Operating a restaurant, bar, event hall, or other business which utilizes a liquor license is hard enough without accidentally tripping over a clause in your lease that turns into a
legal disaster. The SJC’s recent decision in Nicosia, et al. v. Burn LLC, et al. (2025) is a good reminder that when it comes to liquor licenses, contract terms still matter and creative financing can come with some very sobering consequences.
How This All Started: This case arose out
of a fairly common commercial setup and straight forward set of facts. N&M
Trust VII (“Nicosia”) leased a commercial property in downtown Boston to Burn,
LLC (“Burn”). As part of the lease agreement, Nicosia sold its liquor license
associated with the property to Burn for the sum of One Dollar. The lease terms
included an “anti-pledge” provision which prohibited Burn from pledging the
liquor license as collateral for a loan, and provided that any pledge in
violation of such provision constituted a default under the lease. In addition,
at the end of the lease term, Burn was required to transfer the liquor license
back to Nicosia for One Dollar.
Before the lease term expired or
otherwise terminated, Burn pledged the liquor license to its principal, Brian
Lesser, as collateral for a loan to Burn in the amount of $445,000. When Nicosia
discovered this, it declared Burn in default of the lease, terminated the lease
and demanded the return of the license.
Nicosia initiated the lawsuit and Burn
challenged their claims, arguing that the lease’s “anti-pledge” provision is
unenforceable as it violated public policy and M.G.L. c. 138 § 23, the statute which
governs and expressly permits the pledge of liquor licenses.
The Court’s Holding: The court disagreed with Burn’s
argument and upheld the “anti-pledge” provision as enforceable. The court
reasoned that the clause did not violate public policy concerns as financing
agreements among commercial sophisticated parties do not generally raise public
policy concerns.
Further, the court distinguished this
case from its decision in Beacon Hill Civic Ass’n v. Ristorante Toscano, Inc. (1996) where it found that a private
agreement not to apply for a liquor license was unenforceable because it
thwarted public participation. In the case of Nicosia, et al. v. Burn
LLC, et al. (2025, the anti-pledge provision does not interfere with public
participation but rather is only a limitation on the licensee’s ability to use
the liquor license as collateral to secure financing.
No loopholes. No judicial sympathy for
“but we needed financing.”
Why This Matters to
Business Owners: Liquor licenses are often viewed as
valuable assets and they can be to a business. However, Nicosia makes it
clear that their value can be tightly controlled by contract.
Here are the key takeaways:
· A Liquor License is Not Always “Your” Asset – Even if a license is technically in your business’s name, contractual
restrictions can dramatically limit what you can do with it. If your lease says,
“no pledging,” that means no pledging no matter whether the lender is a bank, a
private investor, or your own business partner.
·
Courts Will Enforce Anti-Pledge
Provisions – This decision confirms that
Massachusetts courts will uphold contractual limits on liquor licenses so long
as they don’t limit a prospective licensee’s ability to participate in the
licensing process or conflict with statute. Public policy is not a magic eraser
for inconvenient lease terms.
· Financing Shortcuts Can Trigger Long-Term Pain – Pledging a liquor license as collateral may seem like an easy solution
when money is tight, but if doing so violates your lease terms, it can lead to lease
termination, an awkward conversation with your landlord, and very expensive
consequences.
Practical Advice for Local Restaurant & Bar Owners:If you currently operate, or plan to operate, a business that utilizes a
liquor license, this case offers some practical lessons:
- Read the Entire Lease (Yes, Even
That Section) – Anti-pledge clauses are easy to
overlook, especially when they’re buried in lengthy lease sections or
among boilerplate provisions. But as this case shows, it is very important
to read the entire lease whether you have an existing lease or are
considering entering into a new lease. Further, it is important to review
the lease to ensure that any anti-pledge provisions apply to real property
or personal property other than a liquor license.
- Coordinate Legal Advice Before
Financing – Before pledging any business
asset as collateral, make sure it doesn’t conflict with your lease or
other applicable agreements. A quick legal review can be a lot less costly
than litigating or defending a default of a lease.
- Assume Enforcement, Not
Flexibility – Courts generally assume that
sophisticated parties mean what they sign and expect to be bound by the
same. It is very important not to rely on hoping a judge will later
“balance the equities” later.
Final Pour: Nicosia is not flashy, but it’s important. For local business owners, the lesson
is straightforward, treat your lease like required reading, and don’t assume
that creative financing will survive creative lawyering on the other side.
If you’re ever tempted to pledge a
liquor license as collateral without reviewing your lease first, just remember:
the hangover from that decision can far outlast the term of the loan.
An Associate in the
Springfield office of Bacon Wilson P.C., Joshua Goldstein has a business and
corporate law practice, with an additional practice concentration in liquor
licensing. He is also admitted to
practice in New York. He can be emailed
at jgoldstein@baconwilson.com.
*The foregoing was presented for information purposes only, is not
legal advice, and does not create an attorney-client relationship.
The information in this article was provided by Attorney Joshua M. Goldstein from our
Springfield Office. Attorney Goldstein is a member of the Hampden County
Bar Association and the Young Professionals Society of Greater Springfield. He
is licensed to practice law in the state of Massachusetts and New York.
