HOLDING YOUR LIQUOR LICENCE
A recently published decision of Justice Brereton of the Supreme Court of New South Wales has highlighted the need for careful lease drafting to secure a lessee’s liquor licence.
In McHugh Holdings Pty Ltd v Newtown Colonial Hotel Pty Ltd the defendant (Newtown) was the owner of the freehold of the Newtown Colonial Hotel in Sydney. On 1 November 1997 it leased the hotel to Stessel Pty Ltd for 5 years which lease contained the following clause:
“The Hoteliers Licence (“the Licence”) attaching to the Premises
is the property of the Lessee solely and on or at anytime after the termination of this Lease the Lessee shall, subject the clauses 14.2 and 14.3 hereof, be entitled to remove such licence from the Premises and to otherwise deal with or dispose of the same as they in their discretion may wish and the Lessor consents to the Lessee posting on the Premises such notices as maybe necessary under the Liquor Act for the purposes of any removable application”.
The lease also contained an option to renew for 5 years and a restraint of trade clause providing that:
“If the Lessee does not exercise the option to renew contained herein, it is agreed that the Lessee and each Guarantor will not directly or indirectly and whether solely or jointly with or as Director, Manager, agent, servant or licensee of any person or corporation in anyway carry on or be involved with or interested in any premises licensed under the Liquor Act 1982 within 1 kilometre radius of the Premises until 31 October 2007.”
In June 2003 Stessel sold the hotel business and license to McHugh Holdings Pty Ltd for $1.1m.
The term of the second lease expired on 31 October 2007. McHugh Holdings did not exercise the option for renewal and was excluded from the premises in November 2007. This exclusion was not in dispute but two issues were before the Court for decision, namely:
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Stessel wished to remove the licence from premises to new premises within a 1 kilometre radius of the Newtown Hotel; and
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Newtown as Lessor, intended to apply pursuant to Section 42 of the Liquor Act for a transfer of the licence to itself.
Stessel then sort an injunction in the Supreme Court of New South Wales to restrain Newtown from applying for a transfer of the liquor licences to itself and Newtown itself sort an injunction against Stessel from conducting a hotel business within 1 kilometre of the Newtown Hotel.
The Supreme Court held in favour of Stessel on both issues. It held that the liquor licence was clearly the lessee’s property and it was entitled to remove it from the premises and that the restraint of trade against Stessel was contrary to public policy and not enforceable.
The case is a useful one as it addresses the legal status of the liquor licence after the lessee has ceased to occupy the premises and confirmed that Stessel had legal right to seek transfer of the licence to other premises even though it had previously been transferred with the lease and the business to McHugh.
In this case, Newtown initially conducted the business and held the licence which it transferred to Stessel. Stessel later sold the business and licence to McHugh and assigned the lease. The lease contained the important provision that the liquor licence was “the property of the lessee solely”. The result of this clause was that the Stessel could transfer the licence elsewhere and prevent Newtown as lessor from exercising statutory rights under Section 42 of the Liquor Act.
These issues should be covered in the lease, if possible. In some situations a lessee may have acquired a transfer of the lessor’s liquor licence without consideration, to be able to use the premises. Then it is fair that the lessor should be able to reclaim the licence when the lease comes to an end. If the lessee acquires a liquor licence for substantial consideration from the lessor, or from the former occupant of the premises, then it is fair that ownership and control of the licence remain with the lessee.
The case also highlights the potential problems in trying to impose restraints of trade provisions in leases. In the context of this case, the restraint was held to be unreasonable, presumably because the licence was the sole property of the lessee, Stessel. However, other types of restraints have been upheld such as:
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To restrain a lessor from leasing other premises in a building or centre for similar use as the lessee’s while the lessee continues to trade there; and
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That during a lease the lessee should not engage in a similar business within a specified radius from the leased premises.
For more information regarding the terms of a lease regulating your liquor licence please contact Rod Foster Jones in TGB’s Commercial Law team.
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