The Alabama Alcoholic Beverage Board, or the ABC, is the agency that issues licenses to manufacture, sell at wholesale, and sell at retail alcoholic beverages including beer, wine, and spirits.  Each license that is granted is tied to a specific location and licensee.  When a business where licensed activity occurs is sold, the license may be “transferred” to the new owner.  However, use of the word “transfer” may be a little misleading because the license number does not remain with the new owner and a new license is issued.  When assisting a client with purchasing a licensed business (e.g. a grocery store, a restaurant, gas station, or entertainment venue) where the client intends to continue to operate the business, there are important issues a lawyer should address related to the license to sell alcoholic beverages.

First, if the Buyer wants to avoid a shutdown of the business for a period of time, the purchase and sale agreement should require the seller to allow the buyer to operate the buyer’s business using the seller’s license until such time as the buyer is able to obtain its own license for the premises. This is usually referred to as an interim period and is often limited in time to avoid perpetual use of the existing license. Often the seller will require an interim beverage services agreement that provides the terms and conditions under which the parties will be subject to during the interim period. Such terms and conditions often include mutual indemnitees, insurance payment obligations, and financial arrangements during the interim period. 

Second, the purchase and sale agreement should require the seller to cooperate in the transfer of the license. This means that the seller will take all steps necessary to allow the buyer to obtain its own license.  For the process with the State of Alabama ABC, this includes appearing before the ABC Field Office Agent with a valid driver’s license and a copy of the seller’s alcohol license to execute the Transfer Application on behalf of the Seller and providing a Certificate of Insurance evidencing the required liquor liability remains in place for the premises during the interim period.  For local approvals to transfer the license, each jurisdiction has its own requirements and local ordinances should be consulted prior to executing the purchase and sale agreement to determine what will be required of each party to avoid a shutdown of the alcohol sales.

Third, if the business is a manufacturing or wholesale business, the State of Alabama ABC will likely conduct an audit of the business prior to the issuance of the new license at that location.  This can create unusual risk for buyers as they operate on the previous owner’s license before the close out audit is complete. The results of the audit could give rise to a lien on the property if any outstanding taxes are owed, but are not timely paid by the seller. These risks should be appropriately allocated in the purchase and sale agreement and/or post-closing agreements.

Thoughtful drafting and discussions among the parties on the front end will facilitate a smooth transition from one business owner to the next when selling property where an alcoholic beverage license is involved.