By Sydney Schubert
The New Jersey Legislature is considering a bipartisan bill (S355/A3710) that establishes a restricted beer, wine and cider license that would allow restaurants, for a small annual fee, to sell certain alcoholic beverages to their patrons. In an effort to counteract the diminution in value of already-owned liquor licenses, the proposed bill provides tax credit under corporate business tax and gross income tax for loss in value to certain alcoholic beverage licenses. Despite this tax credit, there is sure to be a significant decrease in the value of already-owned liquor licenses. This loss in value is likely to in turn diminish the value of the properties underlying those licenses.
COVID-19 brought significant struggle to the restaurant industry. Changing consumer shopping patterns have shifted the restaurant industry and commercial real estate industry. Delivery services have lessened the appeal of an on-premises dining experience. The new restricted license re-incentivizes patrons to dine at the physical properties. As such, it is crucial for landlords, property owners and real estate professionals to understand New Jersey’s liquor license industry and the potential impact of the proposed restricted license.
New Jersey’s current liquor license laws restrict the number of liquor licenses in each municipality, skyrocketing prices of the licenses. The proposed bill provides that municipalities may not limit the number of restricted licenses distributed, creating a potentially enormous market for these much cheaper licenses. Since the transfer of liquor licenses is through private sale, the selling price is determined by what a buyer is willing to pay, and a seller is willing to accept. As supply and demand goes, the more licenses available in each municipality, the less buyers will be willing to pay for them.
Currently, restaurants that do not own liquor licenses can still be eligible for BYOB alcohol service. However, the restaurant does not make a profit on the alcohol. The proposed bill provides an avenue for smaller restaurants to make a profit on restricted alcoholic beverage sales, where they otherwise would not have earned any money. In addition, the proposed bill allows the license holder to charge a corkage fee for patrons who still opt to bring their own alcoholic beverages to the restaurant. This increased incentivization will further lower the demand for full liquor licenses, adding to concerns that license values will decrease.
Should the proposed bill pass, landlords may face difficulties selling their properties proportional to current market value. Often, liquor license sales are in tandem with property sales, where a buyer purchases both the property and the liquor license. A large portion, and sometimes the overwhelming majority of the value of that property, lies in the value of the associated liquor license. Prospective buyers will no longer need to spend large amounts of money to purchase a property that has an established liquor license. Should the Legislature approve the bill, and should Gov.Phil Murphy sign it, buyers will be able to obtain the benefit of alcoholic beverage sales with the purchase of a much cheaper restricted license, and the purchase of much cheaper real estate.
Sydney M. Schubert, an associate at Genova Burns LLC, dedicates her time to labor law and the emerging alcohol and beverage laws. Ms. Schubert focuses on liquor law applications and labor and employment cases, particularly employee CEPA, disability benefits, discrimination and retaliation claims, along with contracts and bankruptcy, 1983 civil rights claims and other complex litigation matters.