Liquor Licencing Uncorked — A Primer
August 31, 2009
From time to time, a proposed real estate transaction will include, as an ancillary component, some type of liquor licensing matter. For example, hotel purchases generally involve the transfer of one or more licences, or applications for new ones. A landlord may wish to lease space to a tenant that uses a liquor licence in the course of its business, such as a restaurant, pub or beer and wine store. Liquor licensing will even be relevant where the shares of a company that holds a liquor licence are being sold. Regardless of the specifics of the transaction, often one or both parties do not possess a good understanding of the liquor licensing regime in British Columbia. The purpose of this article is to provide some background information on the licensing regime and to highlight certain requirements that parties should be aware of.
Relevant Governmental Agencies
In BC, there are two branches of government responsible for the liquor industry: the Liquor Control and Licensing Branch (LCLB) and the Liquor Distribution Branch (LDB). Both branches now report to the Ministry of Housing and Social Development.
The LCLB issues, renews and transfers liquor licences, inspects licensed establishments to ensure compliance with applicable laws, and takes appropriate enforcement actions when necessary. The LCLB also regulates and monitors liquor advertising and administers exemptions for medicinal, toilet, culinary and cleaning products containing alcohol.
The LDB is responsible for the importation, distribution and retailing of liquor in British Columbia. The LDB operates approximately 200 government liquor stores throughout the province together with two distribution centres, and also authorizes the sale of liquor in rural communities too small to warrant their own government liquor store.
The Liquor Control and Licensing Act and its accompanying regulations set out rules relating to the issuance and transfer of liquor licences, classes of liquor licences, possible penalties that may be levied against licence holders, and rules relating to the serving of liquor.
The Liquor Distribution Act sets out rules relating to the manufacture, importation, sale, purchase and possession of liquor.
Classes of Liquor Licences
The LCLB currently issues five main classes of liquor licences:
- Liquor Primary Licence. This is the broadest class of liquor licence in BC. To qualify for such a licence, the establishment must be primarily in the business of beverage service, entertainment or hospitality. Accordingly, a Liquor Primary Licence could be issued for a wide variety of premises, including a stand-alone bar or a cultural centre.
- Food Primary Licence. This class of liquor licence is available to establishments primarily focused on the service of food. To qualify for such a licence, the establishment must possess the characteristics one would expect to find in such establishments (for example, kitchen equipment, tables, chairs and a varied menu including appetizers and entrees). Also, the establishment must be able to manage and control the designated licence area, so street vendors and food fair kiosks typically cannot qualify for this class of licence.
- UBrew / UVin Licence. This class of liquor licence is issued to establishments providing supplies, facilities and/or services to individuals making their own beer, wine or cider.
- Manufacturer Licence. Generally, this class of liquor licence is issued to wineries, breweries and distilleries that produce or manufacture liquor for sale and consumption off-site. The licence permits the licence holder to sell liquor to the LDB as well as to the public directly from one retail store situated at the prime manufacturing site. Wineries that sell liquor over the Internet from their on-site retail stores are permitted to do so under this class of licence.
- Licensee Retail Store Licence. This class of liquor licence is required in order to permit an establishment to sell liquor for off-site consumption. Every Licensee Retail Store Licence is always affiliated with a qualifying Liquor Primary Licence. This affiliation cannot be severed and has several implications. For example, the owner of a Licensee Retail Store Licence and its qualifying Liquor Primary Licence must be the same. Also, the status of the Licensee Retail Store Licence may be affected if its qualifying Liquor Primary Licence is suspended or terminated. Since November 29, 2002, a moratorium has been in place on the issuance of new Licensee Retail Store Licences, but of course many exist and they continue to be transferable.
The LCLB also issues other classes of liquor licences, such as Special Occasion and Olympic/Paralympic Licences, which are not dealt with in this article.
Resident Managers / Third Party Operators
The LCLB requires that a licence holder who will not be present to manage the licensed establishment on a day-to-day basis must hire either a resident manager or a third party operator. A "resident manager" is an individual who is an employee of the licence holder, and who is primarily responsible for the day-to-day operation of the licensed establishment. A "third party operator" may be an individual, company or partnership. The third party operator is not an employee of the licence holder; rather, the third party operator and licence holder enter into a management contract pursuant to which the third party operator benefits financially (the LCLB does not currently review or approve such contracts).
The appointment of a resident manager or third party operator is subject to the prior written approval of the LCLB. Following either type of appointment, the LCLB views the licence holder as remaining primarily responsible for all activities within the licensed establishment.
If a current licence holder provides written authorization to the LCLB, the LCLB will on request provide a third party with a "comfort letter" confirming that a particular liquor licence is in good standing with no enforcement actions commenced. The LCLB currently charges a $60 fee for such letters.
Approval Requirements - Criminal Record Checks
In order to obtain a new liquor licence, accept a transfer of an existing liquor licence, or be appointed as a resident manager or third party operator, the applicant must consent to a criminal record search. Specifically, the LCLB requires:
- any individual applicant;
- all partners in a partnership applicant (including limited partners);
- shareholders holding more than a 10 per cent interest in a private company applicant; and
- four executive officers in a public company applicant,
as the case may be, to consent to this search. If any such individual has a criminal record, a statutory declaration must be completed and submitted along with the prescribed consent forms. If an applicant has a criminal record, the LCLB will consider the circumstances of the individual case to determine whether to grant or refuse the application. The severity of the crime, the time the crime was committed, and how the crime relates to the responsibilities of holding a liquor licence will all be relevant in that consideration.
In the case of a real estate sale, the LCLB will not approve an application for a liquor licence transfer until after the closing has occurred. This would, of course, create a conundrum for a buyer who wishes to continue operating the licensed premises without interruption. Given this, it is the LCLB’s practice to permit a new owner to operate the premises under the former owner’s licence(s) for a reasonable period of time following closing pending transfer of the existing licence to the new owner.