In the Philadelphia suburbs restaurant liquor licenses have recently sold for as much as $550,000. What has a buyer of a license really bought? Certainly, other than the certificate that is issued by the Liquor Control Board (the LCB), there is nothing very tangible; but given what people are willing to pay for them, exactly what is a license? Is it freely assignable? Can it be pledged to secure a debt? If a licensee dies, does the license become an asset of the estate? Can creditors of a licensee execute against the license to satisfy the debt?
Prior to 1987 the Liquor Code treated the license as a privilege (as opposed to a property right). When an application for a liquor license is was made to the LCB, it would investigate the entity making the application, its principals and officers, the restaurant premises which was proposed to be licensed. If everything was in order, the license would be issued; however, if, for example, the proposed licensee needed to borrow money to buy the license, the borrower was not permitted to pledge the license to secure the loan. Also, it was very difficult for a creditor of the licensee to execute against a license to satisfy a debt. This caused distress to the transaction and made it difficult to borrow from a lending institution since the license could not be secured. It created similar problems with a seller who was willing to finance the sale by taking back a note for a portion of the purchase price.
At the same time the LCB was very concerned about transferring a licenses to “bad” people or “bad” bars. The sale of alcoholic beverages is serious business, and it is understandable that the Legislature was reticent to remove all controls on the sale and transfer of licenses.
So, in its wisdom the Legislature in 1987 created a hybrid and gave both sides something by amending the Liquor Code to read: “The (liquor) license shall constitute a privilege between the LCB and the licensee. As between the licensee and third parties, the license shall constitute property.” (Italics supplied.)
Today, a person or entity seeking to obtain a license must apply to the LCB, as described above, and meet the standards put forth by the LCB Department of Licensing. The difference, however, is that a lender, such as a bank or the seller of the license, can take back a pledge of the license to secure its loan to the buyer. A financing statement (form UCC-1) is filed in Harrisburg, notifying the world that the lender has a lien against the license, and if anyone wants to acquire the license, he or she must first remove the lien (i.e., pay off the original lender); this was not possible pre-1987. If the licensee ends up in bankruptcy, the lender who has filed the UCC-1 properly will have a lien which comes before the claim of any other creditor. Additionally a licensee who dies can bestow the license to his or her heirs as an asset of his or her estate.
As are most compromises, this one is pragmatic; and while the exact nature of the resulting “ownership” is difficult to categorize legally, the practical effect has been to facilitate license transfers and to clarify the rights of licensees.
– J. Ken Butera