Five hidden real estate truths for breweries (Part I)

There's an ongoing brewery boom in Colorado that requires a corresponding boom in real estate development. Lost sometimes beneath the promise and excitement of a new brewery are a few hidden truths. These truths should be kept in mind during negotiations for a lease or purchase, or considerations for expansion or relocation.

I've been working with brewery and distillery real estate for years, and, in addition to typical real estate and licensing concerns, I've concluded there are a number of hidden truths that a brewer should consider before signing on the dotted line.

Craft brewing is an industrial process. The success of your brewery depends on its industrial production. Tap rooms, food trucks and tours aside, the structure, layout and location of the brewery must serve this function. Designers and engineers can help ensure the processes and equipment work as intended, but brokers and lawyers usually have a role in ensuring ingress and egress, access to adequate utilities, exterior uses -- silos, bins, tanks, etc. -- and zoning and entitlements are appropriate for the brewery.

Craft breweries are unique in that many seek locations in areas of mixed development or find after the fact that they attract mixed uses, and are side-by-side with residential and retail uses. In such circumstances it is usually useful to try to get a landlord to acknowledge "specially permitted uses" and limit their ability to claim breach or nuisance. In some cases, I've been able to negotiate with landlords and neighbors restrictions on their rights to bring actions or complaints regarding brewery use.

You'll be punching holes in walls and roofs (and not out of frustration). Many breweries surprise their landlords by explaining that they need perforations to the building shell in order to accommodate that production processes and equipment. Lease negotiations should really begin with a discussion of physical space and construction needs. In this way, the parties can sort out build-out conflict and concerns as early as possible. Breweries that own their own facilities will need to determine whether their work will compromise existing warranties or require modifications to other building systems.

The taxman is your design consultant. The federal government and, to a lesser extent, state and local governments, will take a keen interest in the layout and design of your brewery. Federal TTB regulations that govern your physical space -- not insubstantial burdens -- may seem arbitrary until you understand that they are designed to maximize tax revenues. Working with a design professional that understands TTB and other federal, state and local regulation is essential to create an efficient space. Design considerations, from the government's viewpoint, get more complicated when non-brewing uses, including taprooms, are included in a compact brewery footprint. You may encounter legal issues to ensure contiguity of space or to construct improvements. Your Brewer's Notice will need some thought, and you may need to rationalize some design decisions with TTB officials.

Your brewery (may be) sitting on a dump. Because of its industrial use and the brewer's desire to remain in urban settings, craft breweries tend to be clustered on the fringes of older industrial areas -- areas that often have environmental issues. Breweries can comfortably operate on environmentally impacted property, but any purchaser or tenant will want to assure themselves that conditions have been disclosed (preferably through third-party reports), serious concerns are remediated, regulatory authorities have agreed not to take further action, and that risks are properly shifted to sellers and

Your brewery is not future-proof. Your brewery needs to accommodate change and anticipate both success and failure. Whether you own or lease your property, you will want rights to expand, if they can be made available, whether through options to purchase or lease or rights of first refusal. Similarly, you need to ensure you have a thought out plan to relocate, and negotiate terms for any leased property to terminate early, if possible.

Dominick D. Sekich is a partner at Moye White LLP. He will address additional "hidden truths" in a subsequent column.