The economy continues to improve, albeit slowly. With improving market conditions comes the opportunity for hospitality businesses, such as restaurants, bars, nightclubs and liquor stores, to emerge and grow. These new and growing hospitality businesses may seek new money or offer new collateral for existing loans or lines of credit. This article provides a brief overview of the process and pitfalls for creditors to perfect a lien on a Florida retail alcoholic beverages license ("AB license").
Not All AB Licenses Are Created Equal
The Florida Division of Alcoholic Beverages and Tobacco (the "division") issues all state AB licenses. An AB license is a creature of statute granting a privilege to the licensee.1 The licensee's interest in an AB license is a general intangible but not like other general intangibles2 because the government has total control of its use and issues it as a privilege, not as a matter of right.3
Not all AB licenses however, are created equal. For example, some allow retailers, such as convenience stores, to sell beer and wine to be carried out in sealed containers, while other AB licenses allow retailers, such as small cafés, to provide beer and wine for consumption on-site. Still other AB licenses even allow qualifying restaurants to sell beer, wine and liquor so long as they meet certain minimum requirements including, for example, revenues from the sale of alcoholic beverages do not exceed 49 percent of the restaurant's total revenue.4
The division does not limit the number of most AB licenses issued under these and other similar categories.5 Therefore, there is no outside market value for these licenses because any qualified applicant, meeting the AB licenses' minimum requirements, can apply and obtain them. Consequently, a creditor should not accept most AB licenses as collateral.
On the other hand, the division limits AB licenses commonly referred to as quota liquor licenses. Quota AB licenses are highly coveted and generally allow the sale of beer, wine and liquor for carry-out in sealed containers or for consumption on-site or both (subject to zoning). And while quota AB licenses have some restrictions, they do not have, for example, minimum food-to-alcohol revenue ratios, minimum building square footage requirements, or many of the other restrictions commonly found in non-quota AB licenses. Depending on the Florida county, quota AB licenses bear a 4COP, 5COP, or 3APS designation. The "quota" reference is derived from the statutory restriction of Florida Statute §561.20(1) that prohibits the issuance of quota AB licenses at a rate of more than one AB license per 7,500 residents within the territorial limits of each county. Per the statute, when there is a 7,500-person increase in population then there should be an additional quota AB license issued.6 New quota AB licenses are issued via a yearly lottery process.7 The division, via the yearly lottery, also reissues active quota AB licenses revoked by the division or relinquished by the licensee.
The statutory limitation upon the number of quota AB licenses issued by the division creates a demand for these licenses and thus a transferable value. Factors such as population growth and size, location, and the presence of a strong hospitality industry affect the quota AB license's market price and can range from $15,000 to more than $500,000.
Florida Statute Provides the Exclusive Means of Perfecting a Lien on an AB License
Because the government issues AB licenses as a matter of privilege, and the government has total control of its use, Florida Statutes provide the exclusive means of perfecting a lien on an AB license.8 Section 561.65 (4) provides, in relevant part:
In order to perfect a lien or security interest in a spirituous alcoholic beverage license which may be enforceable against the license, the party which holds the lien or security interest, within 90 days of the date of creation of the lien or security interest, shall record the same with the division on or with forms authorized by the division, which forms shall require the names of the parties and the terms of the obligation ... .
Thus, filing the appropriate form with the division is sufficient and no duplicate filing under the Uniform Commercial Code (UCC) is necessary.9The division's website provides the approved form titled Application for Mortgagee's Interest in Spirituous Alcoholic Beverage License.10 The division must receive the approved form and fee within 90 days of the date of the creation of the lien however.11 "The fact that the [division's] acceptance takes place more than  days after the date of creation of the lien is immaterial."12 Nevertheless, failure to strictly comply with Section 561.65(4) makes the lien unenforceable against the licensee.13
Due Diligence Is Required Before Accepting an AB License as Collateral
Before a creditor considers whether to accept an AB license as collateral, the creditor should conduct a search of the relevant AB license file for existing liens and equitable interests in the license. AB license files are public records available for examination.14 The division's main office in Tallahassee and the field office responsible for the county where the AB license is located maintain AB license files. The creditor should first request a formal lien search utilizing the division approved form titled Request for Alcoholic Beverage License Lien Search.15 The formal request will cause the division to conduct a lien search of the AB license file and provide to the requester copies of all recorded liens and security interests.16
The creditor should then determine if there are agreements creating an equitable interest in the AB license file. Under Rule 61A-3.017(5) of the Florida Administrative Code, all "agreements concerning ownership or operation of an alcoholic beverage license shall be attached to and submitted with each new or transfer application for a license, including, but not limited to, management agreements, options to purchase, and retailer franchise agreements. Any such agreements coming into existence following the issuance of a new or transfer license shall be submitted to the Division within ten (10) days of execution." Courts interpret this rule to give notice to all creditors that an agreement creating an equitable interest in an AB license could exist and that special inquiry should be made to the division for such agreements.17 Accordingly, the creditor should review any agreements in the AB license file for provisions that, for example, create a contractual obligation for the borrower/licensee to transfer the AB license to a third party at the expiration of lease or management agreement.18
A quota AB license can provide a creditor security against borrowers seeking new money or offering new collateral for existing loans or lines of credit. Strict compliance with Florida Statute §561.65 and due diligence is required.
A version of this article,"Perfecting a Lien on a Florida Liquor License" by Luis J. Gonzalez, Esq., originally appeared in the Orange County Bar Association's The Briefs, January 2013, Vol. 81 No. 1. It is published here by permission of the Orange County Bar Association. All rights reserved.
1Lachance v. Desperado's of Holly Hill, Inc. 760 So. 2d 1023,1025 (Fla. 5th DCA 2000).
2Under the U.C.C., "general intangibles" means any personal property (including things in action) other than goods, accounts, chattel paper, documents, instruments and money. U.C.C. §9-106.
3U.S. v. McGurn, 596 So. 2d 1038, 1041 (Fla. 1992).
4See e.g. Fla. Stat. §561.20(2)(a)
5Fla. Stat. §561.20(2)(a)
6Fla. Stat. §561.20
7Fla. Stat. §561.20(1)
8U.S. v. McGurn, 596 So. 2d 1038, 1041 (Fla. 1992).
10http://www.myfloridalicense.com/dbpr/abt/index.html(DBPR ABT-6022 – Division of Alcoholic Beverages and Tobacco Application for Mortgagee’s Interest in Spirituous Alcoholic Beverage License)
11Splash Entertainment, Inc. v. Sons of Ireland, Inc., 867 So. 2d 423, 426 (Fla. 3d DCA 2004).
13Dery v. Occhiuzzo and Occhiuzzo Enterprises, Inc., 771 So. 2d 1276, 1278 (Fla. 4th DCA 2000).
14Personal information in AB license files, such as Social Security numbers, are redacted and not disclosed.
15DBPR ABT – 6023 Division of Alcoholic Beverages and Tobacco Request for Alcoholic Beverage License Lien Search
16Fla. Stat. §561.65 (4).
17Lachance, 760 So. 2d at 1026.
18See Lachance, 760 So. 2d at 1026 (affirming trial court order that denied creditor's claim to foreclose lessor's interest in AB license and finding that lessor's interest in the license was the ability to regain title or ownership of the license at the end of the lease and that section 561.65(4) did not require lessor to record this type of equitable interest with the division).