liquor laws complicate retail leases

New B.C. liquor laws complicate retail leases

Business opportunity and liability risk foreseen with wider scope to serve alcohol
Tuesday, February 21, 2017
By Barbara Carss

Retailers in British Columbia could soon be adding another dimension to their in-store offerings. As of late January, new amendments to the provincial Liquor Control and Licensing Regulation allow all types of businesses to apply for a liquor license — potentially giving physical store locations an extra perk to counter online competition, but also increasing landlords’ risks under the Occupiers Liability Act.

Flexibility for a broader field of license holders is part of a package of modernization measures promoted as both a consumer service improvement and a vehicle for economic development. A Jan. 22 media release from B.C.’s Ministry of Small Business and Red Tape Reduction identifies barbershops, salons and bookstores as examples of enterprises that will have “opportunities to generate new revenue” while other analysts see spinoff benefits for retailers’ image and the more esoteric concept of the shopping experience.

“Particularly for malls, BIAs (business improvement areas) or lifestyle retailers, I think this is an opportunity to up the game,” says John Williams, senior partner with the retail consulting firm, J.C. Williams Group. “This could be used very strategically.”

The strategy is likely to come with added insurance costs and security concerns, however — perhaps along with some juggling of competing interests. Landlords or condominium strata councils may encounter pushback from tenants or unit owners who are not happy to welcome licensed establishments to the business mix, or, contrarily, opposing landlords could have limited ability to prevent a resident business from introducing alcohol to its product lines.

“If you want to discourage it, there are conditions you can put into the lease of incoming tenants. For existing tenants, there is not going to be much in the lease to address it because we have rarely contemplated these kinds of issues before,” says Peter Anderson, a shareholder and specialist in commercial leasing with Vancouver-based Boughton Law.

Most relatively sophisticated retail leases will have mechanisms to allocate new costs for security and insurance to the tenants who engender them, but other standard use clauses — dictating that a space is to be used for the sale of clothing, for example — could be open to interpretation if alcohol sales are legal and common in the industry. “I think the tenant could potentially argue this is within its permitted use,” Anderson reasons.

Meanwhile, existing liquor license holders with contracted exclusive rights could put a brake on any new competition or create other conundrums for landlords.

“If you have a wine bar in the mall, it may have an exclusive right to provide alcohol for on-premises consumption. So what happens if the hair salon next door starts offering complimentary glasses of wine to customers?” Anderson muses. “The wine bar might claim for breach of its exclusive right. I don’t know what the solution is going to be.”

More licensed establishments will also heighten the importance of vigilance since landlords have a duty of care under the Occupiers Liability Act making them responsible for the safety of occupants, visitors and trespassers on the property. Owners/managers will need to monitor their tenants’ legal compliance and have documentation to demonstrate their efforts.

Beyond merely ensuring that tenants actually have a permit to serve alcohol, landlords should ask for proof that any staff serving alcohol are of legal age and have completed the provincially mandated training program for employees who dispense liquor. “That would be very important, particularly if there was a claim in the future,” Anderson advises.

Nevertheless, even if the new liquor laws complicate retail leases, few real estate or retail analysts would characterize that as a major business obstacle. “Anything that helps the retailer in terms of ensuring they stay in business and pay rent over the long term is good for the owner,” observes Keith Reading, research director with Morguard.

The market is newly open and still untested, but John Williams sees in-store beverages as a way for retailers to differentiate themselves and play to consumer demand. He points to successful examples in the United States and Europe, such as the Westfield Mall in London, where patrons can find refuge and refreshment at a champagne bar in the concourse.

Indeed, drink is arguably the instinctive companion to one of shoppers’ leading preoccupations. “Today, food is the hot anchor commodity; it has replaced fashion,” Williams maintains.

“How do properties stay relevant? That’s the big issue,” he adds. “How do they stay relevant and compete with the lambasting they are taking from web-based retailers? They have to offer a better experience. Something like this would greatly augment the experiential component of your store.”

Barbara Carss is editor-in-chief of Canadian Property Management.

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