Memorandum on Buying a Restaurant


FACTS

Bill Buyer (B) is planning to buy a restaurant from Owen Owner (O). B wonders if he can buy any of the liquor or food inventory that O has in stock. He also wonders if any of the licenses from the health inspectors or alcoholic beverages division can be transferred from O to B.

ISSUE 1:

What restrictions are placed on the sale of liquor or food inventory during the sale of a restaurant?

DISCUSSION

SALE OF LIQUOR OR WINE INVENTORY: When a licensee decides to sell a business or goes out of business, the licensee may sell their stock of alcoholic liquor and wine to the new owner, as long as the new owner will be operating the business in the same location. (IA ADC 185-4.36). When making this transfer, it is strongly advised that the new owner make certain to detail within their records which inventory was received as a part of the sale of the business, since liquor sale records are required to be open for inspection. (IA Code ยง 123.33). They must also make certain that the inventory is affixed with the proper seals (IA refund 5ยข), as all liquor must be obtained from a licensed wholesaler. (Lynn Walding, Administrator, IA ABD, 515-281-7402).

SALE OF FOOD INVENTORY: Food is frequently sold during the sale of a restaurant, and there are really no code provisions regulating this (in fact, many restaurants will exchange food inventory if they run short before food distributors would be able to get it to them). The sale of food inventory should be itemized in the contract for the sale of the restaurant, with specific provisions identifying the items and quantities requested. Frequently, the contract will include a minimum dollar amount of inventory (including food, to-go containers, etc.) that must be on hand for the sale of the business, with discrepancies affecting the sale price.

ISSUE 2:

What health inspections are required upon the transfer of ownership or, alternately, can current licenses be transferred without an inspection?

DISCUSSION

FOOD/HEALTH INSPECTION LICENSE: A food license is not transferable from one owner to the next. (IA ADC 481-30.3). Any time a new owner takes over operations or is added in as a partner, a new license must be obtained, regardless of the remaining time on the existing license, or the percentage ownership breakdown between the partners. Id. The same is also true if an establishment simply changes location. Id. In order to obtain a new license, an owner must apply for the license with the Department of Inspections and Appeals, an inspection will be done, and upon approval, the license will be distributed.

If a corporation owns a restaurant, a change in officers or stockholders of the corporation does not require a new license. (Judy Harrison, Bureau Chief, IA Dept. of Inspections and Appeals, 515-281-6538). Nor is a new license required upon the death of one spouse in the case of spousal-owned restaurant or bar. Id. However, should the remaining spouse choose to bring in another family member as a partner, or the restaurant is inherited by another person, the restaurant would need to undergo a new inspection for license approval. Id.

LIQUOR LICENSE: A liquor license may not be transferred from one person to another. (IA ADC 185-4.13). Consecutive owners much reapply for the license through the Alcoholic Beverages Division. However, a liquor license may be transferred from one location to another, as long as the ownership remains the same. Id. In order to transfer a license location, the licensee must file an application for transfer of liquor license, wine permit, or beer permit with the Iowa Alcoholic Beverages Division. Id. The transfer is limited by jurisdiction, depending on the boundaries of the issuing authority. Id. If the authority was on the county-level, it may be transferred within the county, but if the authority was a city authority, it may only be transferred within the incorporated city limits. Id.

CONCLUSION

Food and other frequently replaced inventory may be sold to a new owner of a business with very little regulation, but the sale of liquor or wine is only allowed when the business will be operating in the same location and will not be transferred. Licenses, whether for food/health inspections or allowing the sale of liquor, cannot be transferred to a new owner. Each owner must apply for a license through the respective Iowa administrative agency.

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