What to check before you sign the purchase agreement
Buying a liquor store can be a profitable venture—especially in New York, where retail liquor licenses are limited and valuable. These businesses have longevity and survive economic bad times if operated well. They are an “essential business” and can operate when other businesses may be subject to restrictions. But liquor stores are heavily regulated and can hide costly problems. If you miss a warning sign during due diligence, you could inherit fines, lawsuits, or even a suspended license.
Here’s what to look for before you commit.
1. Liquor License Problems
The most valuable asset of a New York liquor store is its retail liquor license.
- Pending disciplinary actions – Check with the NY State Liquor Authority (SLA) for open violations or enforcement cases. Approval for a new license or change of ownership will not proceed until these are resolved.
- Pending creditor problems with distributors (being on the “COD” list)– if the owner owes money to its distributors, there is a lien on the alcohol and it cannot be sold to you. The distributors must be paid in full and in most cases cannot negotiate down the debt under the state regulations and laws.
- License restrictions – Liquor store licenses are conditioned on specific owners, locations, and business practices (ex. type and mix of products offered for sale, internet sales or use of third party delivery companies) that can’t be changed without SLA approval.
- Ownership transfer rules – You can’t just “take over” a license. You must apply for consent to change ownership on the existing licensed business entity or apply for a new license in your name, and SLA approval can take many months. In certain circumstances, temporary permits may be available to open in as soon as one month.
- Evidence of selling to prohibited buyers or buying from prohibited vendors – some liquor stores illegally sell to local retailers like bars and restaurants. Some liquor stores buy from other liquor stores, Native American reservations or out of state vendors (including direct from out of state manufacturers). This is strictly prohibited.
Tip: Make the sale contingent on SLA approval of your new license. Otherwise you may purchase a business you are unable to operate and have to turn around and sell it or take significant losses.
2. Location Restrictions
New York’s 200 Foot Rule can block new licenses if certain conditions are met:
- 200 Foot Rule – No liquor store can be within 200 feet of a school or place of worship (measured door-to-door “as the crow flies”).
- If the current store is grandfathered in but you move or change the footprint, or more than 30 days of store closure has taken place, you could lose that protection.
- Liquor stores also have restrictions on whether they can be on any level other than ground level and where/how their entrance/exit doors must be located and configured.
3. Lease Issues
If the property is leased, the lease must allow liquor sales and be assignable to you.
- Short lease terms or high rent escalations can destroy profitability. The cost and time required to relocate a liquor store is substantial, so long term leases are necessary to ensure financial stability.
- Lack of renewal options means you could be forced to move. Permission to relocate by the SLA can take more than one year.
- Landlord refusal to cooperate in your SLA application can block the sale, especially if you want to rent directly adjacent space for warehouse storage so your retail sales floor is as large as possible.
4. Financial Red Flags
Liquor stores often have high cash transactions—making accurate financial reporting critical. The sales tax department and State Liquor Authority can audit your sales records to ensure all transaction are reported.
- Unverified sales – Always compare tax returns, POS reports, and bank deposits.
- Inflated inventory values – Outdated or slow-moving product can artificially boost “book value.”
- Declining revenue trends – Check multiple years to see if sales are stable.
5. Inventory Concerns
- Expired or damaged bottles (especially wines with cork taint or improper storage).
- Overstock of slow sellers—could tie up cash for months.
- Mismatched inventory lists and physical counts.
- Poor product mix to meet consumer needs and maximize sales.
6. Supplier and Wholesale Accounts
- Check if suppliers have placed the account on credit hold for late payments.
- Confirm transferability of supplier accounts—you may need to establish new credit terms.
- Verify relationships with key distributors (breakdowns can limit product availability). Most products are exclusive to a single distributor in the market.
7. Competition and Market Changes
- A new competitor opening nearby can cut into sales.
- Changes in state or local law—like grocery store wine sales proposals—could impact business value.
8. Regulatory Compliance
- Verify the store complies with hours of operation, age verification, and display/advertising rules.
- Check for past sales-to-minor violations and violence in the nearby neighborhood—multiple offenses can result in suspension or revocation.
- Make sure signage and store layout meet SLA requirements.
9. Staffing Issues
- High turnover can signal management problems.
- Any unpaid wages or labor disputes may become your problem after the sale.
10. Hidden Liabilities
- Pending lawsuits from customers, employees, or suppliers.
- Unpaid sales taxes or excise taxes.
- Personal guarantees on equipment or supplier contracts that might carry over.
Bottom Line
In New York, a liquor store’s value is closely tied to its license, location, and reputation.
Thorough due diligence—on legal, financial, and operational fronts—will protect you from buying into trouble. And in this industry, making the deal contingent on SLA approval and a clean compliance record is non-negotiable.
Tracy Jong is a Senior Attorney at Evans Fox LLP with 30 years of experience focusing her practice in business law, intellectual property and licensing for alcohol and cannabis. Tracy Jong is a member of the New York Bar and is a registered attorney at the United States Patent and Trademark Office. She can be reached at [email protected].
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The content has been prepared for informational purposes only; it should not be construed as legal advice, does not create or constitute an attorney-client relationship, and readers should not act upon it without seeking professional counsel.