Buying a Liquor License in Maryland

Maryland law provides, “before deciding whether to approve an application and issue a [liquor] license, a local licensing board shall consider .. the public need and desire for the license,” among other factors.

And the laws goes on to further provide the “local licensing board shall deny a license application .. if the local licensing board determines that .. the granting of the license is not necessary to accommodate the public,” among other grounds.

But what does that nebulous legal test mean? Among the most frequent question we are asked is, “how do I prove that a liquor license is necessary at a location?”

The answer is different depending upon the location. The structure of Maryland’s liquor board system is local, independent boards, mitigating against any consistency of interpretation. Such is intentional. There is reason to conclude from the elaborate statutory scheme regulating the liquor boards that the legislature well understood that there was a substantial likelihood of differing interpretations of the term “necessary” by different local liquor boards.

In Baltimore County, the local liquor board Rule 19 furnishes a population based formula for determining the maximum number of licenses that may be issued for each election district, and that rule does not mention the term “necessary.” In determining the legal meaning and effect of Rule 19, the population based nature of Rule 19, that one off-sale liquor license is appropriate for every 2,500 people, suggests that this is the number of licenses that is most appropriate for the population. Is it possible that this number is “necessary for the accommodation of the public?”

No, because the final paragraph of Rule 19 states that the rule is in addition to those State law factors and that the Rule is not sufficient, alone, to meet the requirements for new licenses.

If Rule 19 does not control the standard for necessity, then how is that standard to be given meaning? The Maryland Court of Appeals defined the term “need” in the context of zoning law involving a challenge to the location of a doctor’s office in a residential area. The relevant law stated that a doctor’s office was a permissible use in a residential area if, inter alia, there was a “need” for such services in the area. The Court held that, in this context, “need” meant that which was “expedient, reasonably convenient and useful to the public.”

That zoning case is analogous to liquor licensing matters. State law allows for the transfer of a liquor license if, among other things, “need” is shown. The statute itself indicates that “need” should be considered in light of what is “necessary for the accommodation of the public.” When accommodation is the ultimate goal, it is reasonable that absolute physical necessity is not required. This is especially true when, as here, the accommodation at issue involves the location of a liquor store.

Black’s Law Dictionary states that the meaning of “necessary” varies with the context in which it is used:

[The word] may import absolute physical necessity or inevitability, or it may import that which is only convenient, useful, appropriate, suitable, proper, or conducive to the end sought. It is an adjective expressing degrees, and may express mere convenience or that which is indispensable or an absolute physical necessity.

The Baltimore County licensing board determined, here, a definition of need that focuses on convenience is, given the context, most appropriate.

The Maryland Court of Special Appeals, in 2000, concluded that “necessary,” in this instance, means that the transfer of the liquor license to the transfer site will be “convenient, useful, appropriate, suitable, proper, or conducive” to the public in that area. And this is proven at a liquor board hearing with both expert and lay witness testimony.

We can provide you with expert witness testimony for your liquor board hearing to prove that a liquor license is necessary at a location.

 

We are often asked, “what do I need to know about buying a restaurant in Maryland?” While each prospective purchase is driven by the unique facts of the situation and there are no two restaurants, bars or taverns that are alike, each has as its key asset an alcoholic beverage license. This blog post is a “Top 10” list of issues to consider (.. okay 10 plus 2 extra issues):

  1. What are you buying? Is this a purchase of the stock in the business entity owned by the principals or a purchase of the assets of the business? There are justifications for each option, but on balance, an asset purchase is likely more advantageous for a buyer.
  2. Does the sale include the building where the restaurant is located or is the space leased and, if so, is that lease assignable by the seller (with or without landlord consent)? Most restaurants in Maryland are in leased spaces.
  3. Is a covenant not to compete by the seller and its principals for some number of years part of the deal?
  4. What is the agreed purchase price? How much is the deposit, the amount to be paid at closing on the transaction, is there any seller financing, and the like?
  5. How is the purchase price allocated for income tax purposes? How will transfer and recordation taxes be shared and are there other taxes due for the business and on this transaction?
  6. What representations and warranties is the seller making about the business, including about what business assets exist, the financial condition of the business, etc.? Or is this an “as is” transaction?
  7. What type of due diligence will be undertaken by the buyer, including how long a study period will be provided, before the deposit becomes nonrefundable?
  8. Among the most important issues (because of the large dollars that alcohol sales contribute to a restaurant) is the contemplated transaction contingent upon transfer of the alcoholic beverage license, including possibly allowing for the running of any appeal time.
  9. Will each party comply and cooperate with the other party to assure compliance with bulk sales laws, including notices to all creditors.
  10. What is the closing date on the contemplated transaction?
  11. Will the business will continue to be operated in the ordinary course pending closing?
  12. Is there a broker to be compensated?

This Top 10 plus 2 list of issues to be considered is really just the starting point. Some are easily dealt with between the parties and others, like the transfer of the alcoholic beverage license, which is key in the value of the business, require an application, public hearing and approval by a board of liquor license commissioners.

And not just because you are reading a blog written by attorneys, but given that large dollar amounts involved, the complexity of the transaction and potential liabilities involved, the purchaser of a restaurant or other alcoholic beverage business in Maryland should be represented by legal counsel. We do that work and would be pleased to speak with you.