“Social Districts” May Help Unfreeze Struggling Small Businesses This Winter

As businesses and restaurants gear up for colder weather, nothing could be scarier for a small business owner than regulations that decrease indoor capacity to address the continuing COVID-19 crisis. In recent weeks, the Michigan Department of Health and Human Services (MDHHS) issued a new pandemic order that places the State in a temporary pause, and forces bars and restaurants to close indoor services. See MDHHS Issues New Emergency Order Prohibiting In-Person Public Meetings & Requiring Work from Home. As uncertainty with regard to COVID-19 continues to be the theme, municipalities can at least take some action to ease the burden on local business by establishing Social Districts. Cold weather or not, creative restaurant and bar owners can take their business outdoors with the help of outdoor heaters and their local government.

On July 1, 2020, Governor Whitmer signed House Bill 5781 into law (MCL 436.1551) creating the “Social District Permit,” which allows local governments to designate a Social District within their jurisdictions. Businesses that are granted a Social District Permit may sell alcoholic beverages (beer, wine, or mixed spirits) on their licensed premises to customers who may then consume the alcoholic liquor within the commons area of the Social District.

The new law is intended to spur economic activity and provide flexibility for hospitality businesses at a time when there are limitations on indoor capacity for restaurants and bars and in light of COVID-19. 

Social District Permit Information for Local Governments

Local governments may now designate a Social District that contains a “commons area.” Once designated, “qualified licensees” whose licensed premises are contiguous to the commons area within the Social District and who obtain a license from the Liquor Control Commission may permit patrons to leave the licensed premises with the alcohol and consume it within the commons area.

Under MCL 436.1551(8)(a), a “commons area” is defined as: “an area within a social district clearly designated and clearly marked by the governing body of the local governmental unit that is shared by and contiguous to the premises of at least two other qualified licensees. Commons area does not include the licensed premises of any qualified licensee.”

Along with designating a Social District that contains a commons area, which must be clearly defined and marked with signs, a local government must establish local management and maintenance plans, including hours of operation, for a commons area. The statute provides that a local governmental unit shall not designate a Social District that would close a road unless the governing body receives prior approval from the road authority with jurisdiction over the road. In addition, the commons area must be maintained in a manner that protects the health and safety of the community.

A designation of a Social District must be filed with the Michigan Liquor Control Commission (“MLCC”), and include:

• A copy of the resolution passed by the governing body designating the Social District and commons area.
• A copy of management and maintenance plans, including the hours of operation, established by the local governmental unit for the Social District and commons area.
• A diagram or map that clearly shows the boundaries of the Social District and commons area, and identifies the qualified licensees contiguous to the commons area on the diagram or map.

A municipality is not without recourse, if a social district becomes a concern for the municipality for one reason or another. To the extent a commons area threatens the health, safety, or welfare of the public or has become a public nuisance, a local government may revoke the Social District designation, after holding at least one public hearing. 

Bars and Restaurants May Apply for a Social District Permit

Bars and restaurants who are “qualified licensees” and wish to take advantage of the new law must first seek application approval from the governing body of their local government. Qualified licensees may then apply to the MLCC for a Social District Permit.

Pursuant to the statute, with some restrictions, qualified licensees include holders of Class C, Tavern, A-Hotel, B-Hotel, Club, G-1, G-2, and Brewpub licenses as well as licensees with on-premises and off-premises tasting rooms.

Upon receiving a Social District Permit, and upon additional approvals that may or may not be required by the municipality, a licensee may sell alcohol on its licensed premises in approved containers for customers to remove and consume in the commons area. A licensee is not permitted to sell alcohol in a commons area.

Approved containers must be glass free and not hold more than 16 oz., must prominently display the licensee's trade name or logo or some other mark that is unique to the licensee that sold the alcohol as well as a logo or mark unique to the commons area.

A New Tool to Spur Economic Recovery

Without a doubt, many restaurants and bars have struggled this year with a variety of executive orders limiting operations in order to slow the spread of COVID-19. The ability to establish a Social District and commons area provides local governments with a new tool to try to spur economic growth. In fact, several municipalities across the state have done just that, including the City of Grand Rapids, Cadillac, Northville, Lake Orion, Bay City, Kalamazoo and Port Huron, to name a few. Impending cold weather should be no impediment for a municipality to employ this useful tool on behalf of their small businesses. As we all know, Michiganders are a strong lot and are no strangers to good old fashioned outdoor winter fun.

Foster Swift can assist your establishment or municipality in understanding and adhering to the new law’s statutory requirements in creating Social Districts and commons areas, and obtaining permits to operate therein.

For assistance, please contact a member of the municipal practice group.