PROPOSED RULEMAKING
LIQUOR CONTROL BOARD
[ 40 PA. CODE CH. 3 ]
Management Contracts
[45 Pa.B. 6698]
[Saturday, November 21, 2015]The Liquor Control Board (Board), under the authority of section 207(i) of the Liquor Code (47 P. S. § 2-207(i)), proposes to amend §§ 3.141 and 3.143 (relating to management contracts; and Board approval and licensee responsibility).
Summary
In recent years, the Board has encountered a growing number of management contracts, that is, agreements between a licensee and a management company to operate, manage or supervise all or part of the operation of the licensed premises. These agreements, which can involve multilayered business organizations with fees and profits being exchanged among the constituent parts of the licensee and management company, are expressly permitted by the Board's regulation in § 3.141(a) and sections 102 and 447(g) of the Liquor Code (47 P. S. §§ 1-102 and 4-477(g)). In fact, ''management company'' is defined in section 102 of the Liquor Code as an entity that operates, manages or supervises all or part of a licensed business on behalf of a licensee. However, § 3.143(b)(2) currently precludes a management company from having a pecuniary interest in the licensed business despite the fact that management companies are held to the same standards as a person involved in the license. In response to comments from the regulated community, the Board believes amendments are needed to recognize the reality of the modern business environment in which licensees enter into negotiated management agreements that, while not structured as a formal partnership or joint venture, may involve the sharing of profits and control. The Board further believes that proposed amendments will be more consistent with the statutory definition of ''management company'' than the regulations.
This proposed rulemaking eliminates the blanket prohibition of a pecuniary interest being held by a management company in § 3.141(d) as well as a similar reference in § 3.143(b)(1). In view of the statutory definition of ''management company,'' the requirement that a management contract reserve to the licensee the capability to direct its own business is proposed to be deleted from § 3.141(b).
Sections 404 and 436 of the Liquor Code (47 P. S. §§ 4-404 and 4-436) provide that only the applicant for, in the case of section 404 of the Liquor Code, the issuance, transfer or extension of a hotel, restaurant or club liquor license, or, in the case of section 436 of the Liquor Code, the issuance or transfer of a distributors', importing distributors' or retail dispensers' license, may have a pecuniary interest in the license. However, the Board believes this provision was not meant to prevent a management company from having control and receiving a share of the profits of the licensed business when the management company is on the license application, particularly given the fact that management companies are required to meet the same eligibility criteria as the applicant under section 470(a.1) of the Liquor Code (47 P. S. § 4-470(a.1)), that is, reputation, criminal history, and current or prior involvement in other licenses, and particularly since ''management company'' is statutorily defined as an entity that manages or operates a licensed business on behalf of a licensee. The proposed amendments will prevent placing an undue burden on the formation and reporting of management contracts by the regulated community while remaining consistent with the Liquor Code by having the management company listed on the application, investigated by the Board's Bureau of Licensing and subject to refusal by the Board if the management company would not qualify for the license in its own name.
Affected Parties
The affected parties include present and future licensees that contract with management companies to operate licensed businesses.
Paperwork Requirements
The proposed rulemaking will not require additional paperwork. License applicants are required under § 3.142 (relating to reporting) to identify management companies on license applications, and current licensees are required to notify the Board in the event they enter into management contracts.
Fiscal Impact
There is no anticipated adverse fiscal impact from this proposed rulemaking. This proposed rulemaking is meant to ease the burdens of compliance for the regulated community. Therefore, by making its regulations more accommodating to businesses, the Board anticipates the proposed amendments will have a positive fiscal impact on licensees as well as the Commonwealth.
Effective Date
This proposed rulemaking will become effective upon final-form publication in in the Pennsylvania Bulletin.
Public Comments
Interested persons are invited to submit written comments about the proposed rulemaking to Rodrigo Diaz, Executive Deputy Chief Counsel, or Justin Blake, Assistant Counsel, Office of Chief Counsel, Liquor Control Board, Room 401, Northwest Office Building, Harrisburg, PA 17124-0001 within 30 days after publication in the Pennsylvania Bulletin. Comments submitted by facsimile will not be accepted.
Public comments are posted on the Independent Regulatory Review Commission's (IRRC) web site. Personal information is not redacted from the public comments received.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on October 29, 2015, the Board submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to IRRC and to the Chairpersons of the House Liquor Control Committee and Senate Committee on Law and Justice. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey any comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Board, the General Assembly and the Governor of comments, recommendations or objections raised.
TIM HOLDEN,
ChairpersonFiscal Note: 54-86. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 40. LIQUOR
PART I. LIQUOR CONTROL BOARD
CHAPTER 3. LICENSE APPLICATIONS
Subchapter M. MANAGEMENT CONTRACTS § 3.141. Management contracts.
(a) A licensee may contract with another person to manage its licensed premises.
[(b) A management contract must reserve to the licensee the capability to direct its own business.
(c)] (b) A management contract must be in writing, and a copy shall be maintained on the licensed premises where it shall be available for inspection by the Board.
[(d) A management contract may not give a pecuniary interest to a management company.]
§ 3.143. Board approval and licensee responsibility.
(a) The Board will notify the current licensee or applicant, in writing, of the Board's decision to either approve or refuse the involvement of a person providing services as a management company.
(b) The Board may refuse the involvement of a person providing services as a management company. The Board's refusal may be based upon [the following:] facts upon which the Board could refuse a person's involvement in the license which may include reasons specified in section 4-470(a.1) of the Liquor Code (47 P. S. § 4-470(a.1)) such as reputation, criminal history, and current or prior involvement in other licenses.
[(1) The creation by the management contract of a pecuniary interest in the license.
(2) Facts upon which the Board could refuse a person's involvement in the license which may include reasons specified in section 4-470(a.1) of the Liquor Code (47 P. S. § 4-470(a.1)) such as reputation, criminal history, and current or prior involvement in other licenses.]
(c) The licensee's use of a management company will not affect the licensee's responsibility for violations of the Liquor Code or this title.
[Pa.B. Doc. No. 15-2049. Filed for public inspection November 20, 2015, 9:00 a.m.]
No part of the information on this site may be reproduced for profit or sold for profit.This material has been drawn directly from the official Pennsylvania Bulletin full text database. Due to the limitations of HTML or differences in display capabilities of different browsers, this version may differ slightly from the official printed version.
