Knowledgebase-Beer Permits for Contiguous Serving Areas and Use of One Permit for Two Businesses


Information Product

Title:Beer Permits for Contiguous Serving Areas and Use of One Permit for Two Businesses
Summary:MTAS was asked about beer permits for contiguous serving areas and the use of one permit for two businesses located in the same building.
Original Author:Ashburn, Melissa
Co-Author:
Product Create Date:05/04/2011
Last Reviewed on::05/04/2011
Subject:Beer--Licenses and permits; Beer--Licenses and permits--Municipal ordinances
Type:Legal Opinion
Legal Opinion: beer_permits_public.docx

Reference Documents:

Text of Document: May 4, 2011

Re: Questions about beer ordinance and laws governing sale of beer

Dear Mayor,

You have asked me to review materials including the City’s beer ordinance and proposed amendments, and provide legal opinions on certain issues. Below are your questions sent to me by fax on May 4, followed by my answers:

    1. Attached is a diagram of the business in question. During the past administration this business was issued a single permit to operate a convenience store as well as a restaurant in the same building under one single permit. Due to different rules for operation of each business, our present administration feels this is in violation of our beer ordinance as well as state law.

Response: The business as represented in the diagram provided may legally operate both a convenience store and restaurant on the same premises, under both state law and the City’s ordinance. The permit was issued under an older version of the beer ordinance, which provided for a “Class D” permit for on-premise and off-premise consumption, in section 8-210(4). It was legally issued at that time. The ordinance was subsequently amended and such language about a dual purpose permit was removed, so the current beer ordinance does not contain language indicating a business owner may hold a permit for both on-premise and off-premise consumption. However, the state law still preserves the right of this business owner to conduct both types of sales at the same location, and the City may not deny that right.

Tennessee law governing beer permits contains the following provisions:
    (4) Where an owner operates two (2) or more restaurants or other businesses within the same building, the owner may in the owner's discretion operate some or all such businesses pursuant to the same permit.
    (5) A business can sell beer for both on-premises and off-premises consumption at the same location pursuant to one (1) permit. T. C. A. 57-5-103(a).

The state law therefore grants this business owner the right to operate both a convenience store selling beer for off-premises consumption and a restaurant selling beer for consumption on-premises, under the same beer permit and in the same building. The City may not by ordinance deny this right.
    2. The business in question also operates both businesses under one cash register, which we feel allows the business to violate the 51% sales of beer vs. food requirement as stated in the beer ordinance. Is this legal and can we change that?

Response: It is legal and there is no method by which the City can change the method by which restaurants are granted the right to sell beer. The City’s ordinance does not contain any requirement that businesses must keep separate cash registers. The ordinance rather requires that restaurants selling beer:
    must show that fifty-one percent (51%) of their gross sales each quarter are from food and shall submit annually a statement certified by a public accountant that they are in full compliance with this section and that fifty-one percent (51%) of the gross sales of each previous four quarters were from food. Section 8-207(3).

It is my understanding that the permit holder in question has submitted this financial statement. Unless the City is prepared to assert a fraud claim against the accountant who signed the statement, the City must accept the filing of the paperwork and consider the permit holder to be in compliance with the ordinance. Although the City may amend the beer ordinance to change the above language, if such amendment results in this permit holder being denied the right to renew his permit, the City will have to show a substantial public interest is served by the amendment in order to prevail in court. In my opinion, as this permit holder has not been charged or convicted for crimes associated with the sale of beer, and the premises have not been a focal point of illegal activity, the business owner would prevail if he sues the City for refusal to renew his permit. There does not appear to be a public health and safety concern of such scope as would justify an action by the City to refuse to renew this business owner’s permit. If the City does change the ordinance to require a larger percentage of sales for food, or which requires a separate cash register for each business, in my opinion the City will lose any legal challenge made to such ordinance requirement and will be ordered by the court to issue the permit in any event.

    3. If the restaurant is closed to business can beer still be consumed on the premises in the bar area or patio per diagram?

Response: If the restaurant is closed, the convenient store may not sell beer for consumption on the premises. However, the owner or others may consume beer on the premises if they have not purchased it from the convenience store, and are not “customers.” The law governing consumption of beer on the premises addresses the transaction whereby the beer is sold to a customer and consumed at the location. The convenience store operates an off-premises beer business, selling beer to be consumed off-premises. If the restaurant is closed, customers should not be permitted to buy beer from the store and drink it on premises, but the exact facts or circumstances of the situation make this a hard activity to prosecute. It is legal for the store owner to allow people to drink beer on his premises when the restaurant is closed, if they did not purchase that beer from his store. This is an activity known as “brown bagging,” and there is no state law prohibiting a business owner from allowing people to bring their own beer and drink on their premises. It is viewed as a private property right issue, not a commercial transaction. So if the City can prove that persons drinking beer on the premises when the restaurant is closed bought the beer form the convenience store, then it is a violation of the ordinance governing off- premises sales by the store. But if these persons bought the beer elsewhere such activity is not illegal or in violation of the beer ordinance.

The City may have the authority to pass an ordinance prohibiting brown-bagging beer in restaurants that sell beer, in which case this conduct may be in violation of that ordinance. But I suspect the City has no such ordinance, as they are rather rare. Unless such an ordinance exists, persons may bring their own beer to the premises and consume that beer when the restaurant is closed. It is still a violation of the ordinance, however, for any person to buy beer from the store and consume it on premises when the restaurant is closed.

    4. Would the bar and patio as shown in the diagram be considered contiguous to the restaurant?

Response: Yes, under our state law these areas are considered contiguous and may be used as serving areas. According to the diagram provided, the bar and patio area are located on the other side of the building, with the convenience store between the restaurant and such areas. The state law which gives permit holders the right to serve beer in contiguous serving areas states:
    A permit shall be valid for all decks, patios and other outdoor serving areas that are contiguous to the exterior of the building in which the business is located and that are operated by the business… T.C.A. 57-5-103(a)(3)(B).

By using the words “contiguous to the exterior of the building in which the business is located,” the state law makes this situation legal. The restaurant is in the same building and it does not matter under the law if the store is located between the restaurant and the outdoor serving area. Such areas are still “contiguous to the exterior of the building” in which the restaurant is located.

The City may in the future adopt an ordinance requiring that outdoor serving areas be screened from public view, by fencing or landscaping. I do not know if such a provision would be enforceable against this permit holder, however. You have not told me the name of this business, but I suspect it is one of those businesses named in section 8-208(2) of the beer ordinance, wherein businesses holding beer permits when this ordinance was adopted are essentially “grandfathered.” This section of your ordinance states after naming such permit holders “The applicable(sic) of this ordinance to the foregoing shall be in accordance with the statutory and case law of the State of Tennessee.” This sentence essentially means if the state law permits an activity, it will be allowed by these businesses. Additional requirements cannot be imposed by ordinance on these permit holders, due to that sentence. The City may alter the ordinance and remove that sentence and impose conditions such as screening, but it is questionable whether the City can force the permit holder to comply. I think the language in your current ordinance may have tied the City’s hands when it comes to dealing with this permit holder.

You also forwarded proposed ordinances to me for consideration. The proposed ordinance amending section 8-207 of the beer ordinance by stating that a permit holder having both an on-premises permit and off-premises permit may not operate such businesses in the same physical location is a violation of the state law and should not be adopted. State law specifically grants permit holders the right to operate 2 businesses at the same location, and the City may not by ordinance remove that right. The proposed ordinance which prohibits the loitering by, or presence of, persons under the age of 21 in places where beer is sold at retail for on-premises consumption is not enforceable. Restaurants serving beer cannot be punished for having people younger than 21 on their premises, as there is no state law making this a crime. This same ordinance seeks to prohibit the consumption of beer in public places, including a place “in view of the public.” The City cannot prohibit business owners or private property owners from drinking on their property in a place where such persons may be seen by the public. It is a private property right matter, and there does not appear to be a pressing public health and safety purpose served by this language. I therefore advise against adopting either of these 2 proposed ordinances.

I hope this information is helpful and clears up the questions surrounding this situation. Please let me know if you need further assistance in this matter.

Sincerely,

Melissa A. Ashburn
Legal Consultant

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this database.