What are 'profit sharing

Without the prior approval of the Director of Liquor Licensing, licensees commit an offence if they:

• enter into a partnership with another person in relation to the business carried on under the licence;
• enter into any agreement or arrangement under which another person may participate in the proceeds of the business carried on under the licence; or
• remunerate another person by reference to the proceeds or profits obtained from the business carried on under the licence or by reference to the quantity of liquor sold.

These types of arrangements are known as ‘profit sharing’ arrangements in the Liquor Control Act. The licensing authority has traditionally applied a broad interpretation of, and taken a very strict approach to, the profit sharing provisions in the Act. It has, for example, prosecuted venues which have incentive schemes in place for staff which are linked to the amount of revenue generated by employees for the business.

The profit sharing provisions extend to licensees who have entered into lease agreements where rents are based on reasonable percentages of the businesses turnover (commonly known as turnover rent). If such a term exists in a lease, the licensee must lodge an application with the licensing authority to have this arrangement approved in advance.

The licensing authority has recently focussed its attention on holders of works canteen - special facility licences who may be engaged in distributing the revenue from the sale of liquor at mine site wet messes to the operators of the mine without the approval of the Director. 

Generally speaking, obtaining approval to profit share can be a relatively straight forward process if the arrangement is of a type prescribed in the licensing authority policy, such as when:

• a fundraising event is held at licensed premises and the licensee retains all the profit from the liquor sales and the organisation hosting the event retains the ticket sales;
• the promoter of a music festival retains the revenue from ticket sales and the licensee retains the profits from the liquor sales; or
• a wine tasting event is conducted and the host retains 90% of the profits and the licensee receives 10%.

Other types of arrangements may be approved or refused depending on their particular circumstances. Any terms of an agreement that are contrary to the Act or seek to ‘contract out’ of the Act clearly will not be approved.

If you believe your business may be in breach of this section or you have any other queries about the article, please do not hesitate to contact Dan Mossenson, partner on (08) 9288 6769 / dan.mossenson@lavanlegal.com.au or Jessica Patterson, senior associate on (08) 9288 6946 / jessica.patterson@lavanlegal.com.au.