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Beverage Media
November 2012
know
the
law
T
here are issues peculiar to leases
relating to a company in the
business of selling alcoholic
beverages, whether at whole-
sale or retail. Both the landlord and the
tenant must struggle with these issues.
Questions Right Out
of the Gate
In most instances, a tenant in the al-
coholic beverage industry negotiating
a commercial lease will want a contin-
gency permitting a termination of the
lease if the tenant is unable to obtain all
necessary liquor licenses for the prem-
ises. Without such license or licenses,
the tenant could not conduct its busi-
ness legally.
On the other hand, a landlord will
not want to lease the premises without
assurances that the tenant has a strong
likelihood of obtaining all necessary
liquor licenses, or that it will remain
whole if the tenant exercises the contin-
gency provision. Thus, the landlord may
demand a larger security deposit than it
would from a tenant in another indus-
try. Invariably, the lease will require the
tenant to use its “best efforts” to obtain
a license. As a condition precedent to
assert the contingency, the lease may
require the tenant to attend community
board meetings, and even to appeal an
adverse decision.
Additionally, a landlord may seek a
representation that the tenant knows of
no reason why it would not be able to ob-
tain a license. A landlord may require a
tenant to submit a list of all of its princi-
pals, stockholders and or members, with
representations that no such person(s)
have been convicted of a felony or a
disqualifying misdemeanor. Continu-
ing the “give and take,” a landlord will
attempt to limit the time in which the
tenant may terminate the lease, based
upon a failure to obtain a license.
Good-Guy Guaranty
A landlord may ask for a guaranty, from
a principal of the tenant or its parent
company, to protect against default by
a shell company tenant (a company
with no asset other than the lease). The
guaranty is an additional remedy If the
tenant does not pay its rent. Usually, the
tenant’s principal will try to give a lim-
ited “Good-Guy Guaranty.” Although
Good Guy Guaranties take many forms,
a basic Good-Guy provides for liability
of the guarantor for rent and all other
lease charges (additional rent) until the
surrender of the demised premises. More
often, a landlord will require that the
guarantor be liable for some post-surren-
der rent to cover vacancy periods, costs
incurred in connection with alterations
to the premises made to suit the tenant
and future costs in obtaining and build-
ing-out the space for another tenant.
Both the landlord and the tenant
should be aware that a “percentage rent”
(
additional rent calculated upon the
tenant’s sales) in excess of 10% is con-
sidered an interest in the licensee by the
Liquor Authority. This means the Land-
lord seeks a percentage rent in excess of
10%,
it may have to be added as a party
to the tenant’s license.
Due Diligence
From a tenant’s perspective, no lease
should be entered into before adequate
due diligence is undertaken. The tenant
should ascertain whether the premises
complies with the State Liquor Author-
ity’s licensing conditions. The Liquor
Law forbids the issuance of an on- or
off-premise license within 200 feet of a
school or place of worship. Other zoning
specifications may apply. A bar or pack-
age store tenant should know the extent
of other package stores or bars in the
neighborhood, or if the community has
voiced previous objections.
To protect itself against future com-
petition, a tenant would be well advised
to request and obtain a covenant that the
landlord will not lease any other space in
the building for a similar purpose, or any
other premises which it owns or controls
within a reasonably “safe” distance.
Focus on Leases
Contracts Deserve Careful Inspection, as Many Issues
Require Detailed Give and Take
By Keven Danow and Arthur J. Panoff
From a tenant’s perspective, no lease
should be entered into before
ascertaining whether the premises
complies with the State Liquor
Authority’s licensing conditions.
