conditional surrender of the existing license, is filed with the new owner’s application for the retail license. If a business is sold or assigned in Madison, the retail license may be transferred to the successor owner or assignee at no charge if the successor or assignee complies with the requirements applicable to original applicants and is acceptable to the common council, and the common council consents to the transfer.18

    The concern that a municipality’s governing body might not approve the license transfer is particularly acute in municipalities that have reached their quota for retail liquor (“Class B”) licenses. According to the League of Wisconsin Municipalities, in such situations it is common practice for the seller of an existing retail business to surrender the retail license to the municipality contingent on the license being issued to the buyer. (As noted above, this is essentially the practice in Madison.) Surrendering the retail license on the condition that it will be granted to the buyer facilitates the sale of the business.19

    Other Considerations

    In addition to terms related to transferring the retail license, a buy/sell agreement for a business that holds a retail license is likely to include terms related to transferring the seller’s alcohol-beverages inventory. A selling retailer may sell and transfer to the buyer only its inventory of sealed alcohol beverages, not open containers. The selling retailer also must file with the Wisconsin Department of Revenue a complete inventory of the entire stock to be transferred.20

    Aaron R. GaryAaron R. Gary California-Davis 1992, is an attorney at the Wisconsin Legislative Reference Bureau and previously was in private practice. He is the author of the book, Alcohol Beverages Regulation in Wisconsin, scheduled to be published by State Bar of Wisconsin PINNACLEin December.

    Although the municipal approval process for transferring a retail license may be cumbersome, a buyer should not try to disguise the transaction to avoid the approval process. Unless a specific exception applies, it is a crime for a person to sell alcohol beverages at retail without the appropriate retail license.21 The true owner of retail premises must have the retail license issued in his or her name.22 If a retail license has been issued for a retail establishment but the actual operator of the establishment is not the person or entity holding the license, the actual operator will be considered to be illegally operating the establishment without a proper license.23 Therefore, a client buying a business that holds a retail license should never try to circumvent the municipal licensing process by clandestinely continuing to operate under the prior owner’s license.

    Conclusion

    Although a buy/sell agreement may create enforceable rights between the contracting parties, these parties lack authority to create buyer’s rights in the seller’s retail alcohol beverage license that are binding on the issuing municipality. Attorneys representing buyers in purchasing a business that holds a retail license should be prepared to go through the municipal licensing process in the same manner as if making an original license application.

    Endnotes

    1 Wis. Stat. §§ 125.25(1), 125.26(1), 125.51(1)(a), (2)(a), (3)(a), (b), (3m).

    2 Wis. Stat. § 125.51(3)(f).

    3 Wis. Stat. § 125.04(3)(g).

    4 Wis. Stat. § 125.04(3)(a).

    5 Wis. Stat. § 125.04(3)(i)1.

    6 Wis. Stat. § 125.04(3)(f).

    7 See State ex rel. Buswell v. Tomah Area Sch. Dist., 2007 WI 71, ¶ 21, 301 Wis. 2d 178, 732 N.W.2d 804.

    8 See State ex rel. Ruffalo v. Common Council, 38 Wis. 2d 518, 525-26, 157 N.W.2d 568 (1968); State ex rel. Boroo v. Town Board, 10 Wis. 2d 153, 158-59, 102 N.W.2d 238 (1960); Norton v. Town of Sevastopol, 108 Wis. 2d 595, 598, 323 N.W.2d 148 (Ct. App. 1982). See also Wis. Stat. § 125.51(1)(a) (retail liquor licenses are issued by the municipality “as the issuing municipal governing body deems proper”); Bayview-Lofberg’s Inc. v. City of Milwaukee, 905 F.2d 142, 144, 146 (7th Cir. 1990).

    9 235 Wis. 551, 558, 292 N.W.2d 908 (1940). See also Hartman v. Buerger, 71 Wis. 2d 393, 400, 238 N.W.2d 505 (1976) (“The issuance of tavern licenses is not a private matter between individual parties, but one in which the public has an interest.”); Sponholz v. Meyer, 270 Wis. 288, 291-92, 70 N.W.2d 619 (1955) (holding that both the public and the licensing authority are entitled to know identity of persons engaged in liquor business).

    10 See Wis. Stat. §§ 125.04(12)(b), 125.25(3), 125.26(3), 125.51(2)(c), (3)(d).

    11 See Wis. Stat. § 125.04(12)(b).

    12 Variance Inc. v. Losinske, 71 Wis. 2d 31, 35, 237 N.W.2d 22 (1976).

    13 Sprecher v. Weston’s Bar Inc., 52 Wis. 2d 677, 679-80, 191 N.W.2d 212 (1971). See also Wisconsin Department of Revenue (DOR) form AT-108; DOR Publication AT-109.

    14 See Variance, 71 Wis. 2d at 35-36; Sprecher, 52 Wis. 2d at 679-80; Marquette Savings & Loan Ass’n v. Village of Twin Lakes, 38 Wis. 2d 310, 315, 156 N.W.2d 425 (1968).

    15 See, e.g., Variance, 71 Wis. 2d at 34-35 (enforceable agreement to sell and transfer retail license was conditioned on approval by common council).

    16 See, e.g., De Salvo v. Howell Plaza Inc., 38 Wis. 2d 167, 168, 172, 156 N.W.2d 473 (1968) (holding valid lease agreement for property that was to be used as restaurant and cocktail lounge when lease terms were conditional on lessee obtaining retail license).

    17 Madison, Wis., Ordinances § 38.05(3)(k).

    18 Madison, Wis., Ordinances § 38.05(8)(b).

    19 See League of Wisconsin Municipalities website. See also Disciplinary Proceedings Against Williams, 2005 WI 15, ¶ 3, 278 Wis. 2d 237, 692 N.W.2d 633 (describing practice of transferring retail license from one business to another, by current licensee surrendering license to city conditioned on city issuing license to new licensee).

    20 See Wis. Admin. Code §§ Tax 7.01(6)(b), 8.81(2). See also DOR form AT-900.

    21 Wis. Stat. §§ 125.04(1), (13), 125.66(1); see also State v. Eastman, 148 Wis. 2d 254, 257, 435 N.W.2d 278 (Ct. App. 1988).

    22 Eastman, 148 Wis. 2d at 257. See also Disciplinary Proceedings Against Smith, 2008 WI 17, ¶ 21 n.2, 308 Wis. 2d 1, 746 N.W.2d 213.

    23 Schara v. Thiede, 58 Wis. 2d 489, 494, 496, 206 N.W.2d 129 (1973). See also Wis. Stat. §§ 125.32(2m), 125.68(2m) (retail licensee cannot “loan” license to another or allow another to use his or her license).




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