What happens to the liquor license when I sell my hotel?

California's act says each license "is separate and distinct and is transferable upon approval by the department from the licensee to another person and from one premises to another premises" (Bus. & Prof. Code 24070).^[1] New York is blunter. A license "shall not be transferable to any other person or to any other premises" except in the discretion of the State Liquor Authority, and "shall be available only to the person therein specified, and only for the premises licensed" (ABC Law 111).^[7]

Florida permits a transfer when the licensee "has made a bona fide sale of the business which he or she is so licensed to conduct", but only if the purchaser's application is approved under the same sections that govern a new applicant (Fla. Stat. 561.32(1)(a), applying 561.17, 561.18, 561.19 and 561.65).^[4] The buyer is a new applicant standing at the seller's address, not an assignee of the seller's paper. Qualification, fingerprinting where the division requires it, and disclosure of every person holding a direct or indirect interest in the business all run the way they would on a first application, and the division must deny the application if any of those people is not qualified (561.17(1)).^[6]

So the license application belongs on the franchise-approval clock, not the title clock. It starts at contract signing.

The permit has conditions. The premises must have been operated under a license within 30 days of the application, the existing license must be surrendered under the department's rules, and the buyer must already have filed the transfer application for those premises.^[1] The permit authorizes the same sales the pending license would.

One operating detail catches first-time buyers. A temporary permit holder has to buy beer, wine and distilled spirits on cash terms, paying before or at delivery in currency or by check, unless it already holds one or more retail licenses and is not delinquent on them.^[1] A buyer with no other California license therefore loses its distributor credit lines for the length of the permit. The department also will not approve the underlying transfer until the permit holder files a statement under penalty of perjury that all current obligations are discharged and that every outstanding check written for alcoholic beverages will be honored on presentation.^[1]

No public source publishes how long a person-to-person transfer takes to approve. Four months plus one four-month extension is the only published outer bound, and a deal needing more than eight months of it has a problem the permit will not fix.

California's schedule is published in the act: $1,250 for an on-sale or off-sale general license moved from a licensee to another person, or to another person and premises; $335 for all other licenses person to person; $780 premises to premises; and $6,000 to move a general license from one county to another.^[1] Where one application covers several licenses at the same premises, the fee is charged once at the highest applicable rate and the rest transfer free, though the annual fee is still payable for each.^[1]

Florida charges 10 percent of the annual license tax. The exception is the quota license under 561.20(1), where the fee is assessed on the average annual value of gross sales of alcoholic beverages for the three years immediately preceding the transfer, levied at 4 mills and capped at $5,000; in place of the 4-mill assessment the transferor may elect to pay $5,000.^[4] The cap binds on any hotel with meaningful bar revenue, which the worked example below shows. Records establishing the value of those sales have to accompany the transfer application.^[4]

Those are the state's fees. What a license sells for on the open market is a private price, and no public source publishes it by county, so a seller allocating part of the price to the license is negotiating rather than consulting a table.

Before the transfer application is filed, the licensee or the intended buyer has to record a notice of intended transfer with the county recorder of each county where the premises sit. The notice names both parties, the kinds of license, the premises, and the escrow holder, describes the entire consideration broken out into cash, checks, promissory notes and tangible and intangible property, and carries an agreement between the parties that the consideration is paid only after the department approves the transfer (24073). A copy certified by the recorder goes to the department with the application.^[1]

The parties then open an escrow with a person or entity that is not a party to the transfer, and the buyer deposits the full amount of the purchase price with the escrow holder (24074).^[1] Creditors of the seller who file claims before the department notifies the escrow holder of its approval are paid out of that money in a fixed order: first the United States, for income and withholding taxes; second wages, salaries and fringe benefits of the seller's employees earned or accruing before the sale; third secured creditors, to the extent of the proceeds arising from the sale of the security; fourth mechanics' liens; fifth escrow fees, prevailing brokerage fees and reasonable attorney's fees; sixth goods sold and delivered to the seller for resale at the licensed premises, services supplied to the licensed business, and a landlord's claim for past due rent; seventh claims reduced to court-ordered judgments; eighth all other claims, pro rata if the money runs out.^[1] A claim the seller disputes is held by the escrow holder for 25 days and, if not attached, paid to the seller.^[1]

Two things follow for a seller. Money allocated to the license is not sale proceeds until the claims ahead of it are satisfied, and a broker's fee sits in the fifth tier, ahead of the beverage distributor and the landlord. Clearing trade payables and the wage accrual before escrow opens is the only reliable way to keep that money.

The federal rule is the permissive one. A TTB dealer registration is personal to whoever registered and is not transferable, and where the proprietorship of the business changes the successor must register as a new business (27 CFR 31.121).^[10] But the sale or transfer of all or a controlling interest in a corporation's capital stock does not require registration as a new business. It requires an amended registration, and only if the sale alters the list of stockholders owning 10 percent or more of the stock, filed on or before the next July 1 (27 CFR 31.135).^[11]

State law does not follow. In California, when 50 percent or more of a corporation's shares are acquired by people who did not hold 50 percent on the date the license was issued, the license "shall be transferred to the corporation as newly constituted". The new owners must hold every qualification required of a licensee, the department investigates first, and the recorded notice applies just as on a person-to-person sale. The fee is $800 for an on-sale general license. The same rule reaches a new general partner or 50 percent of a limited partnership's capital or profits, and limited liability companies have their own section (Bus. & Prof. Code 24071.1 and 24071.2).^[1] The department lists a 50 percent stock transfer as its own application type.^[2]

Florida is harsher on a quota license. A license issued under 561.20(1) is not transferable "in any manner, either directly or indirectly, including by any change in stock, partnership shares, or other form of ownership" for three years from original issuance, except through probate or guardianship. An attempted transfer in that window is void, and the license is deemed abandoned and reverts to the state to be reissued as a new license.^[4] A transfer that is permitted inside the window costs 15 times the annual license fee.^[4]

Texas requires notice within 30 days of adding or removing any principal party, including officers and stockholders, under Alcoholic Beverage Code sections 28.04 and 11.42. A change of corporate control has to be reported before the change, and a Mixed Beverage Permit held by a corporation may not be renewed if the agency finds that ownership of more than 50 percent of the stock has changed since the original permit was issued.^[9] An entity sale structured to dodge a transfer can therefore cost the buyer the permit at renewal instead.

California's Type 70, On-Sale General Restrictive Service, authorizes the sale or furnishing of beer, wine and distilled spirits for consumption on the premises "to the establishment's overnight transient occupancy guests or their invitees". The department says it is normally issued to suite-type hotels and motels that exercise the privilege for the guests' complimentary happy hour.^[3] A buyer who intends to open that bar to the public is applying for a different license, not transferring this one.

New York grants an on-premises liquor license only for premises "being conducted as a bona fide hotel provided that a restaurant is operated in such premises", along with the other premises types the section lists (ABC Law 64(5)).^[8] Close the restaurant and the basis for the license closes with it.^[8]

Florida's route around the county quota is a room count. The special license under 561.20(2)(a)1 requires not fewer than 80 guest rooms in a county of fewer than 50,000 residents, and not fewer than 100 guest rooms in a county of 50,000 residents or more, with narrower paths for hotels in historic structures. The quota itself is one license per 7,500 county residents.^[5] A special license is restricted as well: it allows sale and consumption only on the licensed premises of the hotel.^[5] A buyer converting guest rooms, or a seller who has already taken rooms out of service, should check the count before signing.

Federal law is generous to the hotel on its own account. A hotel proprietor who conducts the sale of liquor throughout the hotel premises registers for one place only, and the different areas the proprietor operates, "such as banquet rooms, meeting rooms, and guest rooms, collectively constitute a single place of business" (27 CFR 31.82).^[12] Where a concessionaire conducts sales in two or more areas of the hotel, those areas are also a single place of business, and the concessionaire registers once, for itself.^[12]

Registration is on TTB Form 5630.5d, due before engaging in business and on or before July 1 of each year after that, with no further filing needed while nothing on the form has changed (27 CFR 31.111).^[13] A dealer going out of business has to register that event within 30 days (27 CFR 31.138).^[14] On a sale, that pairs with the successor's duty to register as a new business.^[10]

So a hotel with a leased restaurant has two sets of paper, and only one set is the seller's to deal with. Confirm which entity holds which privilege before the purchase agreement allocates anything to a license.

Guide

What is involved in selling a hotel?

Other questions in this guide

• What documents do I need to sell my hotel?
• What happens to my franchise agreement when I sell my hotel?
• What happens to my employees when I sell my hotel?
• Do I need a tax clearance certificate to sell my hotel?
• How long does it take to sell a hotel through a broker?

Terms defined in the glossary

• Going-Concern Value
• Hotel Franchise Agreement
• Net Operating Income (NOI)

Our own data

• Matthews Hotel Markets rate sheet