Transfer of Florida Alcoholic Beverage Manufacturer: 5 Keywords
Rather than launching a new Florida alcoholic beverage manufacturer, it might be better to buy an existing operation. The Buyer gets a built-out premises, with all the equipment and buildout already in place, and a built-in customer base. The Seller gets to move onto other things.
Business transfer transaction are always complicated, and even more so in a heavily regulated industry like alcoholic beverages. Buyers considering to purchase an existing beverage business should focus especially on 5 keywords: licenses, lease, liens, brands, and cooperation.
Keyword #1: Licenses
Operating a Florida alcoholic beverage manufacturer involves managing a number of regulatory licenses and permits at the federal, state, and local levels of government. Getting all of those licenses and permits out of the name of the Seller and into the name of the Buyer takes effort and coordination by both parties.
In most cases, local permits are not directly transferrable from Seller to Buyer. This means that the Buyer must apply for local permits in the same way that would be required to launch a new beverage manufacturing business. Before opening–and perhaps more importantly, before getting state alcoholic beverage licenses–the Buyer must have secured permits or consent from the city or county zoning authority and the county health department. However, getting these permits or consents prior to or at the time of closing on a purchase transaction can be challenging. For instance, the zoning authority may require involvement of the landlord, which may not be inclined to participate in any change until a lease with the Buyer is in place. The county health department may require confirmation that a water and sewage account for the premises is in the name of the Buyer, which might also have to wait until after closing.
Unlike local permits, federal and state alcoholic beverage license are transferrable in most cases. The federal TTB and the state ABT both offer procedures and applications that are specific to transferring licenses from Seller to Buyer. While the licenses themselves may be transferrable, the procedures for getting those licenses in the name of the Buyer are not dissimilar from the procedures for applying for new licenses. In each case, specific information about the Buyer’s owners, officers, and other interested parties must be provided, and certain “Related Parties” must sign an affidavit and be fingerprinted for the issuance of state ABT licenses. Information about the licensed premises must also be provided for the federal and state licenses, including the lease or other documentation of the Buyer’s right to use the space as an alcoholic beverage business.
Keyword #2: Lease
In almost all business transfer transactions, an important third party is the landlord for the business premises. Commercial lease agreements generally require the landlord’s approval for a transfer of the lease or a sublease. As a result, the business transfer cannot move forward without the landlord’s approval, at least not at the landlord’s property.
Business transfer transactions often involve either an assignment of the lease by Seller to Buyer, with Landlord’s approval, or an agreement among the parties to terminate the existing lease between Seller and Landlord and enter a new lease between Buyer and Landlord. Sellers would generally prefer to see Buyer and Landlord sign a new lease, particularly if this releases Seller (and possibly Seller’s principals) from future liability under the lease. Buyers generally prefer to take an assignment of the existing lease, which in many cases has better terms and rent rates compared to a new lease.
As discussed above, getting a lease to the licensed premises is a key to the Buyer’s ability to get the federal, state and local licenses and permits Buyer must have to operate its alcoholic beverage business. This means that the timing of getting the lease–either by transfer of the existing lease or in the form of a new lease–affects Buyer’s timing for getting the approvals it will need to operate the alcoholic beverage business. In some cases, Seller and Landlord may agree to work with Buyer to provide an appropriate lease in advance of closing, so Buyer can get a jump on getting its licenses and permits.
Keyword #3: Liens
Alcoholic beverage manufacturing requires large equipment, tanks, and other capital assets to operate. In many cases, Seller’s capital assets are pledged as collateral for loans or other obligations. Unless lienholders provide a release of their liens on assets that are part of the business transfer transaction, the Buyer risks losing the assets to foreclosure if Seller fails to pay the secured loan or obligation. In fact, the business transfer transaction itself may create a default under Seller’s loan, which gives the lender the right to immediately take assets that are part of the business transfer. Clearly, the Buyer should in all cases require Seller to provide “clean title”–free of all liens and encumbrances–for all assets that are part of the sale.
Even where equipment and other capital assets are not part of the business transfer transaction, liens may be affected. It is not uncommon for lenders to require “blanket liens” as security for loans, which include not only physical assets like equipment but also intangible assets like the business name, brands, and other intellectual property. Florida quota licenses, which are valuable assets in their own right, can be liened against as well.
In Florida, liens on property other than real estate are “perfected” by filing notice with the Florida Secured Transaction Registry, a searchable database of liens. At a minimum, buyers should search the registry for an liens in the name of the Seller, as the debtor. Buyers who are purchasing a Florida quota license as part of the business transfer should also file Form ABT-6023 with the Florida ABT to request confirmation that the quota license is free of liens.
Keyword #4: Brands
The most valuable assets in a business transfer–indeed, the only assets in some case–might be alcoholic beverage product brands. Each brand is a collection of intellectual property rights, which includes the brand name, the packaging design and labels, and the recipe and production instructions.
Buyers should evaluate each brand to answer two questions, at a minimum: (a) does any aspect of the brand infringe on another party’s superior intellectual property right, and (b) to what extent can the brand be protected from infringement by other parties? Buyers should search the federal trademark registry as well as the state trademark registry to determine whether the trade name and/or design for each brand is registered and if so by whom. If trade names or brands are registered to Seller, the transfer of these registrations must be part of the business transfer transaction.
Seller’s distribution agreements should also be closely evaluated, especially those related to beer and malt beverage brands. Florida’s Beer Franchise Statute (Fla. Stat. s. 563.022) guarantees to distributors inalienable rights in beer brands. Even if Buyer prefers not to assume Seller’s distribution agreements, Buyer might have no choice in the matter. Florida law may provide that a brand continues to be subject to distribution agreements even when the brand is transferred to another party. Even for distribution agreements that relate to wine and distilled spirits-which are not subject to statutory franchise rights–the agreements themselves may limit Seller’s ability to transfer the brands and Buyer’s ability to make changes to how they are distributed and to whom.
Keyword #5: Cooperation
As discussed above, there are many complicated details for Buyer and Seller to deal with in the transfer of an alcoholic beverage business. For that reason, a high level of cooperation can make a big difference in how the transfer progresses. Cooperation between Seller and Buyer, but also involving the landlord and lienholders, can ensure that the transfer is executed cleanly and with minimal impact on the ordinary operations of the business.
It is possible to carry out the transfer of a business manufacturing business without a great deal of cooperation among the parties. But the inevitable result is a break in business operations. If no steps are taken before the closing to deal with permits, licenses, and brands, then the Buyer must wait until the closing to get started on most of the necessary activities. Getting permits and licenses to operate as a alcoholic beverage manufacturer generally takes 3 to 9 months (at the time of writing), depending on the location. That is a long break in operations, which may have a negative impact on business prospects and brand values.
With cooperation, the business can be operated under the current licenses, permits and agreements while the Buyer is getting transfers these transferred into its own name. Even where the business transfer involves a change to the business name, Seller and Buyer can agree that Seller will begin operating under the new name as of a certain date. It’s an easy matter for Seller to register a new fictitious name and update its own federal and state licenses to allow it to continue operating under that name.
Do you have questions about variances from federal and state alcoholic beverage regulations? Contact us to schedule a consultation with a beverage attorney.
Because we’re attorneys: Disclaimer. Posted December 18, 2022.