In a significant follow-up to the 2024 liquor license reform law (P.L.2023, c.290), Governor Mikie Sherrill last month enacted legislation (Senate Bill 4404) which further revamps the state’s still somewhat antiquated liquor licensing system.

The most significant changes in the new law pertain to the transfer of inactive plenary retail licenses—commonly referred to as “restaurant” or “type C” liquor licenses—mainly through the sale of such licenses (also called “pocket licenses”) beyond the borders of the issuing municipality and by reviving many of the expired licenses in the state. In addition, S4404 expands eligibility for the issuance of special food and beverage licenses for use in qualifying shopping centers. (The new law also makes changes to craft manufacturer and brewery licenses but a summary of those provisions is beyond the scope of this alert, which focuses solely on the new law’s impacts on restaurant licenses.)

Inactive Licenses Given Longer Shelf-Life and Owners of Inactive Licenses Given More Time to Avoid Loss to Inactivity

S4404 provides several paths for an inactive or “pocket” license—otherwise at risk of expiring due to its owner’s inactivity—to be re-activated, renewed, reissued or transferred. 

• New Dates for Expiration of Quartiles. First, the new law changes the expiration dates for each of the “quartiles” established under the 2024 law, which sought to prohibit inactive licenses from being maintained indefinitely by dividing those licenses into four groups (quartiles) based on the total length of time each license had been inactive and giving these groups staggered 1-to-4-year deadlines to be activated or transferred (or else face expiration). S4404 resets the dates on which liquor licenses in each quartile become inactive. The new dates effectively add at least two years to the time period of each quartile before those licenses are deemed to be inactive. The quartile framework remains the same as under the 2024 law: the first quartile (longest inactive licenses) must be transferred within one year, the second quartile within two years, the third quartile within three years, and the fourth quartile within four years. S4404 also revives any inactive licenses that were rendered expired as a result of the 2024 law’s quartile system (likely including some licenses in the first quartile); those licenses are now deemed “reissued” and will be subject to the revised quartile dates.
• Broader Municipal Extension Authority. Prior to enactment of S4404, a liquor license would, immediately upon expiration, become eligible for recapture by the host municipality, whether by application of the quartile process described above or by virtue of not having been actively used for two consecutive license terms. Previously, the municipality only had the discretion to extend the expiration date of an inactive license by “an additional year.” The new law permits the governing body to extend the inactive period even longer if it is satisfied that the owner is making a good faith effort to activate or transfer its license, thereby granting municipalities greater discretion in determining the appropriate length of any extension.
• New Claim for Extension. Beyond the existing grounds for an extension due to unavoidable situations—namely, eminent domain, fire, or other casualty—S4404 also allows extensions due to a “failure to obtain governmental approval despite a good faith effort to do so.”
• Right of Appeal. A licensee whose request for an extension of the inactive period is denied by the municipality may appeal the denial to the Director of Alcoholic Beverage Control (“Director”) within 30 days. This right of appeal applies to the second and third paths described above. 

Expansion of Inter-Municipal License Transfers—Definition of “Contiguous” Municipalities Broadened

Under the 2024 law, municipalities were permitted to transfer licenses in certain instances to contiguous municipalities where they shared a common land border and were in the same county. Municipalities separated by a body of water were not considered “contiguous” for purposes of an inter-municipal license transfer. S4404 eliminates this restriction as well as the same-county limitation.

Three New Pathways for Inter-Municipal License Transfers Beyond Contiguous Borders

Another significant legislative change to restaurant licenses in S4404 is the creation of three distinct pathways for the inter-municipal transfer of inactive plenary retail consumption licenses, in addition to the single “contiguous border” mechanism that existed under prior law. Each pathway is designed to address different circumstances and provides municipalities and license holders with greater flexibility to try to avoid loss of a liquor license to inactivity.

• Municipal Public Sale to Highest Bidding Governing Body. Under this pathway, a “sending municipality” that is authorized to issue a new plenary retail consumption license may elect to relinquish such new license by offering it at public sale to any other municipality in the state which submits the highest bid. It should be noted that the sending municipality has the right to reject all bids where the highest bid is not accepted. Again, this pathway is not limited to contiguous municipalities. Key features of this pathway include:
  • The transferred license must be used as part of an economic redevelopment plan or in a redevelopment, improvement, or revitalization area.
  • The sending municipality cannot issue a replacement license once the transfer is complete.
  • The receiving municipality may issue the acquired license through either the “historical method”, under which the license is awarded to the applicant whose proposal best serves the public interest after a public hearing, with the license issued for the annual license fee only, or through “competitive bidding” under which the license is sold by the receiving municipality at public auction to the highest qualified bidder, who pays both the winning bid amount and the annual license fee. The choice between methods is at the receiving municipality’s discretion.
  • A transferred license not actively used within two years of issuance, reverts to the receiving municipality.
  • A receiving municipality is only eligible for one transferred license per calendar year.
  • The transferred license is not counted toward the receiving municipality’s population-based license caps.
• Transfer for Redevelopment Purposes. Under this pathway, the holder or contract purchaser of an inactive plenary retail consumption license in any (sending) municipality may seek to transfer the license for use in another (receiving) municipality located in the same county or to a contiguous municipality (even if not in the same county) by applying to both the sending municipality and the receiving municipality to which the applicant seeks the transfer. Key features include:
  • The transferred license must be used as part of an economic redevelopment plan or in a redevelopment, improvement, or revitalization area, and permanently remains in the redevelopment area of the receiving municipality and cannot be transferred to another location.
  • Prior to adopting the resolutions required to effectuate the transfer, both municipalities must first give special consideration as to whether sufficient attempts were made by the license holder to use or transfer the license for use in connection with a premises located in the sending municipality. 
  • After the receiving municipality accepts a successful bid, the sending and receiving municipalities must approve and adopt by majority vote identical resolutions authorizing the transfer of the license. The identical resolutions must establish the license transfer fee, which is to be paid by the inactive license holder (seller of the liquor license being acquired by the receiving municipality) and deposited in the general fund of the sending municipality.
  • A transferred license not actively used within two years of issuance, reverts to the receiving municipality.
  • A receiving municipality is only eligible for one transferred license per calendar year.
  • The transferred license is not counted toward the receiving municipality’s population-based license caps.
• Request for Proposal (RFP) Process for Municipalities at Population Limitation. This pathway is specifically designed for municipalities that have reached their population-based limitation on the number of licenses they may issue and are in need of an additional license. Under this mechanism, such a (receiving) municipality may acquire an inactive license from any other (sending) municipality in the state (not limited to contiguous municipalities or the same county) through an RFP process. Key features include:
  • The license must be acquired by the receiving municipality from the lowest qualified bidder, which must be an inactive license holder in the sending municipality.
  • The consideration paid to the selling inactive license holder by the receiving municipality for acquiring the license is the bid amount submitted by that license holder.
  • After the receiving municipality accepts a successful bid, the sending and receiving municipalities must adopt by majority vote identical resolutions authorizing the transfer of the license. The identical resolutions must establish the license transfer fee, which is to be paid by the inactive license holder (seller of the liquor license being acquired by the receiving municipality) and deposited in the general fund of the sending municipality.
  • A receiving municipality that acquires a license pursuant to this RFP method shall then be entitled to offer the license at public sale and issue it to the highest qualified bidder who will utilize the license in the receiving municipality.
  • The transferred license must be used as part of an economic redevelopment plan or in a redevelopment, improvement, or revitalization area.
  • A transferred license not actively used within two years of issuance reverts to the receiving municipality.
  • A receiving municipality is only eligible for one transferred license per calendar year.
  • The transferred license is not counted toward the receiving municipality’s population-based license caps.

Municipal Reissuance of Expired Licenses

S4404 further provides for the re-issuance of an inactive license that can no longer be extended (despite the new provisions for longer extensions), at the option of the issuing municipality, for use only within that municipality. The re-issued license must be sold at public auction. This option was created under the 2024 law but was limited to situations where a license had not been renewed “within eight years” prior to enactment of the law. S4404 broadens this option to encompass any license that has lapsed “any time prior to” or “any time thereafter” the enactment of the 2024 law. This substantially increases the pool of lapsed licenses in any municipality that may be replaced by fresh licenses.

New Exemption from Automatic Expiration for Municipality-Held Licenses in Redevelopment Areas

Another significant provision of S4404 is the creation of a new exemption from the automatic expiration rules. Specifically, the rules no longer apply to any inactive license that is being temporarily held by the municipality for the purpose of ultimately issuing it for use in a redevelopment, improvement, or revitalization area. This exemption recognizes that municipalities may strategically hold licenses in reserve for future redevelopment projects, and that such licenses should not be subject to forced expiration while the municipality works to identify appropriate redevelopment opportunities.

Updated Shopping Mall License Provisions

S4404 makes several targeted updates to the 2024 law’s provisions creating newly-minted special licenses for food and beverage operations located in qualifying shopping malls:

• Expanded Definition of “Shopping Mall.” The definition is expanded to include “pad sites located on the same parcel or premises” as a “shopping mall,” thereby extending eligibility to freestanding restaurant locations within a mall property’s footprint.
• New Definition of “Strip Mall.” S4404 adds a definition of “strip mall,” defined as “a retail shopping complex that consists of stores, restaurants, or other businesses in adjacent spaces or storefronts in one or more buildings that are connected by a doorway or open onto a common parking lot or outdoor pedestrian walkway.” Strip malls are expressly excluded from the special shopping mall license provisions.
• Ownership Structure Clarification. The legislation clarifies that a shopping mall/strip mall ownership structure may include common ownership, shared ownership interests, or shared control among multiple entities.
• Core Provisions Preserved. The special license provisions otherwise remain largely the same: two licenses for shopping malls of 750,000 or more square feet and four licenses for shopping malls of 1,500,000 or more square feet; a minimum fee of $250,000 per license; licenses are transferable only within the same shopping mall and not subject to the population-based caps of the host municipality.

Looking Ahead

S4404 represents another meaningful step in the ongoing, albeit gradual reform of New Jersey’s liquor license regulatory framework. Building on the foundation established by the 2024 law, this new law addresses a number of the practical challenges and gaps that emerged during the implementation of the earlier reforms. The creation of multiple transfer pathways, the broadening of municipal authority to extend inactive licenses, the “reissuance” of licenses caught in administrative limbo, and the expanded shopping mall/strip mall provisions collectively signal the Governor’s and the Legislature’s continued commitment to modernizing the State’s liquor license scheme.

Stakeholders—including municipalities, license holders, developers, landlords, and current as well as prospective tenants (i.e., restaurateurs)—should closely monitor the implementation of this legislation and any forthcoming guidance from the Director of the Division of Alcoholic Beverage Control. As with the 2024 law, the practical impact of S4404 will greatly depend on how the Division and local governing bodies interpret and apply its provisions.

 We will continue to monitor this evolving area of the law. Please feel free to check back on this law blog for updates.

For summary purposes only; not intended as legal advice.