Access To The Premises Is a Vital Part of An Alternating Proprietorship Agreement

It’s an alt-prop Tuesday here at Libation.  Today we’re taking a look at the TTB requirement that an alternating proprietorship agreement should give the Tenant access to the Hosts premises.

Under TTB Industry Circular 2008-04 for wineries operating under an alt-prop agreement, access the premises is addressed in the following paragraph stating that all proprietors (Tenants included) must have “reasonable access” under an alt-prop agreement:

The agreement must allow all proprietors to have reasonable access to their respective permanent premises and to their wine.  For practical purposes, requiring an alternating proprietor to give notice when trucks will be on the premises, for example, is acceptable, but such requirements must not unduly hinder the operations of another proprietor or of TTB officers conducting investigations or audits.

Unlike the mandate in 2008-04, under Circular 2005-02, for breweries, access to the premises is addressed by the TTB with a statement of prohibited conduct and not with a mandate about what type of access an alt-prop brewing arrangement should grant:

Access to host premises.  TTB has found that in some agreements for alternating brewery proprietorships, host brewers require tenant brewers to agree to exclusion from brewery premises.  If a brewer has no access to the brewery premises, then that person is precluded from actually producing beer and, thus, cannot meet the statutory and regulatory definition of a brewer as a person who produces beer for sale.  TTB does not approve alternating brewery arrangements that include as part of the agreement a condition that prohibits access to the brewery premises by the tenant brewer or its employees.

In crafting the access clause there are some considerations that the host and the tenant should address to increase the chances that the terms of the clause can capture their arrangement and pass the TTB review and approval process for alternating proprietorship of agreements:

• Is the Agreement for 24/7 leasing of the premises, or are their hour that the Tenant has control of the premises and hours that the Host has control?
• Are there areas that are private or that need to be reserved by the Tenant or the Host where one or the other should not have access?
• How will the parties arrange to have access to bonded or tax-paid premises and does that arrangement meet with requirements for warehousing or bailing and access and possession of the tax-paid alcohol?
• What restrictions are placed on access that could create the impression that the tenant is simply just a custom crush or contract brewing situation?
• Are all the tenants employees and agents granted access, or is access being restricted to a few individuals?
• Are there time-sensitive restrictions on any enumerated activities?

The alternating proprietorship arrangement can be beneficial for both the host and the tenant, but passing muster with the TTB requires some specific provisions that the parties need to be aware of in order to ensure that their arrangement is approved and that they can operate in the manner they intended.