By Graydon Ebert, Associate
The summer and an ice cold beer go hand in hand. Imagine the disappointment when the guests at your barbecue discover that the cooler is empty. You may be left embarrassed…and with a couple fewer friends. Now imagine the situation if you just bought a new bar or restaurant, and instead of friends leaving without a drink, it is paying customers. You won’t only be embarrassed…your bank account will take a hit.
Lately, I have been involved in a number of transactions involving the sale of a bar or restaurant and one of the more important aspects of such a deal is the transfer of the liquor license to the new owner. Without a smooth transition of the liquor license from Seller to Buyer, the Buyer will face a dry period which will hurt the viability of the business that it just spent significant money on.
The Alcohol and Gaming Commission of Ontario (“AGCO”) regulates liquor licensing in Ontario. To transfer a liquor license in Ontario, a Transfer application must be filed with the AGCO along with an application fee of $1,000. Included with the Transfer application, you must complete:
- A Corporate Structure Form(if a holding company holds 10% or more the shares of the corporation that is applying for the transfer);
- A Personal History Report for all owners/partners/on-site managers/officer and directors of the corporation depending on how the applicant is structured;
- Resumes for anyone supervising the establishment. These supervisors must have at least three months’ experience in the sale and service of food and alcohol in Canada;
- An Establishment Description Form; and
- Once the change in ownership has been completed, the AGCO needs a copy of any shareholders’ resolution authorizing the transfer of shares. If there was no transfer of shares, a letter after closing confirming the date the transaction was completed must be submitted.
The whole transfer process takes approximately 8 weeks. Since there is often not 8 weeks before a transaction to purchase a bar or restaurant is scheduled to close, the AGCO allows for the Buyer and Seller to apply for an Authorization to Contract Out, which is submitted with the Transfer application. This application allows for the Buyer to operate under the Seller’s liquor license until the transfer process has been completed and is typically processed within 15 business days. This authorization is effective until the transfer has been completed or it is rejected by the AGCO. Both the Buyer and the Seller are responsible for the sale of alcohol while the Buyer operates under the Seller’s license. So, it is wise for the purchase agreement to include an indemnity from the Buyer in favour of the Seller to cover the Seller while the Buyer is operating under the Seller’s license.
If you are looking to buy or sell a bar or restaurant with a liquor license, the license transition is an important aspect of the transaction to consider and a smooth transition will help the long term viability of the bar or restaurant going forward.