The New York State Liquor Authority issued a revised draft Advisory today labeled “Contracts That Compensate A Third Party Provider (“TPP”) Of Good Or Services With a Percentage of The Licensee’s Sales, Profits or Revenues.”  The draft is available at:

https://sla.ny.gov/system/files/documents/2021/05/proposed_advisory-_contracts_that_compensate_a_third_party_provider-.pdf.

Replacing the failed draft Advisory issued in late 2019, this new version intends to cover all situations where a TPP shares revenue with a retail licensee, such as landlords, managers, delivery services, e-commerce, and internet platforms that provide advertising or accept or forward food and beverage orders, promotion companies, fulfillment centers, and others similarly situated. The draft confirms that in most cases a flat fee arrangement is compliant with the law and would not require any notice or filing with the SLA if it is commercially reasonable in the view of the SLA. Payment to the TPP of 10% or less also does not require any filing. All other TPP percentage agreements require the license holder to co-license the TPP. It contains a number of other notice and filing requirements. This Advisory, if passed, would be retroactive and apply to TPP percentage agreements already in place. The public has two weeks to comment on this draft, and it will be discussed by the SLA at its full board meeting on May 26, 2021.

Long awaited change is finally coming. Governor Cuomo announced today that the 12 a.m. food and beverage service curfew will be lifted for outdoor dining on May 17 and for indoor dining on May 31. In another important development, starting on Monday, May 3, seating at bars will also be permitted. Food must still be ordered with an initial drink order, though the State Legislature is about to eliminate that unpopular requirement ridiculed by many in the industry. The infamous “Cuomo chips” will be no more. The 1 a.m. curfew for catered events where attendees have provided proof of vaccination status or a recent negative COVID-19 test result will be lifted beginning May 17, with the curfew for all catered events set to be lifted May 31.

The American Rescue Plan Act was signed into law in March. This long overdue federal legislation includes a $28.6 billion restaurant revitalization fund to provide direct grant support for restaurants hit by the COVID pandemic. Food service and drinking establishments are eligible for this, including caterers, that are not an affiliated group with more than 20 locations. Publicly traded companies are not eligible. The eligible expenses include payroll, mortgage, rent, utilities, supplies, food and other expenses from February 15, 2020 to the end of 2021 deemed essential by the SBA. For restaurants in operation before 2019, take your 2019 gross revenue, deduct 2020 gross revenue and total amount of PPP loans to determine amount of grant funding. For restaurants that opened in 2019, it is the average 2019 monthly gross revenues times 12, less 2020 revenues and PPP loans. Final regulations are being determined by the SBA.

We have received many inquiries over the past two months regarding temporary retail permits for new liquor license applications. This was due, in part, to a posting by the NYC Hospitality Alliance which some read to say that these retail permits are now available, and that has created confusion. A temporary retail permit is issued in New York while a liquor license application is pending, and allows the holder to purchase (COD only) and sell alcohol as if the holder had a liquor license. However, to be clear, the temporary retail permit is only available within the City of New York if the applicant is filing for a transfer of an existing license and certain specific requirements are met. It is NOT available in New York City for a new license application, that is for space that is not currently licensed and is not a transfer. Outside of the city, if the 500 foot rule does not apply, temporary retail permits are, however, available for new license applications. The change to allow this within city limits has been proposed and strongly advocated by the NYC Hospitality Alliance and others in the industry, but it is not the law currently. We will of course be following this and will update as necessary. Please call us if you have any questions about temporary permits.

On November 12, 2020, the New York State Bar Association is sponsoring a continuing legal education course on “Legal Challenges Facing Restaurants During and After a Pandemic.” The two hour, two credit course begins at 1pm. Topics to be discussed include navigating the ever change labor and employment laws, recent issues regarding restaurant leases and landlord-tenant issues, protecting a restaurant’s intellectual property, and Bernstein Redo, P.C.’s Donald Bernstein will review Covid-related rules relating to liquor licenses and indoor and outdoor seating guidelines. Registration is through the NYSBA’s website:  https://nysba.org/events/legal-challenges-facing-restaurants-during-and-after-a-pandemic/

After stating yesterday that the date for opening indoor dining in New York City was uncertain, Governor Andrew Cuomo just announced this afternoon that it will be permitted as of September 30, 2020. There are restrictions that will be imposed, and he announced some of those today. All indoor dining will be restricted to 25% occupancy. By November 1, the Covid-19 infection rate will be reviewed with the possibility that occupancy could increase to 50%. The Governor warned, however, that the occupancy could also be cut back. The temperature of all patrons must be taken at the door, and at least one person in each party must give contract tracing. No bar service will be permitted; all bars must be used only as service bars meaning patrons will not be permitted to sit at or order drinks at the bar. All restaurants must close by no later than midnight. Restaurants will be expected to limit air circulation and have enhanced purification. The Governor has encouraged the public to report non-compliant restaurants. Accordingly, all restaurants will be required to post the telephone number of the task force that will be overseeing enforcement. This is a welcomed step in the right direction, as the restaurant industry has been reeling from the effects of Covid-19. We will provide updates as necessary.

Governor Andrew Cuomo and the New York State Liquor Authority issued new rules on outdoor dining in order to halt the spread of COVID-19. These more strict rules are in response to what is perceived to be non-compliance with social distancing and complaints about outdoor space turning into bars and street parties. The Governor ordered a “three strikes you’re out” initiative whereby any restaurant or bar that holds an on premises liquor license will have that license summarily suspended upon the occurrence of a third violation of the outdoor dining rules. Egregious conduct may result in a suspension before the third violation. The State Liquor Authority also modified its earlier rules which only required the food be available for sale for take-out, delivery, or outside dining. The new Guidance posted on the SLA website today requires that food be sold with an initial drink order by every patron. This is required for take-out as well. The minimum food requirement is salads, sandwiches and soups. A shareable food item is permitted if it is sufficient to serve the number of people in the party. Licensees are also required to ensure that no patron opens any closed container of alcohol, beer or wine within 100 feet of their premises. These new rules are all posted on the SLA website. https://sla.ny.gov/guidance-requirement-licensees-premises-service-privileges-serve-food-alcoholic-beverages

With outdoor restaurant use in New York City to be permitted as part of the Phase 2 reopening, which expected to be in late June or early July, the New York State Liquor Authority announced a new Guidance, effective June 4, 2020, to allow a restaurant to add available outdoor space to its license on a temporary basis. Generally, new space can only be used after approval of an Alteration Application, which can take many months.  The new Guidance however requires no prior SLA approval in most instances. The licensee is required to file floor plans for the new outdoor space within five days. The Guidance requires that any consumption of food and/or beverage must be in outdoor, open-air areas, without a fixed roof (besides a temporary or seasonal awning or cover); food and/or beverages can only be consumed while seated at a table, bar, counter, or similar contrivance; all tables must be 6 feet apart; any seat at a bar, counter, or similar contrivance must be 6 feet apart; all staff of the licensed business must wear face masks at all times; and all customers must wear face masks at any time they are not seated. If, however, the existing license has a restriction against use of outdoor space, whether by agreement or stipulation with local municipality or the local community board, then use of the outdoor space must be approved in writing by that party. Moreover, if a permit is required under any municipal law by any other agency, that will also be required. The City Council is working now on legislation to expedite the process with the Department of Transportation and the Department of Consumer Affairs for permits to permit the use of public space.

The City Council took decisive, if temporary action this past week to assist the restaurant industry during the current COVID-19 pandemic. As reported here on April 15, 2020, the Council was considering capping third party delivery fees at 10% of the order. The final bill that passed modified that proposal under pressure from Grubhub and others. Third party providers cannot charge more than 5% for orders placed, and up to an additional 15% as a delivery charge. While more than the initially proposed 10% cap, it is less than the 30-40% that has been charged. Penalties for violations are steep, up to $1,000 per day.

The Council also sought to provide relief for restaurants that cannot afford rent during the current closure period, which is pretty much everyone. If a commercial tenant is in default in rent between March 7, 2020, and a specified date after the closure orders are lifted, a landlord cannot enforce any personal lease or rent guaranty for arrears during that period. There are also a number or anti-harassment measures enacted. The rules on personal guaranties leave open questions, and are not a long term solution. They do however give restaurants some breathing space and can be used as an entry point to negotiate with a landlord. How effective these rules will be remains uncertain, and they are likely to be challenged in court. We will continue to monitor these and other developments.

Even before the coronavirus, third party online delivery platforms were the target of proposed regulation. Some delivery apps, such as DoorDash, Grubhub, Postmates and Uber Eats, take between 10% to as much as 40% of delivery orders. The New York State Liquor Authority last year began formulating proposed limits on those profits. That has not been finalized. And a bill was proposed in the New York City Council earlier this year to limit a delivery platform’s share to 10%, which is still pending. Since the virus outbreak, the City of San Francisco has restricted their revenue share to 10%, and there is pressure on Mayor de Blasio to do the same. Adding to the pressure, on April 13, 2020, three New York residents filed a class action lawsuit in the U.S. District Court in Manhattan (Davitashvili v. Grubhub, Inc.) against four of the largest online meal ordering platforms seeking injunctive relief and damages under federal antitrust laws. The suit alleges that the delivery apps, which have become part of everyday life, force restaurants to charge higher prices for meal delivery items because of the defendant’s massive fees. The agreement restaurants are required to sign with the delivery services controls pricing both for in house dining and delivery, making it impossible for restaurants to compete by providing their own delivery systems. This, the restaurants say, cuts into their already thin profit margins which are at about 2% to 6%, and decreasing. The numbers become even worse as more than half of consumer restaurant spending will be off premises ordering rather than on premises dining. The suit also claims that the delivery apps monopolize the market for delivery workers. With the government ordered shut down of in house dining last month, restaurants are relying almost exclusively on delivery to survive. The third party delivery fees and their anticompetitive effects render restaurant profits negligible, and, the suit claims, “have contributed to demise of American restaurant culture.”