Navigating Hidden Risks in Hospitality Industry Transactions in New York State

Buying or selling a bar, restaurant, or hotel in New York is exciting — but it’s rarely simple. Asset purchase agreements are designed to draw a clean line between buyer and seller, yet in the hospitality space, that line often blurs. The unique mix of labor, tax, and regulatory oversight in New York creates risks that can follow a business across the closing table if not handled carefully.

As a business law attorney specializing in hospitality transactions and compliance, I frequently encounter recurring themes: successor liability, challenging guaranties, and lender control. While these issues shouldn't obstruct deals, they do necessitate careful planning, structuring, and advice tailored to the industry.

Successor Liability Under New York Law

On paper, an “asset purchase” is supposed to leave liabilities behind. In New York, however, courts recognize exceptions and they are especially relevant in hospitality, where continuity of operations is the norm.

The New York Court of Appeals set the baseline in Schumacher v. Richards Shear Co., 59 N.Y.2d 239 (1983). The general rule is straightforward: if you buy the assets of a business (its furniture, fixtures, goodwill, etc.), you don’t automatically inherit its debts. But the court also recognized four important exceptions:

1. Express or implied assumption of liabilities — if the buyer agrees, either in writing or through conduct, to take on the seller’s debts or obligations, those debts come along with the deal.

2. De facto merger — even if the paperwork calls it an “asset sale,” if the transaction looks and functions like a merger (same owners, same management, same business continuing), the law may treat it as one.

3. Mere continuation — if the new business is essentially the same as the old one — same location, same staff, same name, same operations — the courts may say it’s just a “continuation” of the seller, and therefore responsible for old liabilities.

4. Fraudulent transfer — if the sale was designed to dodge creditors, regulators, or employees, the courts won’t let the buyer escape liability.

   
   

For bars and restaurants, the two most common problem areas are de facto merger and mere continuation. That’s because most hospitality buyers keep the same location, often re-hire staff, and sometimes even keep the same name or concept. From a legal perspective, those continuity factors can make it look like the business never really changed hands — which opens the door to wage claims, tax enforcement, or old vendor disputes showing up at the new owner’s doorstep.

Recent appellate rulings highlight just how fact-specific this area of law can be. In Avamer 57 Fee LLC v. Hunter Boot USA LLC, 2025 NY Slip Op 04607, the First Department allowed a breach-of-contract claim to move forward against the buyers of a company’s assets. The court pointed to allegations that the brand and goodwill continued unchanged and that the seller was effectively wound down. In other words, if the business looks the same to the outside world, courts may treat it as though nothing really changed — and let claims carry over to the new owner.

Employment cases take a similar approach. When applying the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL), courts have held that a successor can be responsible if employees simply slide from one company’s payroll to another while doing the same work. Continuity of staff and operations is often enough to keep wage and hour claims alive against the new operator.

In Quispe v. MEC Construction Corp. (E.D.N.Y. 2021), drywall workers brought claims for unpaid wages. One company dissolved, but another quickly took its place with the same employees, the same phone number, and the same client base. The court allowed the workers to pursue their claims against the successor, reasoning that the new company was essentially the old one under a different name. This logic applies just as easily to restaurants and bars, where new ownership often keeps the same staff, menus, and even the same name.

Tax obligations can be just as dangerous as wage claims in a hospitality deal. In New York, the Department of Taxation and Finance (DTF) aggressively enforces sales and occupancy tax compliance, and it has statutory tools that allow it to look beyond the seller. When DTF determines that a buyer is a “successor” to a business, it can hold the buyer responsible for the seller’s unpaid tax liabilities, even if the purchase was structured as an asset deal.

For restaurants, bars, and hotels, this risk is especially acute. Sales tax on food and beverage, as well as hotel occupancy tax, are trust taxes — the business collects them from customers but must remit them to the state. If the seller fails to remit, the obligation doesn’t disappear at closing. Instead, DTF can issue a “bulk sales” notice or pursue the buyer directly if it concludes that operations continued without a clean break.

Buyers should treat tax due diligence as essential and request a formal tax clearance from DTF before closing, review the seller’s compliance history, and make sure the purchase agreement clearly allocates responsibility for any pre-closing liabilities. Without those steps, a buyer can wake up to a notice from Albany demanding payment of taxes that should have been discharged by the seller.

The lesson is clear: continuity matters. When the same location, employees, branding, or trade name carry forward, the risk of successor liability increases. Buyers should make wage-and-hour diligence, tax clearances, and vendor liability review a central part of their transaction process.

Personal Guaranties, You're on the Hook

Hospitality leases and loans almost always involve personal guaranties. Landlords in New York, particularly in Manhattan and other competitive markets, insist on strong “good guy” guaranties or broader payment guaranties. Similarly, lenders often demand owner-level support for working capital or acquisition financing.

The trap is assuming that those guaranties simply evaporate at closing. Unless they are affirmatively released and replaced, guaranties can remain enforceable, even after the seller has walked away. Negotiating guaranty releases (or new guaranties tailored to the buyer) should be a top-line item in every hospitality deal checklist.

Lender Discretion and Control

Margins in hospitality are thin, and lenders know it. Loan agreements often contain controls that go far beyond interest rates and repayment schedules. These include consent rights over ownership changes, cash management systems like lockboxes, and financial covenants that tighten if performance dips.

They may read like boilerplate, but they can dramatically reduce a buyer’s flexibility post-closing. A lender’s ability to sweep revenues through a lockbox, for example, can disrupt cash flow and delay vendor payments. Buyers should identify and negotiate these terms upfront, not after they’ve taken over operations.

Liquor Licensing and Deal Timing

No issue looms larger in a hospitality deal than the liquor license. In New York, liquor licenses are not freely transferable. A bar or restaurant buyer cannot simply “take over” the seller’s license; instead, the buyer must apply to the State Liquor Authority (SLA) for its own license.

The SLA offers a Temporary Retail Operating Permit that can allow service to continue while a new license application is pending, but eligibility and timing depend on the buyer submitting a complete application and meeting all statutory requirements. In many cases, the seller must surrender its license to make way for the temporary permit.

Because licensing cannot be assumed, purchase agreements should include contingencies tied to SLA approval. Common protections include:

• Making closing conditional on SLA approval or issuance of a temporary permit.

• Requiring the seller’s cooperation with the buyer’s licensing process.

• Setting realistic timelines for application and approval.

• Allocating risk through escrows or holdbacks if approval is delayed or denied.

  
  

Without these protections, a buyer could acquire a restaurant or bar only to find they cannot legally serve alcohol — a devastating blow to value.

None of these risks should discourage operators or investors from pursuing hospitality acquisitions in New York. Deals close every week, and many are highly successful. What makes the difference is recognizing that hospitality transactions carry industry-specific pitfalls that standard deal templates rarely cover.

The best approach is to structure the deal with clear eyes. That begins with thorough diligence on wage-and-hour, tax, and vendor liabilities, coupled with a focus on securing proper releases of any guaranties. It also means reviewing lender controls closely, since those provisions can affect daily operations after closing, and building liquor licensing timing and contingencies directly into the purchase agreement.

Handled this way, buyers avoid inheriting old problems and position themselves for long-term success. Sellers benefit as well, achieving a cleaner exit when liabilities and licensing are addressed upfront.

Final Thought

Hospitality deals in New York aren’t cookie-cutter. They require counsel who understands both the legal framework and the realities of how bars, and restaurants actually operate. My practice lives at that intersection. If you are exploring a transaction, the best investment you can make is ensuring these risks are handled before you sign. Wright@RuppPfalzgraf.com