When does California ABC require escrow?

California ABC’s current License Application Requirements state that when purchase price or consideration is involved in the transfer of a business operated under a retail license, the parties must establish escrow with a person or entity that is not a party to the transfer before filing the transfer with ABC.

ABC also states that the full amount of the purchase price or consideration must be placed in escrow and that the escrow agreement must provide for payment only after ABC approves the license transfer.

What counts as consideration?

The word is broader than cash. California ABC identifies cash, checks, promissory notes and other things of value. Consideration can be connected to the liquor license itself or to inventory, fixtures, leasehold interest, real property, goodwill, a covenant not to compete or other property associated with the licensed business.

What if the transfer has no consideration?

ABC’s instructions for Form ABC-227 say that if no present consideration is involved in the transfer, the total consideration can be shown as zero and an escrow is not required. The structure of the transaction still matters, and the parties should confirm the applicable filing requirements with ABC.

Are there exceptions?

Yes. California law includes exceptions for certain transfers, including some fiduciary transfers. Because an exception depends on the legal nature of the transaction, it should not be assumed merely because the parties are related or no cash is being paid at closing.

What should I have ready for the first conversation?

You do not need to solve the entire transaction before contacting escrow. Helpful preliminary information can include the purchase price or other consideration, license type, proposed allocation of purchase price, deposit, identities of the buyer and seller and any unusual terms. The escrow officer can then identify what additional information is actually needed.

Next: Review the California liquor license transfer requirements or learn how to choose a liquor license escrow company.

Frequently asked questions

Does a promissory note count as consideration?

California ABC expressly includes promissory notes among the forms of consideration that can be involved in a transfer.

Do I have to open escrow before filing with ABC?

When escrow is required, California ABC states that it must be established before the transfer application is filed.

Can escrow release the purchase money before ABC approves the transfer?

ABC states that escrow agreements must provide for payment only after the Department approves the transfer.