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A front window at 3047 Dundas Street west displays it's application for a liquor license, on Dec. 11, 2012.The Globe and Mail

A dispute between Toronto's city council and Ontario's alcohol licensing board has left many new restaurants in the city facing months-long delays in obtaining a liquor licence, which they say may prevent them from opening at all.

In the spring, the Alcohol and Gaming Commission of Ontario (AGCO) – the arm's-length agency that regulates liquor and gambling licensing in the province – informed the city it would no longer accept the long list of requirements city council lumps onto liquor licences. The commission argued it does not have the resources to enforce things such as noise and building requirements.

In response, city council voted to require all new liquor-licence applicants to obtain a letter of support from their local MPP in an attempt to punt the licensing responsibility back to the province. But since MPPs returned to the legislature after a June election, the province's integrity commissioner has advised them not to offer such letters. Without a letter, the city objects to the new applications, triggering an extensive hearing process. The conflict means business owners hoping to open new restaurants in the city have no way of obtaining a licence to serve alcohol.

"The problem is their fighting is costing me money," says Jesse Fader, a Toronto chef who is trying to open a small, yet-unnamed Queen West restaurant but has been unable to obtain the required MPP letter. Instead, he's stuck paying the rent on his restaurant location while he waits for a resolution.

"Maybe we can go another month or two months of paying rent. It's $6,000 for us every month to not be open. I have a small business loan. I have a mortgage. I have children. I can't just sit and not even earn any money."

Currently, 23 businesses are listed on the AGCO website as having active licence applications and others, including Mr. Fader, haven't even made it that far. City council blames the AGCO, the AGCO blames the city, and aspiring restaurateurs are caught in the middle.

The dispute stems from a long-standing city practice for dealing with the balance between the needs of businesses and those of the surrounding community. When a new business applies for a liquor licence, a posting goes up to inform the local community. If anybody lodges a complaint during that time – which often happens – the protocol is to go to a licensing appeal tribunal board, which can take months.

To avoid this, the city's practice has been for local councillors to sit down with the business owner and the complainant to come up with conditions on the licence to quell any fears about noise or crowds.

But the AGCO says the conditions the city tagged on to licences and expected the agency to enforce were beyond its mandate.

"There were certain conditions that were being attached to liquor licenses that really had nothing to do with the Liquor Licence Act. Things like noise or the scheduling of garbage removal," said Jeff Keay, the director of communications for the AGCO.

Peter Milczyn, recently elected MPP for Etobicoke-Lakeshore, was on city council when it voted to require MPP letters for licences, though he was absent for that vote. Mr. Milczyn said he's "convinced" the issue can be resolved by city council's August meeting. He's setting up a meeting to bring all parties to the table to lay out a plan for joint enforcement between municipal staff and the AGCO.

In the meantime, he says he feels for business owners who have fallen victim to the squabble.

"They've been put in the middle of a finger-pointing exercise between the city and the province," said Mr. Milczyn, who added: "At the end of the day, it's the city that objects to their application."