TTB question - lease to ourselves?

[RonObvious]

So I'm almost ready to submit our TTB application. I just got off the phone with the TTB, who, by the way, have always been very courteous and helpful each time I called. Anyway, the representative I spoke with told me that in addition to the other documents I will need to upload, I will also have to include a lease agreement. Apparently this is needed since our winery will be in our house. Sounded like it won't be a big problem - we can just draw up a $1 per year agreement between us and our LLC and we're pretty much done. I'm just wondering if anyone else had to do this, and if you could share the text of the agreement you used? I just don't want to screw this up, so I want to make sure the verbiage is correct. Especially since the winery will only occupy a portion of the house, I don't know how to put that in words. Hoping someone has a template. Thanks in advance!

 

[Hokapsig]

I just went and googled a simple lease and rented it to my self for a $1 a year. I think they just want to see a lease, which is ridiculous for your own house.

 

[RonObvious]

OK thanks - how did you define the property? In our case it would be a portion of our basement. Just describe it as "Basement?"

 

[salcoco]

I would use a square foot description. I would also include provisions for payment of utilities or other cost that the winery would be paying for rather then you. this will also benefit for tax purposes any deductions you may want to take on the LLC for utilities,maintenance etc. it is my guess that the lease agreement is to establish the LLC as an entity separate from your private area, validating it as a business venture.

 

[RonObvious]

Sounds like good advice, thanks Salcoco. I like the idea of using square footage. That makes things nice and simple.

 

[winojoe]

Greetings everyone!

My wife and I opened a winery here in Southeast Michigan. One thing we found is that the State and TTB get all up in your shorts (and orifices) about everything.

We lease a commercial building in a small industrial area. The TTB required us to send a copy of the Lease agreement, along with all sorts of other paperwork.
In your case, creating a lease agreement is very prudent. It shows separation of personal finances and business finances. Co-mingling of funds is never a good thing. This can cause great complications if some legal matter arises. The TTB can audit you whenever they desire, and your books should be up to date at the time of the audit. Keep everything separate and clean. If you use personal funds for anything, create promissory notes and pay yourself back with a reasonable interest rate. Treat your winery business as a true business in all respects ...even though you are really doing it because you love to make wine!

Here in Michigan, the Michigan Department of Agriculture and Rural Development (MDARD) acts as the health compliance unit of the state for Wineries, Breweries, etc. Before one can even start operating as a food product manufacturer, MDARD must inspect the facility and then grant a license upon inspection approval. Basically, everything must be FDA compliant before operations can start.

Does your state require the same sort of thing?

 

[RonObvious]

Thanks for the info, winojoe. From what I can tell, MA seems to be a bit more lenient - or at least I haven't encountered any resistance so far at the local level. Our town seems to encourage it, actually. We'll see when it gets to the state level but I don't know that yet because the state requires you to have everything squared away with the TTB first. I submitted my application and paperwork last week, so now we play the waiting game... fingers crossed!

Thanks!

 

[winojoe]

Yes, same thing here in MI as far as the State waiting on the TTB. Also, TTB is suppose to do a facility inspection. Basically, security issues and verification of bonded & non-bonded areas.

Let me know how everything progresses.

 

[HopsandVine]

Thanks for the info, winojoe. From what I can tell, MA seems to be a bit more lenient - or at least I haven't encountered any resistance so far at the local level. Our town seems to encourage it, actually. We'll see when it gets to the state level but I don't know that yet because the state requires you to have everything squared away with the TTB first. I submitted my application and paperwork last week, so now we play the waiting game... fingers crossed!

Thanks!

We submit a lot of applications and it is definitely a requirement by TTB to show that there is ownership or rights to the premises. Generally, this will be done with a lease -- even if you personally own the property. TTB will want to see an agreement between the property owners and the applicant (i.e., the person or entity holding the TTB permit). If you personally own the property, they may even ask for a deed, but they are generally satisfied with a lease that contains certain terms or provisions.

The separation of funding is an important point. The feds or the state agencies can inspect your books and records at any time. In theory, this could probably carry over to your bank account.

 

[balatonwine]

The separation of funding is an important point. The feds or the state agencies can inspect your books and records at any time. In theory, this could probably carry over to your bank account.

Absolutely.

And don't just trust a "$1 lease agreement" downloaded from the Internet or ask for "suggestions" about this at forums. No matter how "reliable" the source is. This is serious stuff. Run any lease agreement by your accountant for peace of mind (if you don't have an accountant or tax attorney, you should get one -- for this at least). That is, the TTB and the IRS are separate agencies. What is acceptable for one is not necessarily okay with another. You don't want to tangle with the IRS if your $1 agreement is not at enough "arms length" to be considered valid. Just saying.....

 

[KevinL]

In Illinois, where I'm at, the State requires a TTB permit as well as a label approval first. The Illinois Liquor Control Commission is in charge of things here, and I've emailed and called a few times and have been ignored. I shipped off my state application last week. We'll see if I can get some questions answered that way.

I've got things set up as a partnership (the wife and I), so a deed was what they wanted from me as we own the premises. We'll probably get an LLC set up at some point, and then I imagine we'll have to lease the premises to the LLC when the time comes.

 

[HopsandVine]

In Illinois, where I'm at, the State requires a TTB permit as well as a label approval first. The Illinois Liquor Control Commission is in charge of things here, and I've emailed and called a few times and have been ignored. I shipped off my state application last week. We'll see if I can get some questions answered that way.

I've got things set up as a partnership (the wife and I), so a deed was what they wanted from me as we own the premises. We'll probably get an LLC set up at some point, and then I imagine we'll have to lease the premises to the LLC when the time comes.

Hi Kevin - Just be careful with that. If you plane to create an LLC in the future and if your current TTB permit is issued to you personally, TTB generally makes you go through the permit process again if the entity is different. This is true even if the owner(s) is/are exactly the same. I cannot speak for ILCC, but this is generally what TTB will want.

 

[KevinL]

I appreciate the warning. I'm aware that we'll have to reapply once we restructure the business. We hope to expand to a slightly larger space than where we're currently licensed (a 100 square foot room) and as we'll need to reapply then, I figured that is when we'll make the switch to LLC. I'm not sure about the ILCC, I imagine at the very least we'll need to provide an update to the permit number and label approval.

 

[HopsandVine]

I appreciate the warning. I'm aware that we'll have to reapply once we restructure the business. We hope to expand to a slightly larger space than where we're currently licensed (a 100 square foot room) and as we'll need to reapply then, I figured that is when we'll make the switch to LLC. I'm not sure about the ILCC, I imagine at the very least we'll need to provide an update to the permit number and label approval.

Always good to hear someone looked into it! I know with TTB it is not always the most intuitive route. Best of luck to you with everythign.

 

[TPO]

Greetings everyone!

My wife and I opened a winery here in Southeast Michigan. One thing we found is that the State and TTB get all up in your shorts (and orifices) about everything.

We lease a commercial building in a small industrial area. The TTB required us to send a copy of the Lease agreement, along with all sorts of other paperwork.
In your case, creating a lease agreement is very prudent. It shows separation of personal finances and business finances. Co-mingling of funds is never a good thing. This can cause great complications if some legal matter arises. The TTB can audit you whenever they desire, and your books should be up to date at the time of the audit. Keep everything separate and clean. If you use personal funds for anything, create promissory notes and pay yourself back with a reasonable interest rate. Treat your winery business as a true business in all respects ...even though you are really doing it because you love to make wine!

Here in Michigan, the Michigan Department of Agriculture and Rural Development (MDARD) acts as the health compliance unit of the state for Wineries, Breweries, etc. Before one can even start operating as a food product manufacturer, MDARD must inspect the facility and then grant a license upon inspection approval. Basically, everything must be FDA compliant before operations can start.

Does your state require the same sort of thing?

I may have to pick your brain more as I am in Michigan & thinking of opening a small winery. I have some questions. If you can PM me that would be great to talk off of the forum.

 

[BRossi]

I’m sure you‘re probably familiar with this website, but it does have a lot of good information about going commercial with a winery in Michigan. It use to have a separate wine only website, but it looks like they combined it with beer making since I’m sure a lot of the laws are similar.

Michigan Craft Beverage Council