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.

 

Things To Consider Before Signing a Restaurant Lease: Exclusive Use Provisions

Nearly all restaurant leases contain a provision that states the tenant has exclusive rights to sell a certain style of food – e.g. that tenant will be the only one in the shopping center who can sell fast casual Mexican or sit-down Mediterranean or carry-out Chinese.  If you do not have an exclusivity provision, there will be nothing stopping the landlord from leasing to a competing business who sells the same type of food you do, just because the landlord may think they make a better tenant, or if they just need to fill the space.  For that reason, such a provision is absolutely essential, and it is similarly essential that you protect it.

To that end, you must do more than just make sure your lease has an exclusive use provision, you must consider what the penalties are to the landlord if they violate it.  Does it just mean you have a right to get out of the lease?  The landlord may, quite frankly, not care much about that.  Imagine you are a small Tex-Mex operator and the other company who wants to move in is Chipotle.  “Go ahead and leave,” the landlord may say.  “It’s been nice having you, but we’re not turning down Chipotle.”  You’re left with the choice of leaving behind your business, or going toe-to-toe with a giant – and very likely watching your business die a slow painful death.  If the landlord faces real penalties – and by that I mean substantial monetary damages – if it knowingly does something to violate a tenant’s exclusivity rights, however, it is much less likely to think of you expendable if a bigger fish comes along.  So make sure the lease has real teeth, ready to bite if your exclusivity rights are violated.

Another thing a tenant must also consider under what terms it can lose its exclusivity rights.  Many restaurant leases contain provisions that state you can lose your exclusivity rights if the event of default, either one or multiple.  Before you sign your lease you need to understand these default provisions clearly, as your exclusivity may be one of your most important assets.  How many defaults will it take for you to lose your exclusivity?  What if you cure the default within a reasonable period of time?  What if you dispute that there is a default at all?  As always, the details of how the lease is drafted are critical.

In sum, you need to make sure your lease includes a clear exclusive use provision, that it causes a real penalty to the landlord if it violates it, and that it cannot be taken from you unreasonably.

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.

Montgomery County Offering New Services to Aspiring Restaurateurs and Food Entrepreneurs

If you have plans to open a restaurant or dream of starting a food-related business, Montgomery County has two new resources for you.

First, the Department of Permitting Services has launched a program called “Recipes for Success” that is aimed at assisting aspiring restaurateurs to navigate the County’s permitting system.  To open a restaurant in Montgomery County, permits or inspections may be required from multiple county agencies, an this program is aimed at greater coordination and consultation between the restaurant owner and all the agencies at one time.  The County has also published a packet of materials and information to help guide the permitting process, touting the promise that “Montgomery County Welcomes Restaurant Businesses.”  For those that have found the County inhospitable to bars and restaurants in the past, this should be welcome news and, at a minimum, a step in the right direction.  (Perhaps even better would be if the County could do what New York State is trying on an experimental basis — to allow restaurant owners to submit a single “universal application” for all required permits.)

The other bit of welcome news is that the County is supporting a food industry incubator project similar to Union Kitchen and the forthcoming Mess Hall in Washington, DC.  The incubator project, which will be based at the Universities at Shady Grove, is intended to provide workspace, equipment, and training to culinary startups who may lack the necessary funding or experience.  From where we sit, anything that helps entrepreneurs — particularly food and drink entrepreneurs — get started is a great move by the County.

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.

Liquor License Provisions in “Fast Casual” Restaurant Leases

The Washington Post has an article today on the proliferation of Chipotle-inspired “fast casual” restaurants that allow customers to customize their meals with a variety of fresh ingredients. The article notes that, while more traditional fast food establishments (think McDonalds or Wendy’s or Taco) are struggling to find new opportunities for growth, fast casual restaurants are booming. One of the things missing from the story’s analysis of why these restaurants are so popular is the fact that many serve alcohol. For Millennials on a budget, or Generation Xers looking for a place to get dinner with three little kids (like my wife and I, for example), the prospect of getting a beer with my burger or burrito is an attractive one. It makes the whole dining experience seem just that much more civilized.

In my own law practice, I work regularly with fast casual restaurant clients lately on liquor license and leasing issues. In the latter instance, one of the critical elements of my lease review and negotiation is to ensure that the lease contains provisions related to liquor licenses, including that service of beer and wine be included in the permitted uses and, where possible, the inclusion of a liquor license contingency, i.e. a provision that allows the tenant to terminate the lease if it cannot obtain a liquor license for the establishment.

Where the lease is for a more traditional sit-down restaurant, such provisions may be included as a matter of course, but where a tenant is seeking to open a small burrito shop, that may not be the case.  Indeed, the landlord may not even be aware of the tenant’s intention to apply for a license to serve beer and wine, or the importance of such a license to the tenant’s overall business model. If not, the landlord (who generally prepares the first draft of the lease) may not include a liquor license contingency, or even include the service of alcoholic beverages among the permitted uses at the establishment. If either is not included, it can create significant problems down the road.

Of course, that is why a thorough review of any proposed lease is necessary before the tenant signs, preferably by a lawyer with a strong familiarity with the restaurant business — and who has discussed with the tenant in detail his specific business plan.

Restaurants Now Exempt from Adams Morgan Liquor License Moratorium

For the first time in five years, the District of Columbia will begin issuing in new liquor licenses to restaurants in the Adams Morgan neighborhood of the city.  Until now, there had been a moratorium on the issuance of new such licenses, leaving aspiring restaurateurs with no choice but to identify a party willing to transfer an existing license, often at considerable expense. The moratorium was renewed for an additional three years for taverns and other facilities, and nightclub licenses will continue to be barred in the area.

The Adams Morgan Moratorium Zone is one of five such moratorium zones in the District, with the others being Georgetown, Glover Park, East Dupont, and West Dupont.

The press release announcing the change can be found here, while the rulemaking notice, which sets for the reasoning of the Board and the parties’ respective arguments, can be found here.

 

New Maryland Laws Loosen Distribution Rules for Craft Beer and Small Breweries

Several new laws were passed in the recent Maryland legislative session that affect how small brewers may sell their products to consumers in the state.  Generally speaking, sales of alcoholic beverages in the United States are funneled through a “three tier” system:  producers (i.e. brewers, winemakers, and distillers) sell to wholesalers; wholesalers sell to retailers; and retailers sell to consumers.  In Montgomery County, where I live and work, there is another tier — the county Department of Liquor Control (DLC) itself, which inserts itself between the wholesaler and the retailer, requiring all purchases by retailers to made directly from the DLC.

With the enactment of the following laws, the Maryland legislature has loosened the requirements of the three tier system when it comes to certain small producers.  Unless otherwise indicated, these laws relate to holders of Class 7 micro-brewery licenses, which permit the production of up to 22,500 barrels of beer per year.

  • Sale of Prepackaged Beer.  Starting July 1, the holder of a Class 7 micro-brewery license may sell its own beer, in prepackaged non-refillable containers (i.e. bottles and cans, but not growlers), at retail for consumption off the premises.  Think of this as allowing small producers to sell six-packs of their own beer directly to customers who come to visit their brewery, as wineries commonly do with bottles of their own wine.
  • Direct Sales to Retailers in Montgomery County.  In 2013, the Maryland legislature passed a law that permitted Class 7 micro-brewery license holders to seek a license to self-distribute (i.e sell directly to retailers, thus skipping the wholesaler tier noted above) up to 3000 barrels of their own beer to retailers in the state.  Because of Montgomery County’s “fourth tier” of the DLC, however, this law did not apply to Montgomery County retailers.  Effective July 1, however, holders of these special beer wholesaler’s licenses may bypass the DLC completely and sell directly to retailers and restaurants.  For an explanation of the significance of this change, and how it will change the landscape for consumers in Montgomery County, read this fantastic piece on DCBeer.com’s Bill DeBaun.  Montgomery County’s own Denizens Brewing Company was instrumental in getting this law passed.
  • Self-Distribution by Farm Brewers.  Maryland is one of handful of states — another is my native New York — that has a special farm brewer’s license, which is intended to promote both small brewers and Maryland farmers by requiring the beer produced to be made with Maryland agricultural products.  A new law will allow those holding these Class 8 Farm Brewer’s licenses to obtain a Class 7 limited beer wholesaler’s license to they may self-distribute their beer to retailers as well.
  • Craft Beer to Somerset County.  Though it does not relate specifically to self-distribution, the legislature also passed a bill which added Somerset County to list of Maryland counties in which a Class 7 micro-brewery license may be issued.  This is good news for aspiring brewers on the lower Eastern Shores and leaves, at last check, Caroline, Cecil, Kent, Queen Anne’s, and Saint Mary’s counties as the remaining Maryland jurisdictions thirsting for the possibility of local craft beer.

As craft beer continues to expand throughout the country, we can hope that enactment of these laws brings greater variety of beer to consumers, and promotes the growth of these important small businesses in our state.