The ‘H’ License Conundrum: ‘R’ You Ready to Convert?

Throughout the pandemic, Pennsylvania has seen a lot of changes with respect to the way liquor licensees have had to operate their businesses. We’ve seen the expansion of “to go” mixed drink sales, expanded licensing premises permits (outdoor dining), and changes in enforcement. The bulk of these changes had their most direct impact on “R,” restaurant, and “E,” eat out, license holders.

That said, there is one change that went into effect during the pandemic that was limited to the humble “H” license. In fact, these changes were limited to a very specific subset of “H” licenses. But, to those “H” license holders impacted by this change, will have a very unique opportunity to modify their “H” license permanently into an “R” license.

Often overlooked, the “H” or hotel license is not subject to the Pennsylvania county liquor license quota, and so can be an attractive option to obtain liquor sales for a business owner.  Unfortunately, for someone seeking a liquor license, an “H” license has the rather obvious downside of being required to have rooms in which guests can reside.

Oddly, due to regulation back in 2006, a class of “H” licenses exists where there is no guest room requirement. If the owner of the “H” license applied to the Pennsylvania Liquor Control Board (PLCB) for a waiver during the designated time period, the “H” license standard requirement for guest rooms was abolished. These unique “H” licenses are functionally equivalent to an “R” license in many ways. The issue for many of these modified “H” licenses was that the waiver could not be transferred away from the existing premises via a place-to-place transfer. Therefore, if a transfer occurred, the room waiver was not valid on the new property and the “H” license once again required guest rooms.

However, thanks to Act 125, and the privileges granted therein, if you are the holder of an “H” license—and applied to remove your guest requirements (these were typically allowed for licenses that were grandfathered in, and were in existence prior to 1949), you may be able to convert your “H” license into an “R” license without any of the above restrictions.

For these “H” license holders, there are a few potential pitfalls of which you should be aware. First, the “H” licensee must meet the statutory requirements of 47 P.S. Section 4-461(c)(8) concerning the above-noted viability for transfer in Act 125. Second, the “H” licensee must have sought to remove the guest restrictions prior to Jan. 1, 2019, as required by 47 P.S. Section 4-461(c)(9) or 47 P.S. Section 4-461(c)(9.1). Third and finally, the license cannot be located within the city of Philadelphia.

If these conditions are met, one of the above lucky “H” license holders can submit an application through PLCB+, along with a one-time payment of  $30,000 and convert their liquor license into an “R” license.

However, there are a few additional restrictions that might give pause to someone considering this option. If you were to transfer this newly converted license within a period of five years after the conversion, an additional transfer fee will be due to PLCB in the amount of $30,000 or 25% of the sale price, whichever is greater. Moreover, this option expires on Jan. 24, 2023, in accordance with 47 P.S. 4-461(c)(9.2), so time is of the essence in this decision.

The conversion of an “H” license to an “R” license has the obvious benefit of creating a more moveable, and possibly significantly more valuable license. Unfortunately, it may also have the effect of reducing the value of the real estate associated with the license.

The determination as to whether this conversion is right for you is a question you should discuss with an experienced liquor license attorney.