Pass the Permit: How to circumvent liquor permit quotas

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John NealAre you having difficulty finding a liquor permit to transfer in your city, village or township? It’s a common problem. Oftentimes, all of the permits are taken because the liquor permit quota in a particular area is maxed out.

However, there is another way to get a liquor permit into a municipality when all of the quota permits are taken and no special permit is available. Ohio has long had a way to transfer a permit from one community to another, and the process has recently been made easier. It is known as the “TREX.”

The Economic Development Transfer (“TREX”) is the transfer of a liquor permit into an economic development project. Spelled out in Ohio Revised Code §4303.29(B)(2)(b)(i), TREX is intended to help those areas of the state which have an over-issuance of permits by allowing transfers of permits from other areas of the state. Put differently, a liquor permit can be bought from a seller in one area of the state and transferred to the buyer’s area, regardless of municipal boundaries.

Of course, to break the quota rules in this fashion, the state requires that the municipality to where the permit will be transferred endorse the transfer in writing. (Both businesses seeking to obtain a permit through the TREX system and municipalities should be aware that even if the political subdivision signs the TREX form, it can still object to the transfer under O.R.C. §4303.26). The buyer is also required to demonstrate that the project is an economic development project.

According to O.R.C. §4303.29(B)(2)(b)(ii), the factors that may be used to determine whether the project is an economic development project include:

  • the amount of financial investment in the project
  • the number of jobs that will be created by the project
  • projected earnings
  • projected tax revenues for the political subdivisions in which the project will be located
  • architectural certification of the plans and the cost of the project

It is the buyer’s responsibility to locate and purchase the permit, and the Division of Liquor Control recommends that people consult with attorneys for that process. Experienced attorneys who handle Ohio liquor law matters can typically locate a permit for purchase in mere days.

Upon filing of the TREX application, the superintendent of the liquor control will determine if the existing or proposed business that is seeking a TREX qualifies as an economic development project. If so, the transfer will be approved and proceed.

A permit that has been “TREXed” can be subsequently transferred to a different owner at the same location. In addition, it can be transferred to the same owner or a different owner at another location, provided that new location meets the economic development project criteria.

John Neal is an attorney at Walter | Haverfield who focuses his practice on state and federal liquor permit licensing as well as the licensing of Ohio’s new medical marijuana industry. He can be reached at jneal@walterhav.com or at 216-619-7866.

Outdoor Refreshment Areas Offer Major Appeal to Local Developers, But Only Time Will Determine Their Long-Term Feasibility

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As seen in the November 2016 issue of Properties magazine.

It was more than 18 months ago that the Ohio legislature approved the creation of designated outdoor refreshment areas throughout the state to help spur economic growth, but Cleveland is just now in the process of getting its first one in The Flats. Within these specially designated areas, the state’s open container laws do not apply, allowing customers to walk freely with open containers of beer, wine and spirits within the designated borders without fear of that criminal violation.

The creation of such outdoor refreshment areas could pay big dividends to developers who would be able to create destination locations unrestricted by existing open container liquor control laws. The concept is not unique to Ohio, as other states have similar designations under different names. One of the most famous areas in the country not subject to open container restrictions is Bourbon Street in New Orleans. While other destination points around Northeast Ohio are exploring the creation of an outdoor refreshment area, The Flats East Bank is the only one within City of Cleveland limits to have actually filed for an application. It was Middletown that had the state’s first designated area under the new legislation. Other close-to-home outdoor refreshment areas can be found in downtown Canton and Lorain.

A key challenge in creating additional outdoor refreshment areas is that developers cannot directly request them. Rather, the application must be made by the municipality. It is then up to the developer and municipality to create whatever mechanisms they see fit for governing how the outdoor refreshment area will function relative to days and hours of operation and other desirable restrictions.

Another challenge under the legislation sponsored by Senator Bill Seitz is the restriction as to where these areas can be located. In the original legislation, only municipalities with populations greater than 35,000 people could qualify for a single designation. That restriction has already been amended such that, effective April 2017, municipalities with fewer than 35,000 people may create an outdoor refreshment area, assuming they meet other minimum criteria. In municipalities with populations greater than 50,000 people (such as the City of Cleveland), the legislation allows for the creation of only two designated outdoor refreshment areas. In addition, there must be at least four establishments that currently hold liquor licenses within the boundaries being designated and those boundaries must be able to be clearly defined geographically.

Beyond these criteria, health and safety issues must also be addressed with responsibilities delineated amongst the municipality, the developer and the individual permit holders. The long-term success of these outdoor refreshment areas will ultimately depend on how responsibly they are operated. Few want the reputation of a Bourbon Street to be associated with Cleveland. For that reason, the Ohio legislation allows for the dissolution of a specific designated area.

To help avoid problems, the legislation leaves a great deal of flexibility for developers to work with the city to create, for instance, an Authority that would have regulatory powers to control conduct within the area. Although there have been no high-profile problems occurring to date within these outdoor refreshment areas, all parties need to work collaboratively and cautiously to ensure a successful and safe operation and avoid events that may result in public backlash.

Assuming that adequate controls are in place, the potential for outdoor refreshment areas is tremendous, especially if they are created in conjunction with a Community Entertainment District that allows for easier liquor permitting. With the combination of the two designations, a particular development would be extremely attractive to prospective renters and retailers and have a major competitive advantage in differentiating itself and drawing foot traffic. The options are nearly endless, as developers could work with their municipalities to write any number of terms into the legislation. For example, the parties could even choose to reserve these rights only for private ticketed events, as opposed to privileges available to the general public.

It is still very early in the process to conclude how successful designated outdoor refreshment areas will be in Ohio, but savvy developers should be watching the progress being made in this area and evaluating their options with experienced legal counsel to make sure they are leveraging their opportunities.

John N. Neal is a partner and chair of the Hospitality and Liquor Control group at Walter | Haverfield.

COVID-19: Mitigating Risk and Allowing for Limited Operations of Restaurant Business in Ohio for Carry-Out and Delivery

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John Neal

A more recent article that explains Ohio’s policy change on the sale and delivery of hard liquor drinks can be found here.

March 16, 2020 

In conjunction with the Ohio Governor’s Office, the Ohio Department of Health ordered the stoppage of on-premises food and alcohol service effective 9:00pm EST March 15, 2020. The move is designed to combat the spread of the coronavirus (COVID-19). Many states have followed suit.

The Ohio Order specifically exempts carry-out and delivery of food and alcohol (meaning beer and wine only).  The Governor has encouraged the use of carry-out and delivery as options, and for the public to continue to use local restaurants. From a moral perspective, restaurants that stay open to help ensure the public has access to food are to be commended, especially considering that most operations will lose money doing so.

Of course, nothing that has been issued to date grants any protection or immunity to restaurants for continuing operations, and as such, the general principles of liability and negligence will apply to how a food service operation interacts with the public.

National and state agencies have issued guidance, and in some cases, orders, with regard to managing the coronavirus outbreak.  Although most people have seen them, restaurants that are going to maintain an operable kitchen must remember to advise its employees, preferably in documented writing, that they must:

  • Wash hands often with water and soap (20 seconds or longer) – Employees should be required to do this at regular intervals.
  • Dry hands with a clean towel or air dry your hands – Restaurants should ensure that clean, disposable papers towels are available and direct employees that they be used.
  • Cover your mouth with a tissue or sleeve when coughing or sneezing (and excessive sneezing or coughing should probably result in an employee being sent home).
  • Avoid touching your eyes, nose, mouth with unwashed hands or after touching surfaces – Employees should be advised not to do these actions, and immediately directed to clean their hands if they inadvertently do.
  • Clean and disinfect “high-touch” surfaces often – The restaurant should wipe down with disinfectant such surfaces at regular intervals, and if possible, have appropriate hand sanitizers on site and used by employees frequently.
  • Continue to strictly comply with all existing regulations of the health department relative to operating a food service licensed business.

Not only should these procedures be advised, management should monitor and enforce them.

Understand, of course, that an employer can (and should) require an employee to go home and stay home if the employee has symptoms of coronavirus (or, quite frankly, is sick in any fashion).

In her March 15th order, Dr. Amy Acton, director of the Ohio Department of Health, found that coronavirus is “spread between individuals who are in close contact with each other (within about six feet) through respiratory droplets produced when an infected person coughs or sneezes.  It may be possible that individuals can get COVID-19 by touching a surface or object that has the virus on it and then touching their own mouth, nose or eyes.”   She also cited research to “confirm that COVID-19 is spread simply through breathing, even without coughing.”  That last finding is alarming.

This leads to one of the most significant pronouncements of the March 15th Order regarding “social distancing.”

Physical Premises Restrictions

Per the March 15th Order, “Lines for carry-out in these establishments must have an environment where patrons and staff maintain social distancing (six feet away from other people) whenever possible.”

Because of this and the general nature of the spread of coronavirus, a restaurant should devise carry-out and delivery programs designed to prevent the spread of coronavirus.

If possible, a restaurant still selling carry-out foods would be well-served to consider whether the delivery of that food and alcohol can be accomplished on a porch, patio, or outdoor open space on premises.  In this way, a restaurant can avoid having possible exposure to the indoors and kitchen area, it will serve as a buffer between the customer and employees, and it will prevent general congregating indoors.

In the event that a premise simply is not physically situated to allow for this kind of service, then a restaurant should consider utilizing the smallest indoor area closest to the door, confined in some fashion to keep patrons from sitting or congregating in the restaurant.

Although difficult in practice, the Director’s Order requires that patrons and staff stay six feet away from each other.  As such, employees should actively ask people in line to stay at least six feet away from each other while waiting, and a sign to that effect is advisable.  If a staging area can be situated where customers can pick up their own orders, this would be ideal.

Delivery

Like the restrictions for carry-out, delivery should be designed to minimize any contact between employee and customer. Again, payment should be made in advance over the phone, and other than handing the order to the customer, there should be no contact between persons. (The employee may even ask the customer if she wants the order left on the doorstep as opposed to handing it to her.)

In addition to these considerations about contact, restaurants should remember:

  • Food can be delivered by employees or third-party services, but beer and wine cannot be delivered using third party services unless they have an H-class permit. Not a lot of third parties have that licensing.
  • An employee must be 18 years old to deliver or sell carry-out alcohol.
  • The restaurant should consult with its insurance agent and/or carrier to ensure that employees making deliveries are covered under liability insurance coverage (or, more to the point, that any significant increase in delivery is covered).

General Terms of Carry-Out and Delivery Business

Patrons should be advised when placing an order:

  • No person showing any symptoms of illness will be served, even carryout – If you’re sick, send someone else to pick up your order.
  • Credit card payments in advance over the phone will be the only payment method allowed. This will eliminate the contact involved in the exchange of cash between employee and customer.  Other than possibly handing the bag of food over to the customer, there should be no contact or exchange of items between employee and customer.   If a customer has to pay on site and the restaurant decides to accept that, then the employee should manually type in the card authorization numbers.
  • Due to the increased contact that would result from a dispute about an order and the possibility of contaminated food coming back to the restaurant, the restaurant should advise that all sales are final, no returns or exchanges.
  • Restaurants can and should increase their prices and are entitled to up-charge for what they are doing due to all the risk, extra procedures, increased costs, and inability to generate revenue from full kitchen use by on-premises dining. Rules of reasonableness must apply, and increased prices should be uniform to all customers.  Remember to change your 30-day price list for beer and wine at your earliest opportunity.

Other Considerations

Wine.  Remember that Ohio law defines 42 proof and below spirits as “wine”, and therefore you are allowed to sell those at carry-out and delivery.  This includes such items as Baileys, and some popular low-proof whiskeys and vodkas.  You can never sell spirituous liquor (above 42 proof) at carry-out or delivery.

Wage and Hour considerations.  Remember, as always, to keep close track of employee time with delivery work, and to pay proper compensation and any overtime.

Mileage Reimbursement for employees.   A restaurant does not have to reimburse employees for mileage driven while making deliveries PROVIDED that the employee is making sufficiently more than the minimum wage to offset the driving costs.  Remember that mandatory expenditures that an employee incurs as part of his/her job cannot cause the employee to make less than the minimum wage.  So if an employee is right at the minimum wage, then yes, the employer must reimburse.  If the wage is high enough to cover the cost of mileage incurred, then no.  Although not the required amount, the IRS standard reimbursement rate is 57.5 cents per mile.   This may be hard to determine on an employee-by-employee basis, so instituting a standard amount per delivery can suffice.

Insurance.  Every restaurant should review whether they have a business interruption or other income loss covered claim as a result of the coronavirus and its related events. In many cases, there will not be a claim for business interruption because it is not caused by “physical loss or physical damage,” or there may be a pandemic exclusion.  Regardless, the easiest initial approach is for the restaurant to request a coverage review from its broker as a result of coronavirus, and then each policy must be reviewed as to its own particulars. Coverage reviews from brokers are generally free, and are an excellent starting point for an insurance analysis.

John Neal is chair of the Walter | Haverfield Hospitality and Liquor Control group. He can be reached at jneal@walterhav.com or at 216-619-7866.

 

Cocktails To Go: Ohio Allows the Sale and Delivery of Hard Liquor Drinks

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John NealApril 7, 2020

Ohio restaurants and bars with an on-premises liquor permit may now sell drinks made with high-proof spirits for carry-out and for delivery with the purchase of a meal.  Customers are limited to two drinks “per meal.” The move comes after the Ohio Liquor Commission promulgated emergency rulemaking on April 7, 2020, allowing for this change.

Details of this Rule are as follows:

  • Drinks cannot contain more than two ounces of spirituous liquor per container.
  • Food must be purchased in conjunction with the purchase of order. However, beer, wine, and low-proof products, in their original sealed containers were always allowed to be sold at carry-out/delivery, and that is still permitted (unless a local restriction is reflected on the liquor permit.)
  • All drinks must be in a closed container.
  • All purchases are subject to the open container law upon leaving the permit premises.
  • The permit holder must comply with all applicable state tax laws.
  • The permit holder is subject to all liquor laws and rules including hours of operation, minimum age requirements, and the prohibition against sales to intoxicated persons.
  • Establishments that take advantage of the rule must have a food service license issued by its local health department.

The rule remains in effect for up to 120 days. If you have further questions about this new rule or any of Ohio’s recent policy changes in light of the pandemic, please reach out by emailing us here. We are happy to help.

John N. Neal is head of the Walter | Haverfield Hospitality and Liquor Control team. He can be reached at jneal@walterhav.com or at 216-619-7866.