With the legislative session in Trenton coming to an end tomorrow at noon, New Jersey legislators and the Governor have crafted compromise legislation, S4265/A5912 (which can be found here), to address some of the long-awaited reforms so desperately needed to revamp New Jersey’s antiquated liquor license regulations. While the bill makes some significant changes regarding brewery licenses and addresses inactive retail consumption (i.e., restaurant) licenses, it does not fully satisfy Murphy’s call to reform and expand the liquor license scheme overall. The legislation appears to be on track for passage by both houses of the Legislature today, and Governor Murphy is expected to sign the bill into law as soon as it hits his desk.

The following summary focuses only on the bill’s impact on the “restaurant” liquor licenses. A subsequent post will concentrate on the changes made to brewery licenses.

The most significant legislative change to restaurant or “C” licenses appears to be with respect to “pocket licenses,” which is another name for the hundreds of retail sales liquor licenses that exist in municipalities throughout the state but are not being actively used by their owners. Under current law, these pocket licenses may be renewed by a municipality at the request of the owner for up to two times after the term in which the license ceased being active, and if a license has been inactive for more than two license terms (two years), the municipality cannot renew such license unless the owner obtains relief from the Director of the New Jersey Division of Alcoholic Beverage Control (the “Director”), pursuant to NJSA 33:1-12.39 (a “Special Ruling”). In the absence of a Special Ruling, such a license is deemed “retired” and may not be renewed or activated. Currently, a major factor in obtaining approval of a Special Ruling is whether the owner is able to show that they are intending to reactivate and “re-site” the license. The legislation under consideration would modify current law to provide that pocket licenses which have been inactive for two consecutive license terms (i.e. two years) would expire automatically and be ineligible for renewal by their then owners.1 Going forward, under the proposed legislation, the owner of a pocket license would only be able to avoid such automatic expiration of its license after two (or three) years of inactivity by taking one of the following actions prior to the expiration of such period (each being a “Transfer”): (i) activate the inactive license (via Special Ruling) to be utilized at an operating licensed premises, (ii) transfer the inactive license to a new owner who intends to activate and utilize the license at a defined licensed premises, or (iii) transfer the license from a “Sending Municipality” to a “Receiving Municipality” in accordance with the provisions of the new bill (as more particularly detailed later in this article).

The bill also provides another mechanism for the expiration or “retirement” of inactive licenses that will only apply to inactive licenses which, after the date the legislation is enacted, have not been Transferred within the two (or three) year extension period. Such pocket licenses would be subject to retirement based on the length of time that certain groups of licenses have been inactive prior to the enactment of the legislation. The Director would be instructed to separate these licenses into four different groups to be measured by the total length of time those licenses have been inactive prior to the enactment of the legislation. The quartile of licenses that have been inactive for the longest period of time would have to be transferred by their owners (by one of the methods defined above as a Transfer) within one year, the second quartile would have to be Transferred within two years, the third quartile within three years, and the fourth quartile within four years. If an inactive license has not been so Transferred, then the issuing municipality would have the right to terminate the inactive license and issue a new license of the same license type as the expired one. The bill also gives municipalities the right to terminate inactive Class C licenses that have not been renewed within eight years prior to the enactment of the bill and issue in their place, new Class C licenses at public sale for use at licensed premises in that municipality.

Another major provision of the legislation allows municipalities to transfer inactive licenses to bordering towns. The towns must actually share a land border and not be separated by a body of water. Such licenses must be inactive and have been previously renewed by the “Sending Municipality” for two consecutive license terms to qualify for a transfer to a Receiving Municipality. For a “Receiving Municipality” to acquire an inactive plenary retail consumption license from a Sending Municipality, the licensed premises to which such license is being transferred must be part of an economic redevelopment plan or located within a redevelopment, improvement or revitalization area. Those areas would include urban enterprise zones, downtown business improvement districts, special improvement districts, pedestrian malls, transit-oriented developments, areas in need of rehabilitation, or any property which is comprised of 100% new construction. The procedure for transfers of licenses between Sending and Receiving Municipalities, is commenced by the Receiving Municipality issuing a request for proposal (“RFP”) to acquire from a license holder an additional inactive plenary retail consumption license that was initially issued by a Sending Municipality. The details of this process will be explained in a future blog post, but it is important to note now that:

  • both municipalities must be willing to cooperate in this process for it to be utilized;
  • the minimum bid price would be based on the greater of either the average sale price of recent sales in the Receiving Municipality or an appraisal completed by the Receiving Municipality; 
  • both municipalities must ensure that the holder of the inactive license made sufficient attempts to use or transfer the license for use in the Sending Municipality before attempting such sale;
  • if the successful bidder fails to activate the license within two years of the issuance date, the license would expire and not be reissued by the Receiving Municipality; and
  • there would be limits on the number of licenses that a Receiving Municipality may acquire although any license issued pursuant to a transfer between municipalities would not be included in the total combined population necessary to issue new consumption licenses.

One other major component of S4265/A5912 is a provision enabling municipalities to issue special licenses for businesses located in “shopping malls.” Shopping Malls are defined in the bill as “a standalone, publicly accessible enclosed walkway or hall area that serves to connect retail, entertainment, and food and beverage establishments, and office space.” Two such special licenses would be permitted to be issued to restaurants having premises within a shopping mall containing at least 750,000 square feet, and four special licenses would be permitted to be issued in malls containing at least 1,500,000 square feet. The host municipality would have the discretion to determine whether to grant such licenses. These special licenses would only be transferrable to another food and beverage establishment in the same shopping mall. The purchase price of these special licenses would be determined by the greater of three most recent sales where the license is being issued, or an appraisal conducted by the municipality in which the special license is to be issued. A last-minute amendment to the bill requires a minimum price of $250,000.00. These special licenses would not be transferrable to another municipality, not be subject to the existing population caps for new licenses, and not be included in determining the maximum number of licenses issued to any one person or entity.

As noted at the outset of this blog post, this legislation addresses some, but not all of the concerns and issues with the existing liquor license regulations. It is worth noting that leaders of the incoming Legislature have already indicated that they will tackle additional liquor license issues early in the new two-year session that begins tomorrow at noon.

1 The bill would allow for a municipality, in its discretion, to extend the period during which a license may remain inactive, for an additional year. The bill also provides that in the event the license was inactive as a result of eminent domain, fire, or other casualty and the license owner files an affidavit with the Director, then the two-year period for automatic expiration shall be extended for an additional two years.