California Liquor Licenses and Permits
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About Liquor License Escrows

The State of California requires that the buyer of a liquor license deposit their funds with an escrow holder, with certain exceptions.

Business & Professions Code

24074.4. (a) Notwithstanding the provisions of Section 24074, no escrow shall be required to be established in connection with the transfer of a business or license if a corporate person files with the department a guaranty of full, prompt, and faithful payment of all claims of bona fide creditors of the licensee, and such guaranty is acceptable to the creditors. The department shall not transfer the license until the guarantor has paid all the creditors' claims in full and the guarantor has filed with the department a statement executed under penalty of perjury that all conditions of the transfer have been satisfied. Payment of such claims by the guarantor shall be made in United States currency or by certified check in a manner acceptable to the creditors.

(b) This section shall apply only in the case of a transfer involving an off-sale beer and wine license, and in which the guarantor corporation has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than five million dollars ($5,000,000).

24075. The provisions of Sections 24073 and 24074 do not apply to any transfer of a license made by an executor, administrator, guardian, conservator, trustee, receiver, except a receiver appointed under the provisions of Section 708.630 of the Code of Civil Procedure, or other person acting in the legal or proper discharge of official duty, or in the discharge of any trust imposed upon the person by law, nor to any transfer or assignment made for the benefit of creditors, nor to a surviving spouse or fiduciary or other person within the meaning of Section 24071.

Source: California Alcoholic Beverage Code Act

The purpose of a liquor license escrow is to:

  1. ensure that sellers pay down any debts owed to creditors (e.g., vendors, landlords, taxing agencies) before receiving funds from the sale of their license,
  2. provide the buyer with assurance that, after satisfying Alcohol Beverage Control requirements, they will receive a license in exchange for the funds that they have committed to the purchase of a license,
  3. allow the Department Alcoholic Beverage Control, by tracing the flow of funds from buyer to seller, to protect license holders from improper financial influence and organized crime, and
  4. help assure the buyer and seller that the financial transaction is handled by a third-party who has no interest in influencing the outcome of the transaction in favor the buyer, seller, or any other party.

Unlike some liquor license brokerage firms, we do not own an in-house escrow company, nor do we have an ownership interest in any escrow company. We know that we can serve you better by having a third party handle all escrow responsibilities. This "arms-length" policy avoids any potential conflict-of-interest and allows us to concentrate on what we do best.

An important word of caution: Some escrow companies are owned by unethical liquor license brokers who exert undue influence over their liquor license escrows at the expense of buyers and sellers. A common ploy is for the unethical broker to instruct their own escrow company to present potential buyers and sellers of liquor licenses with escrow documents that mislead them into thinking that they are signing documents to complete an immediate sale when, in reality, they are simply fishing for business.

This can create very serious financial and logistical problems for buyers when they discover that, long after having deposited funds into an escrow and well into their business planning process, the broker never actually had a seller at the advertised price. The broker then attempts to strong-arm the buyer into a more expensive transaction knowing that the buyer will likely give in order to avoid not having their license in time for opening business.

Sellers, on the other hand, will often receive unsolicited escrow documents in the mail from unethical brokers who own their own escrow companies. Seller often sign the escrow documents under common mistaken assumptions:

  • that they are dealing directly with the California Department of Alcoholic Beverage Control—because the escrow company name is deceptively similar to the name of the Department of Alcoholic Beverage Control (or "ABC"),
  • that they pertain to a sale transaction that they are currently negotiating—when they were actually dealing with someone else, and/or
  • that the documents show a legitimate buyer—when, in fact, the "buyer" is really only the corporate name of the broker (followed by "or assignee")—someone who has no intention of actually purchasing their license.

These, and other, ploys are used by the escrow company to build inventory by keeping the seller off of the market long enough to allow the broker to eventually assign the escrow to a real buyer at some point in the future.

The moral of this tale: Always research any escrow company that you are dealing with to make sure that they have absolutely no ownership relationship with your broker. Your broker should be able to maintain a real inventory of buyers and sellers without having to hide behind an escrow operation.

We have a long-standing relationship with several third-party escrow companies who specialize in liquor license transfers. When buying a license, please contact us for a referral to a qualified, independent escrow company.

Learn how to receive full-service escrows at reasonable rates.

How to Purchase a Liquor License

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