Restaurant Law Blog

1.  Buying the Assets vs. Buying the Company

Buying a business can be structured as an asset sale or as the purchase of an ownership interest in the legal entity that owns the restaurant. There are critical differences between these two options which come into when dealing with the State Liquor Authority, Sales Tax Department and a myriad of vendors.  Generally speaking, if you only buy the assets of a restaurant you will not be responsible for the prior owner’s liabilities unless you specifically agree to assume them.  This is true with the exception of the prior owner’s sales tax liability, if any, for which you must obtain a waiver from the tax department.

Despite this, sometimes it is in your best interest to buy the company itself, even though the seller’s liabilities might remain. This is particularly true when you intend to apply for a liquor license in a difficult community in New York City.   Only by reviewing all of the facts can you best determine how to structure your deal.

2.  What Assets are Included

Every restaurant and bar has a myriad of assets, both tangible and intangible. Some assets are owned outright while others are frequently leased (e.g. dishwashers, soda machines, POS systems).  Be sure to identify each and every asset you are acquiring in the purchase and which assets the Seller has no right to transfer.  If the Seller is leasing equipment, does he/she expect you to assume his lease agreement and if so, what are the terms of the lease.  No buyer wants to close on a purchase only to discover that the many of the assets have been removed from the restaurant because the seller was under a different impression as to what was  being sold.

I came across this list. “The Top 15 Reasons Why Restaurants Fail”:

1. Lack of experience, 2. Lack of capital, 3. Poor locations, 4. Inventory, 5. Equipment, 6. Poor credit practices, 7. Personal expenses, 8. Premature expansion, 9. Bad attitude, 10. Too many expenses, 11. Poor collections, 12. Low sales, 13. Inventory mismanagement, 14. Competition, and 15. Crime

I’m not sure that I agree with the list entirely. Let me start by saying that I am not a restaurant owner. I am a restaurant attorney. So, I may be wrong (and often am) but many of my clients who have sold their business express different reasons as to why their business failed. This is what I’ve gathered to be their top reasons why restaurants fail:

(1) Lack of Concept. A successful restaurant needs a clear concept. Owners that can’t describe their concept beyond the food that they prepare seem to drift from idea to idea. When an idea fails, they change again. They try to appeal to the greatest audience but in doing so, become too general and possess no identity that lets them stand out from their competitors.

(2) Family. The support of one’s family cannot be underestimated. My clients whose families are supportive of their endeavor tend to succeed. However, this seems to be a double edge sword. Supportive families usually mean a good family structure. I find that many of my clients have difficulty in balancing work/life. They see all that their family is doing to support them, and they in turn, want to be with their family. Running a restaurant is hard and very time consuming and does not leave much time for one’s family. Some owners find this very difficult and when they try to carve out too much time for their family, their business can sometimes suffer. My clients that most often succeed seem to be single or divorced. Now I’m not suggesting that families are bad for business (quite the opposite) but balancing family and work seems more difficult for restaurant owners given the time requirements they want (and need) to dedicate to both.

When the State Liquor Authority (“SLA”) commences an investigation, they can do so in one of many ways including:  (a) on-site inspections; (b) on-site undercover investigations by SLA Investigators and other law enforcement agencies; (c) a review of reports and investigations by the police and regulatory agencies; and (d) speaking to witnesses and gathering evidence of suspected violations.

The information is then evaluated to see whether there is sufficient evidence to initiate charges against an establishment. If there is sufficient evidence, the SLA issues a Notice of Pleading that describes the violations that are being charged.  It is at this point where the license holder enters a plea of not guilty, no-contest, or conditional no-contest. 

If you entered a restaurant in NYC prior to 2002, the hostess was quick to ask two questions: “How many?” and “Smoking or non-smoking?” After a major crackdown that banned tobacco in all public places including bars, restaurants, parks, sports venues and subway stations, one question was eliminated from the hostess’ standard repertoire and slowly but surely smoke cleared from all eateries throughout the city. Over the past few years, however, cigarette smoke has been replaced with the vapor of e-cigarettes.

Although e-cigarettes have been hailed as a safe alternative to the tobacco and tar found in traditional cigarettes, many opponents of “vaping” (the act of smoking an e-cigarette) fear the long-term health implications, arguing that these have yet to be studied. In response to these concerns, on his second to last day in office, former NYC Mayor Michael Bloomberg extended the Smoke Free Air Act to include e-cigarettes, prohibiting the use of these battery powered devices in all public places, including restaurants and bars. This ban goes into effect later this week and violators may be subject to hefty fines.

Celebrity Chef Gordon Ramsay Faces a Lawsuit by a Longtime Partner

Opening a bar or restaurant, or any business for that matter, in New York City has the potential to be expensive and risky, which can sometimes act as a deterrent for individuals who want to start a company of this kind on their own. Instead, partners and investors may be brought in to pool resources and talent. Restaurant partnership agreements vary greatly depending on each individual business, and disputes, misunderstandings and even potential cases of fraud can arise over such contracts. A recently filed lawsuit by an investor against celebrity chef Gordon Ramsay serves as a case in point.

Several years ago, Ramsay opened a Los Angeles restaurant called The Fat Cow with financial backing by Rowen Seibel, who had already worked with Ramsay on the opening of several other restaurants, including Gordon Ramsay Steak, Gordon Ramsay Pub & Grill and BurGR, all in Nevada. Seibel likely had little cause to anticipate a conflict, but quickly realized he wanted to pursue legal action.

As of April 1, New York City restaurant workers have a financial safety net if they have to miss work because they're sick or have to care for a sick family member.

This is great for the employees receiving this type of compensation for the first time, but, how will the new sick leave law affect NYC restaurant owners?

Shiv Puri, owner of Manhattan's Bombay Sandwich Company, was concerned about the cost when he first heard about the law. However, after calculating costs and receiving more information, he is now confident about this new measure ,The New York Times reported. Puri said his eight employees were excited about this news, he said "It’s the law and it’s the right thing to do. It won’t bust the bank. It won’t put us (the business) in jeopardy.”

Puri pays his workers $10 an hour, which is $2 more than the state minimum wage rate, and considers himself a progressive employer, but as we stated, he was worried that the newly enacted regulation would negatively affect his business.

Some important things to note about NYC sick leave law:

Many media outlets jumped on a (false) report that brunch deals which include unlimited drinks within a certain time period are illegal in New York City. This news shocked New York's die-hard brunch fans, but the panic quickly ceased when the media noted shortly thereafter that the deals aren't actually illegal. So, New York City brunch-goers are free to have their fill of weekend afternoon mimosas after all. More importantly, the city's restaurants aren't in violation of state law when they host brunch specials that include alcoholic beverages.

What caused this so-called panic? The New York Hospitality Alliance posted a reminder on its website recently that simply read: “NYC restaurant and nightlife operators should familiarize themselves with the law," in reference to N.Y. 117-A, which prohibits “selling, serving, delivering or offering to patrons an unlimited number of drinks during any set period of time for a fixed price.”

This law was created more than five years ago in response to complaints that restaurants and bars were over-serving patrons, leading to extreme intoxication, Business Insider reports. 

If you play music in your restaurant (even as background music through your iPod) without the appropriate music distribution license, you may be fined up to $30,000 for each song played.  Even playing songs that you legally purchased is considered to be against the law because there is a difference between purchasing music for “personal use” versus “commercial use.” In recent weeks, a few of our clients have received letters from ASCAP (the American Society of Composers, Authors, and Publishers) – a Performing Rights Organization that represents thousands of artists. The other well-known Performing Rights Organizations include SESAC (the Society of European Stage Authors and Composers) and BMI (Broadcast Music, Inc.).

A New York City lawmaker is sponsoring a bill that will require all New York City bars and restaurants to install carbon monoxide detectors. Coincidentally, City Councilman James Vacca co-sponsored this legislation several weeks ago, but he is now seeking to expedite it after it was reported that a leak at a New York restaurant last week resulted in the death of the manager and sickened more than two dozen other people.

Vacca is hoping to prioritize the bill, aiming for the council committee to pass it as soon as possible. The councilman said this potential law should never have been omitted, as restaurants and bars present the same dangers in terms of carbon monoxide poisoning as private homes. New York State fire codes only require carbon monoxide detectors in places where people sleep.

Did you know that a majority of New York City restaurants break the law every time a patron walks through their doors?

Well, neither did many city restaurateurs.

Until now, it was illegal for restaurant staff to automatically serve customers water.

Since at least as far back at 1991, eateries in the city of New York have been legally required to ask every one of their customers if they would like water before a glass is poured for them. This regulation was enacted when the city was facing a drought emergency in the early nineties, but has barely been enforced since then.

More than 10 years after the legislation was enacted, in 2002, the city experienced another drought emergency and the Department of Environmental Protection issued warnings to 14 restaurants.  

The New York Post recently reported that Health Department violations issued against restaurants were upheld 97% of the time in administrative hearings. While this statistic is certainly outrageous, it may not come as a surprise to anyone in the restaurant industry. One likely explanation for this has to do with the Department of Health’s “settlement offers” which allow restaurant owners to accept a lower fine rather than attempt to fight the violations. City Council Speaker Christine Quinn has already implemented changes that will lower fines for restaurant owners, and Mayor-elect Bill de Blasio has expressed the need for change in the existing inspection system. Hopefully, a true overhaul is underway.