Business Law image

Helped a Client Avoid an Illegal Contract Today

Today I was working with a client who was purchasing a business from a large corporate national chain. The business involved a liquor license for a restaurant and bar. The Seller presented them with a legal agreement allowing the Buyer to act as a manager under a management contract to operate the bar under the Seller’s liquor license until the Buyer obtained its own. The Seller’s legal team assured them it was done all of the time. For a flat one-time fee, the Buyer could run the restaurant and bar operations under the Seller’s license. The Buyer accepted all liability, paid for the liquor and kept all of the profits. The document was prepared by lawyers, so it must be okay. These giant corporate entities and their lawyers must know what they are doing. Or do they?

Luckily, the business attorney handling the purchase transaction had worked with me in the past and brought me in to assist on the liquor license issues involved with purchase and the new business. This was a complex and substantial transaction and he wanted to be sure his client was protected. He heard my speech about availing to other potential licensees and suspected there was a problem with what was being proposed.

I strongly felt this was against the law but in case I was wrong, I sent the agreement to Counsel’s Office at the Liquor Authority for an opinion and guidance. Counsel’s Office confirmed it was availing. (Although they do not have to provide legal opinions, they were courteous enough to respond immediately with guidance. Sometimes the government really is here to help you.)

If caught, the client could be ineligible to get a license for 2 years. This could have been a fatal mistake. This business could not survive without a liquor license and it probably would have violated the terms of its franchise agreement. Luckily, the corporate attorney had the client work with an experienced liquor license attorney who was able to prevent this situation. With a temporary license and attorney certification, the new license and a temporary permit could be expedited. There may be a short period with no alcohol service if closing cannot be delayed until the temporary permit is issued, but everything will be legal.

I am glad this business attorney decided to work with me on this specialized area and the client invested in professional assistance. This is one case where it really paid off. The losses could have been six, if not seven, figures. Now the new business is on a path for success.