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Bourbon's return to Lexington overcame a bureaucratic tangle, Business Lexington, October 12, 2012

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Business Lexington, October 12, 2012

Authored by Stephen G. Amato and Chris Westover

A perspective from inside the law firm that sorted out the details

In September, Lexington saw the opening of the first bourbon distillery built here in more than 100 years. That is hard to imagine if you understand that Lexington was once the epicenter of bourbon production in Kentucky. However, Alltech Lexington Brewing and Distilling Company is one of only two distilleries currently operating within the city limits.

The new Alltech distillery sits adjacent to the original Distillery District in the Woodward Heights neighborhood, at 401 Cross St., between Maxwell Street and Pine Street. The expansion of Alltech's original microbrewing facility to include a full-blown distillery has been in the works since August 2010, when Pearse Lyons, Alltech's president and founder, announced plans to build the $6 million distillery addition. Two short years later, tourists are pouring into the distillery visitor's center, touring the 20,000-square-foot facility and enjoying the unique taste of Alltech's Town Branch Bourbon, named appropriately after the body of water responsible for the location of our city that still flows through the heart of Lexington.

"It's a dream bringing a full brewery and a new distillery to downtown Lexington. I hope it becomes a tourist destination," Lyons said.

The Alltech distillery expansion did not happen overnight or without significant creative legal effort. The complex web of land-use planning law and ABC regulations that had to be navigated to ensure the project would be approved and completed on time was no small task. Alltech worked with a dedicated team at McBrayer, McGinnis, Leslie & Kirkland, PLLC, to tackle the project, working together on all aspects from start to finish.

Urban infill projects are complex and multifaceted, and it is typical to encounter an interwoven web of conflicting regulations that must be carefully unknotted and reconfigured before the development is given approval to proceed. Chris Westover, who has been with McBrayer since 2004, not only enjoys "jigsaw puzzle-style" projects, but she is uniquely qualified for the task. Prior to coming to McBrayer, Westover worked for many years in the Lexington-Fayette Urban County Government's Department of Law. From 1991 to late 2004, she was the legal advisor to the government's boards and commissions on land use and zoning matters. Westover hit the ground running with this project.

The first significant obstacle was incorporating a distillery into a subdivision with three or four different land-use zones, including a historical overlay of a very integral property. Logically, one approach could have been to rezone the properties. However, recognizing the timing and procedural challenges associated with that approach, Alltech and McBrayer elected to pursue the necessary approvals through the Board of Adjustment and keep the underlying zoning intact. They filed for two variances, a conditional use and an administrative appeal for the Board of Adjustment's consideration. This strategy accomplished in two months what could have taken at least six, had the rezoning been pursued instead. Keeping the clients' schedule intact was imperative and considered in every aspect of this project.

Though projects like Alltech's are very complicated and there is a lot of detailed work, at the end you have a development in the downtown area that is bound to drive even more interest and activity. It's also a showcase for Alltech. Moreover, the project is increasing the city's property tax rolls, employing its citizens and keeping people employed right here in the heart of Lexington. It is also driving tourism into downtown — conveniently situated within walking distance of the convention center and other downtown destinations. It's a win-win project, in McBrayer's estimation.

One of the other land-use issues was obtaining approval to adapt the historic Ice House building to a visitor's center. The Ice House presented multiple development issues. It had a historic overlay designation that required Board of Architectural Review approval of external improvements, such as handrails. Also, the underlying residential zoning category did not allow for a visitor's center. However, the building's prior history of non-conforming uses enabled the Board of Adjustment to grant the request to change one non-conforming use to another. Once approval from the Board of Adjustment was gained, the project was nearly finalized, but still more work needed to be done.

Combining the property parcels was necessary because of the existence of different zones and separate lots, which required approval of a consolidation plat. This step brought its own set of obstacles. Deeds had to be obtained and titles cleared. In this process, the McBrayer real estate attorneys discovered a vacant lot that had no street address and appeared to be part of an adjoining property. The land had not been accounted for, and the PVA did not have a separate listing for this parcel. In many urban infill areas, it is not uncommon for modern property transfers to uncover complications ranging from incorrect or incoherent legal descriptions to absence of platted or deeded easements, despite utility lines being in place, and other similar problems that have to be corrected. In this case, the problem was solved by identifying and locating a surviving descendant of the adjoining property to convey the parcel to the true owner.

Unless you know how to deal with these complex and sometimes hidden complications and have the staff and knowledge to address them, a project as complicated as this can quickly fall apart. It can be daunting if you are not accustomed to working with all of the diverse regulations and regulators involved.

Along a time frame that roughly mirrored the construction of the distillery, Alltech recognized the demand for its Kentucky Ale beer products was about to outstrip the limits of its microbrewery license. McBrayer's Hospitality Industry Services team, led by Stephen Amato, worked closely with the Alltech regulatory compliance staff in an ambitious relicensing process to take Alltech from a microbrewer to a full-fledged brewer, a process involving the LFUCG's Alcohol Beverage Control office, the Kentucky ABC and the federal Alcohol and Tobacco Tax and Trade Bureau (TTB). Alltech now boasts the only active (in-state) full brewer's license in the Commonwealth of Kentucky.

Stephen G. Amato is a member of McBrayer, McGinnis, Leslie & Kirkland, PLLC, and practices in the Lexington office. His practice is diverse, focusing on civil litigation and administrative law. His administrative practice focuses extensively in the area of alcoholic beverage regulation and hospitality law, primarily representing the interests of alcoholic beverage retailers and distributors in connection with licensing and enforcement issues at both the state and local levels. Mr. Amato may be reached at samato@mmlk.com or at 859-231-8780, ext. 104.

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