When A Restaurant Sale Couldn't Wait For The Liquor Licence

The situation

Thao had spent six years as a front-desk supervisor at a hotel, and had watched enough restaurants come and go to know what made one work. Her spouse Shirin ran a small landscaping business on the side, and between the two incomes they had put together enough savings, plus room on a small-business loan, to make an offer on a 40-seat restaurant that had been for sale for several months. The seller, Arman, was retiring after running the place for close to two decades. He held a full liquor licence tied to the business, which mattered — in this restaurant, drink sales during dinner service made up a meaningful share of nightly revenue.

The agreement of purchase and sale was for roughly $460,000, covering the equipment, the lease assignment, the goodwill and the inventory on hand. A deposit of about $46,000 was due on acceptance, with the balance payable on closing. Both sides wanted to move quickly — Arman had a retirement date in mind, and Thao and Shirin were paying rent on a temporary lease elsewhere and wanted to stop paying twice. Thao had immigrated to Canada several years earlier and had worked her way from housekeeping into a front-desk supervisor role, learning the hospitality side of the business from the inside. Shirin's landscaping work brought in steady seasonal income that helped round out what the household could put toward a down payment. Buying an existing restaurant, rather than starting one from scratch, appealed to them precisely because it came with a customer base, trained staff willing to stay on, and — they assumed — a licence that would simply carry over. They came to Treadstone Law about six weeks before the closing date they had already agreed to, wanting the purchase agreement reviewed and the deal closed.

What due diligence found

A liquor licence in Ontario is issued to a specific licensee — a person or a corporation — for a specific premises. It is not an asset that automatically follows the business when ownership changes hands. When a restaurant is sold, the buyer has to apply for their own licence, and the province's liquor licensing authority reviews that application before it can be issued. That review takes several months, not weeks, and it cannot be sped up simply because a closing date has already been set.

Thao and Shirin had not filed anything yet when they came to us, and their closing date was six weeks away. Even filing immediately, the new licence was not going to be approved in time. Arman's own licence, meanwhile, would lapse the moment he stopped operating the business — it could not simply be handed to the new owners at the closing table. That left a real possibility: closing exactly as scheduled, taking over a restaurant that had built part of its reputation and its revenue on alcohol service, and not being legally able to serve a drink for weeks or months while the application worked its way through.

The purchase agreement Arman's side had drafted said nothing about this. It treated the licence the way it treated the walk-in cooler and the point-of-sale terminal — as something included in the sale, full stop. Nothing in it acknowledged that the licence could not transfer on closing day, and nothing protected the buyers for the period in between.

What we did

1. Confirmed the timeline couldn't be fixed, only planned around. We contacted the licensing authority to understand realistic processing expectations for a new application on an existing licensed premises. There was no way to compress it into six weeks. Once that was clear, the question stopped being how to avoid the gap and became how to absorb it without it landing entirely on the buyers.
2. Filed the licence application immediately, in Thao's name as the intended operator. Waiting until after closing would only have pushed the gap further out. Filing early, even knowing it wouldn't clear before closing, started the clock running as soon as possible and gave the eventual approval the best chance of arriving sooner rather than later.
3. Renegotiated the purchase agreement to price in the risk. Rather than delay a closing that neither side particularly wanted to delay, we proposed a holdback: roughly $25,000 of the purchase price would be held in trust after closing, rather than paid to Arman in full. If the new licence was approved within a defined window, the holdback would release to him in full. If it took longer and the restaurant lost alcohol-driven revenue in the meantime, the buyers could draw against the holdback to cover the documented shortfall before the balance went to the seller.
4. Set out exactly how a shortfall would be measured. A vague promise to make up the difference invites disputes later. The agreement defined the loss period as any time between closing and licence approval, and tied the amount to the restaurant's own recent sales records showing the typical alcohol-related share of revenue — so both sides knew in advance what a week without a licence was actually worth in dollars, rather than arguing about it after the fact.
5. Closed on the original date, with the gap now a contract term instead of an open risk. Closing went ahead as scheduled. Thao and Shirin took over the restaurant, operating it as a food-only business until the licence came through, with the financial exposure of that gap already allocated rather than left to be discovered.

The outcome

The new licence took a little over five weeks from closing to reach approval — within the range we had expected, though at the longer end of it. During that stretch, the restaurant operated without alcohol service. Based on the sales records used to set the holdback formula, the gap cost roughly $7,500 in lost revenue tied specifically to drink sales and the food orders that tend to accompany them on a busy dinner shift.

Because the holdback existed, that loss did not come out of Thao and Shirin's working capital in the restaurant's first two months of ownership — the period when a new small business can least afford an unplanned hit. The $7,500 was deducted from the $25,000 held in trust, and the remaining roughly $17,500 released to Arman once the licence was confirmed active. Nobody came out of the gap ahead. Arman received less than the full price on the original schedule he'd hoped for, and Thao and Shirin still ran a restaurant without full service for over a month during a period that mattered for building early customer habits. But the loss was contained to a known, bounded number instead of becoming an open-ended dispute or a cash crunch that put the new business at risk in its first quarter.

The restaurant reopened its bar service in its sixth week under new ownership and has operated without further licensing issues since.

Thao later said the hardest part of those first weeks wasn't the missing revenue, which the holdback had already accounted for — it was watching regular customers ask for a drink with dinner and having to explain why the answer was still no, over and over, for a business she now owned. That is the part a contract clause cannot fix. What the holdback did was make sure the question of whether they could afford to wait this out had already been settled before it ever came up, rather than being decided in a panic in week three.

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