How to buy a restaurant in Ontario: licences, ownership rules and what transfers

A restaurant sale in Ontario is not one approval but two, run by different bodies under different laws. The Alcohol and Gaming Commission of Ontario (AGCO) licenses liquor sales and decides whether a licence moves to a new owner. Food safety is enforced locally under the Health Protection and Promotion Act and Ontario Regulation 493/17 (Food Premises), by the medical officer of health and public health inspectors of the board of health for the area. This guide is written for the buyer. It covers what the AGCO’s own guide says about transfers, what the food premises regulation requires of whoever operates the kitchen, and what to ask for before closing. For the wider picture, start with buying a restaurant in Canada.

When the liquor licence has to be transferred

The AGCO’s guide to transferring a liquor sales licence says a transfer is required if there is a prescribed change of ownership of a business carried on under a licence, if the licensee changes, or if a different person wishes to acquire the licence. A buying structure that leaves the licensee unchanged can still trigger the first limb, so check the AGCO’s guide, rather than relying on the seller’s view, on whether the particular ownership change is a prescribed one. The guide also says that when an individual ceases to be an officer or director of a corporate licensee, the licensee may continue without a transfer if it gives the Registrar notice within 30 days after the change.

Operating while the transfer is pending

A buyer who wants to run the restaurant before the transfer is issued needs an Authorization to Contract Out. The AGCO says the applicant may not operate until the Registrar has issued it, and that a Personal Disclosure for the person who will manage the premises must be submitted and processed first. The licence holder and the applicant are both responsible for compliance during that period. The authorization expires when the licence is transferred, when the licence expires, or when a notice of proposal to refuse the transfer is issued. The AGCO adds that a transfer will not be approved, in most instances, if the current licensee has an outstanding monetary penalty or the recipient would not be eligible for a licence.

When the same people stay in place

The AGCO’s guide says the Registrar may develop a simplified application process for a transfer where the principal individuals involved in the licensed business remain the same after the change. Its examples include a licence moving between a sole proprietorship and a corporation, between a partnership and a corporation, or from one corporation to another. That route turns on the same people staying in place, so a purchase by a new owner should not count on it. The guide also says both the licence holder and the transfer applicant must sign the Transfer Application and the Application for Authorization to Contract Out, which makes the seller a necessary participant in the buyer’s paperwork. Ask a lawyer how the purchase agreement should secure the seller’s signature and cooperation, and by when.

What the food premises rules require of the operator

Ontario Regulation 493/17 places duties on the operator of a food premise. Every operator of a food service premise must ensure that at least one food handler or supervisor who has completed food handler training is on the premise during every hour it operates. An operator must also ensure that the results of any inspection by a public health inspector are posted in accordance with the inspector’s request. As the new operator, those duties become yours on day one, so confirm who on the existing staff holds the training and what the last inspection said.

Renovations need written approval first

If your plan for the space changes the footprint, the regulation matters before you spend. Under Ontario Regulation 493/17, no operator of a food premise may alter the floor space, or the number of toilets or washbasins in a sanitary facility, without first receiving written approval from a public health inspector. The Health Protection and Promotion Act requires each medical officer of health to inspect or cause the inspection of the health unit he or she serves. Section 16 of the Act also requires every person who intends to commence to operate a food premise to give notice of that intention to the medical officer of health of the health unit where it will be located. Ask the local health unit how it treats a change of operator, and whether it wants that notice from you before closing.

Documents to ask the seller for

• The liquor sales licence itself, any conditions on it, and its expiry date, since the AGCO advises checking that the licence will not expire during the transfer period
• Written confirmation from the AGCO that no monetary penalty is outstanding against the current licensee
• The most recent public health inspection results and any correspondence with the health unit
• Any written approvals from a public health inspector for past changes to floor space, toilets or washbasins
• Food handler training records for the people who will be on shift

BDC’s guide to due diligence lists licences and permits among the legal issues to review when buying a business. Browse restaurants for sale and the Ontario restaurants for sale pages to see what is listed.