Act 39 And Restaurants
In today’s blog post we will be looking at some of the important changes enacted by Act 39 of 2016 (“Act 39”), the new June 2016 law that amends the Pennsylvania Liquor Code. The Liquor Code addresses, among other things, liquor licenses for restaurants, bars, etc. While the changes are extensive, this post seeks to provide a few discussion points and tips related to how these amendments affect restaurant owners.
Although the changes affecting restaurant licensees are somewhat limited compared to other types licensees, they are nonetheless important, especially if you are looking to open your own small eatery.
What is a Liquor License?
In Pennsylvania a liquor license is issued by the Pennsylvania Liquor Control Board (“PLCB”) to individuals and businesses to manufacture or sell alcoholic beverages. To obtain a new license an application must be submitted to the Bureau of Licensing to be reviewed by the PLCB. An applicant may also obtain a liquor license through the transfer of an existing license from a person currently owning and/or operating a licensed establishment.
Generally, the distribution of liquor licenses in Pennsylvania is regulated by a “quota system”. Based upon statistics gathered in the ten-year census, one retail liquor license is available for every three thousand inhabitants of a county. Once the quota has been met, no new liquor licenses will be issued in that geographic area. If an owner wishes to move their business into a municipality that has already met their quota, written permission must be granted by the municipality prior to the Board’s consideration of the application.
Liquor License Auction
Liquor licenses are expensive and can be difficult to come by, some say they are worth their weight in gold. As explained above, the quota system limits how many liquor licenses are distributed in a particular geographic area, which forces restaurant and bar owners to compete for the limited supply of licenses. Therefore, even if an applicant is able to make the investment in a liquor license, they can be prevented from doing so because the area is “flooded” by other licensees. To the frustration of many applicants there are licenses not actively being used but protected by “safe keeping” laws. This creates the situation where non-active licenses can be sold at exorbitant fees, thereby precluding small bar/restaurant owners from obtaining one at a reasonable fee.
To alleviate the pace of these price increases and limited availability of licenses, Act 39 created a liquor license auction mechanism. Now the PLCB is required to auction expired restaurant liquor licenses in cases where the licenses were either not renewed, revoked, or no longer eligible for safekeeping (see below for an explanation of safe keeping).
The PLCB may auction up to 50 licenses per county per year. The minimum bid is $25,000 and the highest bidder wins the right to file an application for the auctioned licensed with the PLCB.
Another important change related to the license auction is the limitation of safekeeping for inactive licenses. The change does two things. First, it reduces the number of years a license can be safekept, and secondly, it increases the fees for safekeeping extensions. Previously a license could be held in safekeeping for a period of three years, now it is only two years.
For a year extension beyond the two-year period, a substantial fee was to be paid to the PLCB. For example, the previous fee was $5,000 for counties of the first class (Philadelphia) through fourth class. The first class county fee has now been increased to $10,000, and the fee for fifth through eighth counties has increased from $2,500 to $5,000. For each year after the initial extension, the fees double.
Seemingly, this amendment will encourage licensees to either use the license or sell it to someone that will. If they choose not to, or simply fail to act on their license it could potentially be auctioned off. Therefore, inactive license holders should make sure they do not allow themselves to fall outside of the time limit or not pay the fees for safe keeping.
There is one exception to the safekeeping fees, however. No safekeeping fees apply if the licensee can provide evidence that it was unable to use the license because of events beyond the licensee’s control, fire, flood, or failure to obtain an occupancy permit from the municipality. However, closing your restaurant or bar by choice does not fall under this exception. Licensees must still pay the fees where the business simply fails.
The new law also requires a $700 renewal surcharge for all licenses that are renewed or validated on an annual basis. This applies to all restaurants, hotels, clubs, breweries, importing distributors, distributors, and eating place retail dispensers.
Eating Place Retail Dispenser Conversion
Eating place retail dispenser license (“E license”) holders can now request to convert their licenses into restaurant liquor licenses, which allow for the sale of beer, wine and liquor. If a municipality is “wet,” meaning it allows for the issuance or transfer of restaurant liquor licenses, Act 39 allows an E license to convert its license to a restaurant liquor license (“R license”), without regard to the area quota. The fee for such a conversion is for $30,000. However, the E license cannot be converted if there is currently a pending objection by Licensing or if the E license is located in the City of Philadelphia.
E licensees should also be aware of value of their license and of the new value their E license might have. Before the changes made, E licenses were significantly cheaper than R licenses because they are more restrictive. However, given the changes, E licenses are essentially only $30,000 less valuable than an R license and should be considered in an offer for an E License.
The law also provides for Groundhog Day-specific regulations (Because Pennsylvania). I cannot provide any analysis on this change other than I guess Groundhog Day was a far more significant holiday than I previously knew (Don’t tell Punxsutawney Phil I said that). Under Pennsylvania Law, hotels and restaurants with a Sunday sales permit are only allowed to serve alcoholic beverages between 11 A.M. and 2 A.M. on any given Sunday or between 9 A.M. and 2 A.M. if they also serve food. However, if everyone’s favorite rodent centric holiday falls on a Sunday, hotels and restaurants can sell liquor or beer starting at 7 A.M. on the holiday even if they don’t have a Sunday sales permit. Pretty neat huh?
Act 39 allows retail licensees and breweries to offer a mug club to their patrons. Act 39 defines a “mug club” as a group organized by a retail licensee or a brewery whose members are entitled to discounted malt or brewed beverages. Members of a mug club must be given a written application for entrance and the licensee must maintain a written list of active members as part of its records. Members must also pay an annual fee, as well as a renewal fee determined by the licensee.
If you are worried about using up your discount pricing hours- fear not! The law also specifically states that mug club discounts are not counted against a licensee’s maximum number of hours during which it may offer happy hour pricing thereby ensuring the sanctity of happy hour.
RAMP Server/Seller Training
Under Act 39, Responsible Alcohol Management Program (“RAMP”) server/seller training is mandatory for ALL alcohol service personnel and must be completed within six months of being hired by a licensee, unless the person had successfully completed said training prior to being hired. Prior to this amendment, only 50% of servers had to complete RAMP training.
Wine Expanded Permit
Wine lovers can now rejoice, Act 39 created a wine expanded permit for restaurant and hotel licensees which allows its holder to sell wine-to-go until 11:00 p.m. Monday through Saturday, and Sundays if the holder holds a Sunday sales permit. This permit allows the permittee to sell up to 3,000ml (3 liters) of wine in a single transaction. There is a $2,000 application fee for this permit and an annual renewal fee of 2% of the cost of wine purchased from the PLCB for off-premises consumption. Act 39 does not allow residents located within 500 feet to protest a wine expanded permit.
PRO TIP: Customers can leave and come back as many times as they want and purchase up to 3 liters each time, no disguise necessary!
As the law is implemented and adjusted to these new changes licensees must remain informed and educated about their duties as a license holder. As always it is important to consult with an attorney and conduct a thorough analysis of your business to determine what choices will not only protect your license but protect the success and growth of your business.
I’ll leave you with one last tidbit. If you own a restaurant or a bar that serves food do yourself a favor and apply for an Extended Hours Food (“EHF”) Permit. Time seems to fly between last call and 2:30 and licensees often are cited and fined for having people in their restaurants after permitted hours. This can all be avoided with a relatively inexpensive permit.
The EHF permit affects hours after 2:00 AM and allows a licensed establishment to remain open after 2:30 AM for the purpose of maintaining restaurant business. Note that even with an EHF permit, the licensee must close down the alcoholic beverage sales portion of business no later than 2:00 AM and collect all unfinished alcoholic beverages by 2:30 AM. No patrons can legally possess any alcoholic beverage on the premises after 2:30 AM.
DISCLAIMER: Restaurant and Bar owners should talk to an attorney about how the law might directly affect them.