Difficulty Obtaining a Liquor License Among Things that Doomed Taco Bell’s Fast Casual Concept

Taco Bell thought its concept — U.S. Taco Co. — could take on Chipotle and, failing that, at least give it a toe-hold in the rapidly growing fast casual dining market.  But, after just one year of being open in Huntington Beach, California, its first and only outpost has closed.

Among the problems facing the upstart:  difficulty obtaining a liquor license.  As we’ve written here, many of the more successful fast casual chains offer beer and wine to their customers, appealing to cost-conscious millennials as well as parents of young children, who may want a beer with their dinner without having to bring the kids to a full-service, sit-down restaurant to do so.

While U.S. Taco Co. may be dead, Taco Bell will continue its foray into the upscale quick service space with yet another new concept (with booze included), Taco Bell Cantina.  The first of those opened in Chicago and San Francisco last month.

Medical Marijuana Entrepreneurs May Have to Wait for Zoning Laws to Catch Up

Baltimore County recently became the first jurisdiction in Maryland to enact comprehensive zoning rules for medical marijuana facilities.  Under zoning laws, uses are generally permitted rather than prohibited.  That is to say, a business owners may only engage in uses that are specifically permitted in a given zone and a use that is not permitted is, for all intents and purposes, effectively prohibited in the particular zone.  This framework can cause issues when a new business use for a parcel is presented.  While it may be consistent with other uses, if the relevant authorities had not previously contemplated the likelihood that someone would even desire to engage in that use, it could be not permitted under the relevant zoning laws.

A good example of this can be seen in the rise of craft breweries, which can fit into multiple general uses — from industrial to retail — but which were not permitted in many zoning codes, in many cases simply because no one considered that anyone would want to engage in such a use.

Which brings us back to medical marijuana.  In 2014, Maryland became the 21st state to legalize medical marijuana and later this year will begin accepting applications and issuing dispensary licenses.  That leads to the question, however, of where these dispensaries may be located.  As discussed above, if the local zoning does not allow for them, the fact that the state has legalized them may not matter. For example, a  firm client who owns a shopping center recently turned away a potential tenant who wished to operate a dispensary because it was concluded that the local zoning did not include such dispensaries as a permitted use.

That is why Baltimore County’s action on this matter is such a big deal.  Medical marijuana and other legalized marijuana sales and distribution promises to be a huge industry.  As other Maryland cities and counties turn to this issue, medical marijuana entrepreneurs will have to keep an eye on which will facilitate the growth of industry, and which will say it is not welcome in their neck of the woods.

DC Restaurant Owners Learn the Hard Way How Important a “Very Good Lease” Is.

A dispute with its landlord has caused the abrupt closure of a popular Columbia Heights restaurant.  Apparently, the dispute was brought to a head when the landlord refused to sign off on the restaurant’s liquor license application, which is a requirement under DC law.  Now the parties have sued (and counter-sued) each other in DC Superior Court and the restaurant’s owners are looking for a new location.

I, of course, have not seen the lease at issue here, but this story should demonstrate how critical it is for restaurant owners to include liquor license provisions in their restaurant leases if they are planning to serve alcoholic beverages.  Never assume it is understood you plan to apply for a liquor license — get it in the lease, or there is no obligation on the part of the landlord to cooperate in your efforts to get one.

It appears the this restaurant owners have learned from this experience, noting that, while their restaurant concept and execution is proven, “It’s just a matter of having a very good lease.”

 

Client Spotlight: Tony Conte and Inferno Pizzeria Napoletana

Permit us a moment to bask in the good fortune of one of our clients and share with you this terrific piece on Tony Conte and Inferno Pizzeria Napoletana, as recently featured in the Washingtonian.

We are also pleased to report that Inferno’s liquor license application was approved by Montgomery County this morning, so you’ll be able to have a great glass of wine or cold bottle of beer with your authentic D.O.C. pizza.

New Liquor License Residency Requirements in Prince George’s County

As written here before, residency requirements can be a significant (or at least annoying) hurdle to obtaining a liquor license in Maryland.  Nearly every county requires that at least one of the licensees for any establishment to have been a resident of that county for some defined period prior to the issuance of the license (usually two years).

Prince George’s County is no longer one of those counties.

Effective July 1, 2015, applications for Prince George’s County liquor licenses must only have one applicant to be a resident of the state of Maryland.  This change is particularly significant in Prince George’s County because the County’s liquor laws also require the resident applicant to have a substantial ownership interest in the business in question.  When, as is often the case, the resident applicant does not have any real involvement in the business, this related ownership requirement creates organizational complications and potential legal vulnerabilities for the actual proprietor of the restaurant.  Removing the county residency requirement minimizes these complications and streamlines the  application process.

In addition to those benefits, the law change also recognizes that there are many businesspeople who live and operate in other counties (not to mention other states and the District of Columbia) who see Prince George’s County as an underserved jurisdiction with great opportunities for economic growth, but are wary of these county residency and ownership requirements.  I know this because many of these businesspeople have been and are my clients, and they have been frustrated by these and other seeming barriers to entry.  This change opens the County’s doors and makes it more welcoming to expanding restaurant businesses.

If you are interested in locating a bar or restaurant in Prince George’s County, or if you already hold a Prince George’s County liquor license, and are interested in how this law change may affect you, please do not hesitate to contact us.

 

Judge Rules Non-Citizens Should be Able to Hold Liquor Licenses

In nearly every county in Maryland, being a non-US citizen is a bar to holding a liquor license.  A judge in Anne Arundel County, however, recently ruled that such laws are discriminatory and ordered the county liquor board to reconsider a liquor license application submitted by a non-citizen permanent resident.  Upon such reconsideration the board must either issue the license or come up with a reason other than citizenship status to deny it.

While this case is not binding on the other jurisdictions that prohibit non-citizens from holding licenses, it should provide encouragement for permanent residents who own restaurants to push this issue in those other counties.

 

Planning a Brewery? Think Zoning Zoning Zoning

Have you ever wondered why Annapolis, our state’s fair capital city, does not have any craft breweries?  After all, Frederick and Baltimore are home to multiple world class craft beer producers.  Well, the answer is both simple and amazing:  the zoning codes of the City of Annapolis and Anne Arundel County do not include brewing beer as a permitted use.  That means, essentially, there is no building or parcel of land in the entire city or county for which brewing is permitted.

Although, at least as it relates to the County, that may change this year.

This change, if it came, would be thanks in large parts to the efforts of two Maryland brewers — one aspiring and one established — the latter of which who was foreclosed from his first choice of Anne Arundel County and therefore opened his highly successful Jailbreak Brewing (outstanding, by the way) in the more welcoming Howard County instead.  Their efforts, and a few receptive local officials, has prompted a proposal to change to the county’s zoning laws to open the door to brewing in the county.  As a recent news article indicates, the door is not opening all that wide just yet, but it is a start.

Of course, this serves as an important reminder of how although state laws regarding beer making — be it by production breweries, microbreweries or farm breweries — get a lot of the attention, it is often the minutiae of local zoning ordinances and county alcoholic beverage laws that delineate the ability of people to make, sample, and sell their beer.

 

 

 

Things To Consider Before Signing a Restaurant Lease: Liquor Licensing

Restaurants have a notoriously high failure rate and, for many restaurants, their fate is sealed at the time they sign their lease.  If a restaurateur is not careful, she can be saddled with lease terms that make the restaurant’s success even harder than it need be.  It is absolutely critical to identify those lease terms before signatures are affixed and keys handed over.  Moreover, with the assistance of experienced counsel, many of these lease terms are negotiable and can be adjusted to ensure that they do not present unnecessary hardships in running your business.

Over the next couple of days and weeks this blog will be highlighting some of the most important questions a tenant should ask before signing a lease.  These are not, however, intended to be an exhaustive list nor to replace the legal advice you should obtain prior to signing any lease.  But, with that said, I hope it is helpful to think about these things.

What will it take to get a liquor license?

Many restaurant concepts require alcohol sales to have any chance at succeeding.  In particular, many fast casual franchises may require that their franchisees obtain a license to sell beer and wine because such sales are inherent to the franchise concept itself. It therefore never ceases to amaze me when a would-be operator of such a concept signs a lease committing them to paying thousands of dollars a month in rent without considering whether they can obtain a liquor license for the location, or what efforts or expenditures will be necessary to do so.

In many counties in Maryland, for example, there is a restriction on the number of licenses the local authorities will issue.  In Washington, DC, moreover, there are areas of the city where there is a wholesale moratorium on the issuance of new licenses.   In addition, there could be something about the tenant operator himself — either where the operator lives, something in his background, or other business affiliations —  that will make it difficult for him to obtain a license.

Before signing a lease, therefore, it is absolutely imperative the tenant investigate whether it can obtain a liquor license for the site.  And if there is any doubt whatsoever on the matter, the tenant should be sure the lease contains a contingency that allows it to void the lease if it cannot obtain such a license.

2015 Legislative Session Will Again Target Liquor License Residency Requirements

Readers of this blog may remember efforts that our principal, Sean Morris, engaged in last year to revise Montgomery County’s requirement that all liquor license applications include at least one individual who has been a resident of the County for two years or more.  (You can read more here).  That legislation, which would have permitted residents of some neighboring jurisdictions to also hold county-issued licenses, passed the Maryland House of Delegates, did not get out of committee in the state Senate.

Now, this year, the Montgomery County delegation is taking a different — and I think far better — approach.  Based on the list of proposed legislation recently unveiled, the delegation is advocating for the legislature to pass a law empowering the County’s Board of License Commissioners (commonly known as the Liquor Board) to grant a waiver to the residency requirement.  This authority would appear to reserve to the Liquor Board’s discretion when invoking the residency requirement might not be necessary.

(As a side note here, earlier this fall we presented this idea of a residency waiver to one of the members of our County Council, who was warm to the idea.  Whether this discussion and this proposed legislation are connected is not clear, but we are glad that folks are listening to our concerns.)

This legislation of course invites the question of when it would be appropriate for the Liquor Board to exercise such discretion, and provides an opportunity for applicants to advocate before the Board as to why their case might deserve such an waiver.  Examples come to mind of an applicant who intends to work full-time at their new restaurant in the County, lives close by in a neighboring jurisdiction, and would thereby be attentive and responsive to the needs and interests of the community.  Such an applicant, it would seem, should be far preferable to a detached, disinterested individual who, while having no interest or involvement in the restaurant, happens to live in Montgomery County and be willing to appear on the application (which is common under the current regime).

Were this legislation to pass in its current form, the applicant would need 4 of the 5 members of the Liquor Board to approve the waiver request.  And it will take a few months at least to get a sense of what criteria the Board will use in assessing waiver requests.  So finding a resident agent may still be preferable, if only to eliminate this uncertainty.  But it does provide an option where a suitable resident agent cannot be identified.  And we welcome additional options.

Can Montgomery County’s Liquor Control System Be Saved?

For the past year, the Montgomery County Department of Liquor Control’s dispensary system, which requires every keg, can, or bottle of alcohol sold within the county to be purchased from the County itself — either directly or indirectly — has been under fire.  The State Comptroller, Peter Franchot, a county native and the state’s chief regulator of alcohol, has even called for it to be abolished.

Earlier this year, the Department of Liquor Control itself commissioned a report from a Philadelphia consulting firm to determine what the DLC needed to do to modernize its operations and better serve the county’s consumers.  That 95-page report was released yesterday and it highlights multiple weaknesses in DLC operations, including an aging truck fleet, insufficient number of stores to meet the needs of either customers or retailers, high operating costs, and low profit margins.  The report also notes that the Chevy Chase location, which just happens to be a block or so from the border with DC, has been a colossal money pit — losing $278,000.00 in fiscal 2013.

The report includes recommendations to deal with this raft of challenges, but it also raises the question of whether the system is worth saving at all.

Sure to add to the pressure on DLC is that the Montgomery County Office of Legislative Oversight is due to release its own report on DLC in the coming months.  Until then, and as we embark on a new legislative session in January, the drumbeat of criticism against DLC is likely to continue and grow.