Going Once, Going Twice – Sold!

As we reported in June, the Governor signed Act 39 into law which went into effect on August 8, 2016. Act 39 requires the Pennsylvania Liquor Control Board (PLCB) to auction expired restaurant licenses, including those that were not renewed, were revoked by an Administrative Law Judge, or are no longer eligible for safekeeping. In September, the PLCB announced that it was holding its first auction for the purchase of 40 expired restaurant liquor licenses across 21 counties. In the Philadelphia area, there are four licenses each in Philadelphia and Chester Counties; Delaware, Lancaster, Lehigh, and Montgomery Counties will each have two licenses made available.

Sealed bids for these licenses must be received by the PLCB Purchasing and Contract Administration Division on or before Thursday, October 27, 2016, by noon. The minimum bid for each license is $25,000, and each bid must be accompanied by a $5,000 bid surety, which is intended to avoid frivolous and underfunded bids to be used as liquidated damages. Failure by the bidder to follow the PLCB’s instructions will immediately disqualify the bidder. Bids will be opened and auction winners will be determined the week of October 31. The surety must be made by a bank check or certified check. Bids must be in whole dollar amounts. The highest responsive bidder for each license will win the right to submit an application for the license to the PLCB within six months of the auction award. The full bid amount must be paid to the PLCB fourteen days after the announcement of the bid winners and that payment must be by bank or certified check. The $5,000 surety cannot be part of the full bid amount. If the bid payment is not received within two weeks of auction award, the second highest bid winner wins the bid for the license and the highest bidder will lose its surety. Bids will be held in escrow by the PLCB, pending approval of the license application. The $5,000 surety amounts are held by the PLCB until the transfer is complete or until 240 days passes whichever is sooner. The winning bidder has six months to apply for the license and the application can be for prior approval, allowing the winning bidder some time to build out a space if necessary.

In this auction, only retail restaurant or R-Licenses are being made available. None of the licenses being offered in this month’s auction will be subjected to conditional licensing agreements and all licenses will be free of liens from the Department of Revenue and Labor and Industry. Auctioned licenses must remain in the county in which they were originally located. Such licenses are permitted to go back into the municipality they originated from, provided that the municipality is not above the PLCB quota limit. If the license is not going back to its originating municipality or if the originating municipality is over its quota, the bidder will have to go through the standard intermunicipal transfer process.

Some persons would be precluded from acquiring an R-License due to the PLCB’s prohibition of interlocking business interests. The Liquor Code bars a person or entity from possessing more than one class of license; thus, the holder of a distributor license may not also hold a restaurant license. Likewise, the holder of a manufacturing license generally may not hold a restaurant license unless the manufacturing licensee operates as a “couplet,” which is an entity that has both a manufacturer’s license and a restaurant license for use at the same location.

The Liquor Code requires that licensees be persons of good repute, therefore, the winning bidder must be of good repute. The PLCB may consider criminal records of licensees and officers, directors, managers, or stockholders of licensees. Upon submission of the above information, the PLCB’s Bureau of Licensing conducts an investigation and recommends to the Board whether a person with a criminal record should be permitted to serve as an officer in the organization. The ultimate decision is made by the Board at its sole discretion.

Statewide, there are about 1,200 licenses that have expired since 2000 and that are expected to be made available through auctions in coming months and years. The PLCB will identify licenses available at each auction as each auction is introduced, in an effort to maintain short and long-term interest in licenses available through auction.

Methods and timeframes for future auctions will be determined after the first auction is concluded.

Contact our office if you have further questions or would like more information on the licenses being auctioned by the PLCB. Remember bids must be submitted by October 27th for the first auction, but there are plans for other auctions to follow.

— J. Ken Butera

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