Tied House Rules

Published in Orchard and Vine Magazine on: April 8, 2013

For those of you in the wine industry, you may have experienced limitations in your ability to sell and distribute your wine due to the tied house rules. These rules are trade practice laws that most would agree are difficult, sometimes contradictory and often frustrating. They are designed to prohibit and restrict commercial interactions between liquor manufacturers and licensed establishments such as private liquor stores and licensed restaurants. The idea is to prevent domination of retailers by suppliers and prevent bribes and other unlawful inducements for the promotion of a supplier’s liquor over another.

A tied house is a licensed establishment that is associated with a liquor manufacturer (or their agent), an association that is likely to lead to that establishment favoring the manufacturer’s products to exclusion of others in whole or in part.

At the end of Prohibition, tied houses were prohibited in all Canadian provinces. Many blamed the aggressive marketing of alcoholic beverages for the excesses that lead to Prohibition in the first place. For example, the “tied house evil” had breweries controlling bars and working hard to encourage consumption of their products. Brewery-owned bars and restaurants often offered free meals if the customer ordered a drink.

The temperance movement argued that many social evils such as increases in alcohol consumption, irresponsible ownership of retail outlets and political corruption were linked to tied houses. The tied house rules were to prevent large manufacturers from dominating local markets and the excessive sale of alcohol through overly aggressive marketing.

Many governments saw the main tied house evil as the control of retailers by suppliers. In British Columbia, the Liquor Inquiry Commission of 1952 resulted in legislative changes which included the prohibition of tied houses and inducements like gifts and money. At that time, the Liquor Commission found that B.C. breweries had consolidated and competition was limited.

Over the past 60 years, there has been a relaxing of the tied house rules. Exemptions have been created for brewpubs and stadiums and wineries have been permitted to have on-site winery stores to sell their products. Manufacturers are now permitted to provide several non-alcoholic promotional items to licensees, such as private liquor stores, for the benefit of their customers as well as fund licensee educational and hospitality expenses.

To this day, the debate regarding the need and the consequences of the tied house rules remains alive and well. Some are opposed to deregulation for various reasons including those reasons which fueled the temperance movement as well as the desire to protect fair competition amongst manufacturers (i.e. prevent the legalization of inducements which may result in large manufacturers taking business away from smaller manufacturers).

On the other hand, some are in favor of deregulation for various reasons including the fact that business practices are regulated federally through the Competition Act; inducements between manufacturers and licensees already occurs; the number of licensed establishments is significantly greater than in 1952 making the ability of a manufacturer to adversely impact customer choice unlikely; the Liquor Control and Licensing Branch’s (LCLB) resources may be better spent on other public safety priorities such as over-service and service to minors; and the LCLB has previously approved financial associations between manufacturers and licensees, but not permitted the sale of the manufacturer’s product in the licensed establishment to prevent a tied house which is arguably unfair for a small manufacturer.

The legislation regarding tied house rules continues to evolve to this day. Effective March 1, 2013, after considering industry input and the need to protect government revenue, consumer choice and fair competition, the provincial government amended the tied house rules to allow licensed small and medium volume brewers, distillers and wineries to have an association with up to three licensed establishments, located away from their manufacturing site, where their liquor may be sold. To qualify as a small or medium volume manufacturer, annual production must not exceed 100,000L for distillery, 750,000L for a winery and 300,000hL for brewery.

Off-site tied house establishments, with the exception of off-site winery stores, are required to sell a range of products from a variety of manufacturers not associated or connected with each other. These amendments do not apply to UBrew/UVin establishments or licensed agents.

If you are planning on taking advantage of these amendments and think you might qualify for off-site tied house establishments, speak to your lawyer for assistance in interpreting the amendments and determining their application to your situation. ■

Denese Espeut-Post is an Okanagan-based lawyer and owns Avery Law Office. Her primary areas of practice include wine and business law. She also teaches the wine law courses at Okanagan College.

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