Issues for NJ and NY Retailers and Food and Beverage Establishments to Consider Upon Reopening for Outdoor Sales and Service

On June 3, 2020, New Jersey Governor Phil Murphy signed Executive Order No. 150 (the “Order”), which permitted, effective June 15, 2020, restaurants and other food and beverage establishments to offer on-site outdoor service. The Order also allowed municipalities to make outdoor shared spaces, such as sidewalks and streets, available to these establishments. Previously, these establishments had been limited to offering take-out services as a result of executive orders issued in response to the ongoing COVID-19 health emergency. Simultaneous with the issuance of the Order, the New Jersey Division of Alcoholic Beverage Control (NJABC) issued a special ruling to create a COVID-19 Expansion of Premises Permit (the “Special Ruling”). We discussed the special ruling here.

Similarly, the State of New York – on a region-by-region basis – is entering Phase 2 of its reopening plan in response to the COVID-19 health emergency, and the New York State Liquor Authority (NYSLA) issued guidance to permit liquor licensees with on-premises service to resume outdoor, on-premises service of alcoholic beverages and food. We discussed the guidance here.

In sum, both states have taken significant steps to provide relief to business establishments that have been hurt by the COVID-19 health emergency. These measures allow establishments to return to some semblance of normal operations. There are, however, still many unanswered questions that these establishments, as well as those engaged in outdoor sales, must consider if they choose to take advantage of the opportunity to conduct business outdoors. Some of these open questions are explored further in this post.

Zoning and Permitting Issues

Are Outdoor Dining or Outdoor Sales Permitted by the Municipality?

• Some municipalities, in an effort to assist businesses in resuming operations as quickly as possible, have relied on the “police power” – that is, their inherent authority to regulate public health and safety – in approving resolutions allowing outdoor dining and outdoor sales on public sidewalks and in other public areas. However, these authorizations may conflict with existing limitations and restrictions in municipal codes – restrictions that cannot be amended without following a more formal process.
• A business owner should confirm whether the municipality’s land development regulations prohibit outdoor dining or outdoor sales. The municipality may have a blanket prohibition by, for example, requiring that all business activities be conducted within an enclosed building; prohibition could be dependent on the zoning district; or the land development regulations may not address this issue at all.
• If outdoor dining or outdoor sales are prohibited by the land development regulations, a use variance would likely be needed, which requires a public hearing and approval from the local zoning board and normally takes a significant amount of time. Municipalities may try to relax these types of prohibitions or explore ways to permit outdoor dining without implicating local zoning; however business owners should confirm this with local officials before taking any action.
• A business owner should also confirm that there are no conditions attached to prior approvals received from the local land use boards that would prevent or restrict outdoor activities.

If Permitted, Is Local Approval Still Required?

• Even if outdoor dining or sales are permitted, the municipality’s land development regulations may still require the property owner or business operator to seek site plan approval from the planning board. The planning board may need to review and approve the outdoor seating and service plan and determine whether the plan requires any dimensional variances.
• For example, if a dining area is expanded into a parking lot, resulting in a reduction in the number of parking spaces, a variance may be required. Some zoning regulations require that parking be provided for outdoor seating or sales areas and likely determine the parking standard on the assumption that both indoor and outdoor spaces will be fully utilized, which, under current circumstances, is not the case. Additionally, use of an outdoor parking area for a seating or sales area not only may render some parking spaces unavailable, but may impact the site’s vehicle circulation and emergency access. These are just some of the many possibilities.
• Expansion onto a sidewalk likely will also require some type of permission from the municipality, whether by site plan approval or through a municipally-issued sidewalk permit.
• If business owners move forward without local approvals, they risk subjecting themselves to zoning violations that could result in fines or other penalties affecting their operations.

Will this Change Remain Temporary or Become Permanent?

• Before proceeding with outdoor expansions, business owners should determine whether these changes will be only temporary or if they desire permanent outdoor spaces. This will factor in with the above-mentioned zoning and permitting questions. Business establishments need to be clear as to whether any approvals or permission received for outdoor expansions or displays is only temporary and subject to change by local officials, or whether the permission is permanent.

Landlord-Tenant Issues

Does the Property Owner Permit the Proposed Outdoor Expansion?

• If the business is a tenant that does not own the property, it should examine its lease to confirm that outdoor dining or outdoor sales are permitted and that the expansion would not violate the terms of its lease. A lease amendment or some type of permission from the landlord may be required.
• Resumption of business will help enable tenants in arrears on their rents to resume making payments, so landlords have incentives to accommodate such requests.

Insurance

• Property owners and business operators should consult their insurance policies to determine whether they have coverage for business conducted outside, particularly if on municipal streets or sidewalks, and whether changes to their coverage are necessary.
• A municipality that issues sidewalk permits or other authorizations allowing businesses to operate on municipally owned land may require proof of insurance at a specified level as a condition precedent to issuing the permits or other authorizations and may require that the municipality be a named insured.
• If questions arise regarding coverage, property owners and business operators should consult their insurance carriers, brokers, or legal counsel.

Liability and Health Risks

• The permission to open for outdoor dining or conduct outdoor sales does not mean that all health and legal risks associated with COVID-19 have been eliminated.
• Businesses must still adhere to social distancing and other mitigation measures and will have to weigh any legal or health risks against the financial need to reopen.
• While businesses likely have financial need to reopen and resume normal operations as much as possible, they should also be mindful of these associated considerations and potential risks.

In sum, the attorneys at Gibbons are available to advise business and property owners in connection with their reopenings in order to help ensure that the reopening complies with all state and local requirements. Gibbons can also provide ongoing legal advice to businesses that have reopened in accordance with their state and local guidelines.