What stays my responsibility while a buyer runs my Ontario bar before the liquor licence transfers?

A buyer who has signed to take over an Ontario bar may want to start serving before the AGCO finishes the transfer. The rule that governs this is narrow. Ontario Regulation 746/21, made under the Liquor Licence and Control Act, 2019, says a licensee shall not contract out the operations of the licensed business, and then, in section 157, makes an exception for a person who is applying to receive the transfer of the licence. Inside that exception, the licensee remains liable under the licence. This page covers Ontario only. It explains what that continuing liability means for a seller, what the AGCO needs before the buyer may operate, and what to check with a lawyer before agreeing to it.

The general rule is no contracting out

Section 12 of O. Reg. 746/21 starts from a prohibition: the licensee shall not contract out the operations of the licensed business. For greater certainty, it adds that this does not prevent a licensee from using contractors to perform certain activities authorized under the licence, unless otherwise prohibited by the regulation, or from transferring a licence under Part XI. That matters because a handover agreement that lets a buyer run the bar on the seller’s licence, without meeting the exception, is not an arrangement the regulation allows. A seller who hands over the keys before the AGCO has acted should check whether the exception applies. The exception, in section 157, applies despite section 12. It sits in Part XI, the part of the regulation that deals with licence transfers, and it has its own conditions.

The exception for a transfer applicant

Under section 157, a licensee, other than the holder of a manufacturer’s licence to sell, may contract out the operation of the business to another person who is applying to receive the transfer of the licence. Four conditions apply. No proposal has been issued to suspend, revoke or refuse to renew the licence. No monetary penalty of the kinds the regulation names is outstanding against the current holder. The person has filed a transfer application with the Registrar and paid the required fee. And the licensee has signed an authorization for the applicant to operate the business and filed it with the Registrar. If any of these is missing, the exception is not met.

What stays with you as the seller

Section 157(2) is short: the licensee remains liable under the licence during the period for which the operation of the business has been contracted out. The AGCO’s guide to transferring a liquor sales licence adds that the licence holder and the applicant are both responsible for compliance with all requirements of the licence during the authorization period. The licence is still held by the seller during that period, so ask a lawyer what that liability means if something goes wrong on a night the buyer is running the bar. The AGCO also notes that its inspectors may ask a licensee for proof of a staff member’s certification at any time, so ask who will hold and produce staff training records during the handover.

What the AGCO needs before the buyer can serve

The AGCO guide says the Authorization to Contract Out is submitted with the transfer application and the licensing fee, and that both the licence holder and the transfer applicant must sign both forms. The applicant may not operate until they have received the Authorization to Contract Out from the Registrar. The guide also notes that a Personal Disclosure for the person who will manage the premises must be submitted and processed by the AGCO before the authorization becomes effective and before the transfer applicant may sell and serve liquor on the premises. Sequence the handover date around those steps, not around the closing date alone.

When the arrangement ends, and what can block it

Under section 157(3), the ability to contract out expires on the issuance of the transfer, or on the issuance of a notice of proposal to refuse the transfer. The AGCO’s guide says the authorization also ends if the licence expires, and tells the parties to check the licence’s expiry date and have the licensee renew it if necessary so it does not expire during the transfer period. Its licence-management page adds that an expired liquor licence cannot be renewed. Separately, section 13 of the regulation says that, despite any other provision of the Act or the regulation, the Registrar shall not renew or transfer a licence to sell liquor if the holder is in default of filing a return or paying any tax, interest or penalty assessed under the Retail Sales Tax Act or the Liquor Tax Act, 1996. A seller’s tax default can therefore stop the buyer’s transfer.

Points to settle in the sale agreement

• Ask a lawyer how the agreement allocates responsibility between you and the buyer for what happens while the buyer operates, since the regulation leaves the licensee liable under the licence.
• Confirm who will be the premises manager, and that the Personal Disclosure has been filed and processed before the handover date.
• Check the licence expiry date and who will file the renewal if it falls inside the transfer period.
• Confirm that you have no outstanding monetary penalty: section 157 rules out contracting out while one of the kinds it names is outstanding, and the AGCO guide says a transfer will not be approved, in most instances, if the current licensee has one. Confirm too that no tax return or payment is in default under section 13 of the regulation.
• Write down what happens if the AGCO issues a notice of proposal to refuse the transfer, because the buyer’s right to operate ends at that point.

For the wider question of when a transfer is needed at all, see can I transfer my liquor licence. The AGCO’s licence-management page says a licence can be transferred provided the regulatory requirements are met, subject to the approval of the AGCO.