This article was originally published in The Pennsylvania Observer / Pennsylvania Beverage Media in January 2024. A pdf version can be found here.
Pennsylvania has what is known as a three-tier licensing system: 1) manufacturing, for example, a brewery license; 2) wholesale, for example, a beer distributorship license; and 3) retail, for example, restaurant, hotel, and club licenses. Generally, the Liquor Code prohibits a person or an entity from possessing more than one class of license or having a direct or an indirect interest in another class of license.
Pennsylvania Liquor Control Board (PLCB) applicants for a license must prove that they have the legal right to occupy the proposed licensed premises. This is normally established by way of a deed or a lease agreement. During the investigation of the licensee’s application a copy of the current recorded deed or agreement of sale of real estate is provided to the PLCB investigator.
If a lease agreement is involved, the lease is provided to the board’s investigator. To ensure that there is no interlocking conflict of the license classes, the board will want to know the names of the landlord’s entity, and all sub-entities (corporation, partnerships, or limited liability companies). The landlord’s entity must further disclose the names of its owners, stockholders, members, directors or officers, and all sub-entities to ensure that neither the landlord’s entity or sub-entities nor any of the individuals involved in the entity / sub-entities have a direct or indirect prohibited interlocking interest in a license of a different class that the tenant is applying for. The PLCB has a form to be completed.
An example of an indirect interest would be if an individual involved in the landlord’s entity has stock in a separate wholesale beer distributorship business licensed by the PLCB, and the tenant is applying for a retail restaurant liquor license. This will cause a problem for both the proposed tenant and the landlord, because of the illegal interlocking business prohibition. In this example, the conflict arises with the wholesale class of license (the landlord’s interest in a beer distributorship) and the tenant’s retail restaurant liquor license application. Generally, unless there is an exception, the PLCB will object to this arrangement. Usually, the individual in the landlord’s entity will have to divest or sell off his or her interest in the beer distributorship as a solution. There might not be a solution, however. Either way, the transfer application will be delayed or the PLCB will refuse to transfer the license.
In the event that a licensee chooses to proceed with an application, the lease should be absolutely conditioned upon the approval of the PLCB so that one can void the lease without any legal liability in the event that the board denies the application to transfer the liquor license.
Licensee applicants should consult with attorneys familiar with PLCB licensing matters.
