A delay in finalising the transfer of a liquor licence prior to the settlement of the sale of a licensed business can be a stressful time for everyone involved. Delays can mean undesirable financial and non-financial consequences for both the vendor and purchaser, resulting in strained relationships between the parties and also their advisors.
A lot of this tension has to do with liquor licence obligations.
If the vendor is the holder of a liquor licence (licensee), generally they won’t agree to settle the sale of a business before the transfer of licence is complete. This is on the basis that they don’t wish to expose themselves to any liability that may arise from a purchaser operating under their licence prior to the transfer being completed.
While this is a sensible approach, it fails to address some of the consequences.
What are the consequences of not settling before a liquor license transfer?
- Potential exposure to being in breach of obligations under the contract of sale or sale of business agreement, which results in penalties being payable or, worse, the other party having the ability to terminate
- Consequential damages associated with the inability to access settlement funds, which may be required or had been earmarked for other transactions
- Issues relating to the transfer of other business licences or utilities
- Potential additional costs associated with delay, including advisors fees
- Potential timing issues with contractors engaged to undertake post settlement works
- Timing issues arising in relation to the release of security interests
What is the best alternative to dealing with liquor license obligations?
The Liquor Control Reform Act (Act) provides an effective option to deal with delays in finalising the transfer of a liquor licence. The Act enables a licensee to make an application to the Victoria Commission for Gambling and Liquor Regulation (VCGLR) to be released from its obligations prior to the transfer of licence being completed.
If the VCGLR is satisfied that the licensee’s tenancy has expired (that is, settlement will occur on the date the release is sought) they can release the licensee from its obligations and suspend the licence until such time as the transfer has been completed.
Any application made by the licensee would not hinder the transfer process (assuming there are no underlying issues with the transfer application lodged by the purchaser). But no party would be entitled to use or benefit from the license until such time as the transfer is completed.
By making an application for release, the licensee can settle the transaction with the comfort of knowing that they have no ongoing obligations or exposure as a licensee. It also ensures that the purchasers can take possession of the premises in a timely manner and in situations where a liquor licence is a secondary benefit, such as a cafe, the purchaser may start operating on the basis that they do not attempt to sell or serve alcohol.
Where can I go for advice on the Liquor Control Reform Act?
The Liquor Control Reform Act was legislated in 1998 to control the supply and consumption of alcohol in Australia, particularly in relation to:
- minimising harm from misuse
- facilitating the development of diverse licensed facilities that reflect community expectations
- contributing to the responsible development of the liquor and licensed hospitality industries
- regulating licensed premises that provide sexually explicit entertainment.
You can find more information about the Act on the Victorian Commission for Gambling and Liquor Regulation website.