It is important for landlords and freeholders of licensed premises to take steps to protect any existing premises licences in the event that a tenant becomes insolvent, ceases trading or otherwise walks away to ensure that the premises can continue to benefit from an authorisation to sell alcohol and/or to provide regulated entertainment.
This is because the loss of any such licence can severely affect the value of commercial premises if they do not have the ability to trade, particularly where those premises can only really be used for a particular use (e.g. a purpose built pub or club) and cannot be redeveloped into a different use which does not require a premises licence.
We have worked with many landlords to ensure that their interests are adequately protected if their tenants cease trading or otherwise lose their licences. The most common ways of protecting a landlord’s interests are:
- tenant due diligence;
- lease covenants;
- registering an interest on the licensing register;
- applying for a shadow licence; and
- the landlord holding the premises licence.
We have considered each option in turn below.
TENANT DUE DILIGENCE
One thing we know a lot of landlords do is undertake financial and other checks on tenants to try and identify, as far as possible, whether or not they are likely to pay the rent on time and comply with the lease covenants etc.
We would recommend that when letting out licensed premises the same approach be applied to the licensing aspects of the landlord and tenant relationship. For example, it is possible to look into a premises licence holder’s compliance history and background and to do some limited digging into how they have managed and operated other licensed premises in the past.
Whilst this will not be possible or appropriate in all cases it could form part of the background information which is generated when considering whether or not a prospective tenant is suitable for a letting.
It is now quite common for leases which relate to licensed premises to include express covenants relating to the premises licence. These often, for example, impose positive obligations to hold, comply with and maintain a premises licence in order to prevent its revocation and to inform the landlord of any threat to the continuity of the licence.
Whilst such provisions would have no impact on the licensing process itself they do provide a landlord with some contractual protection that the licence will remain in place for the duration of the lease and that it will be available to be transferred to the landlord, or a future tenant, should any problems arise with the existing tenant. Any contractual provisions will also provide the landlord with various contractual remedies, including the right to commence forfeiture proceedings against the tenant, if they are breached.
This option would therefore provide the parties with clarity about what it is expected and by whom and also a framework for dealing with any licensing applications, problems or disputes which may arise during the term of the lease.
REGISTERING AN INTEREST ON THE LICENSING REGISTER
Section 178 of the Licensing Act 2003 allows, among others, the freeholder of a property to notify a licensing authority of their interest in a property. Having done so, the person who has made the notification will then be informed of any change which is made to the licensing register.
Whilst this does not mean that a landlord would be notified in advance of any proposed changes to the premises licence – because the notification would only be made once the licensing register has been updated, which is done after any application has been determined – it should mean that a landlord would receive sufficient notification of any changes to a licence with sufficient time to react to the change.
This may be helpful to, for example, identify whether works have been undertaken to a property without the consent of the landlord being sought. This is because most significant refurbishment works will require an application to be made to vary the premises licence to ensure that those works do not contravene the licensing objectives and that an accurate plan of the premises is lodged with the licensing authority.
However, we think that the most effective use of this section is where a tenant has applied to surrender a premises licence. This is because a premises licence will lapse once notice of its surrender is served on the licensing authority and, ordinarily, disappear forever. However, those with an interest in the premises covered by a premises licence can make an application to resurrect a licence which has been surrendered provided this is done within 28 days from the date that notice is given to the licensing authority, which is why it is important to receive notification and to act quickly.
Notice given under this section expires after 12 months and will therefore need to be renewed every year but it is relatively easy to make a notification and only costs £21 to do so. We therefore think it is an effective way for a landlord to keep track of any changes to a licence which may affect their premises.
The term shadow licence is one which refers to a licence which is sought by a person in respect of premises in relation to which another licence has already been granted to another person. The applicant of the second licence therefore seeks a further licence for the same premises to operate in parallel to the existing licence.
This is permitted under the Licensing Act 2003 which provides that two or more licences may have effect concurrently in respect of the whole or a part of the same premises. However, whether or not a person is entitled to apply for a shadow licence depends more upon whether or not they fulfil the qualifying criteria set out in the 2003 Act.
In the context of a landlord, section 16(1)(a) of the 2003 Act provides that any person who carries on or who proposes to carry on a business which involves the use of the premises for licensable activities may apply for a premises licence. Up until recently, there has been limited guidance on how this provision applies to so called shadow licences but a recent High Court decision – Extreme Oyster and Star Oyster Limited v Guildford Borough Council – has provided some welcome clarity on whether or not shadow licences are indeed possible.
This case specifically considered whether or not the landlords of several licensed premises were entitled to apply for premises licences in respect of those premises even if the tenant already held several in respect of the same premises. Here, the local authority had refused applications for shadow licences on the basis that it felt that the applicants did not fall within the categories of those who were entitled to apply for a premises licence. However, the High Court, in considering a judicial review brought by the relevant landlords, concluded that shadow licences could lawfully be granted in those circumstances providing those licences only covered the same activities as the premises licences already held by the tenant.
A shadow licence is therefore another possible option to consider when trying to put in place measures which will protect a landlord’s interests. Since an application can be made at any time it is possible to make an application for a shadow licence at any point during the term of a lease, which may be helpful if there are growing concerns about the ability of a tenant to operate and run licensed premises.
In practice, it is likely that a licensing authority will want to include conditions in a shadow licence which prevent any trading under the shadow licence whilst the tenant’s premises licence remains in force. This is unlikely to be problematic though given that the whole purpose of the shadow licence is to provide the landlord with a licence that they can either trade under or transfer to a buyer or tenant if the existing tenant loses the ability to trade under the existing authorisation.
Whilst applying for a premises licence is probably the most onerous and expensive of the options we have outlined it is, providing the qualifying criteria are satisfied, the most effective way of ensuring that the landlord can continue trading if the tenant loses the ability to trade under their own premises licence.
LICENCES HELD BY THE LANDLORD
In some cases a landlord may want to retain a degree of control over how licensed premises are operated and in those circumstances it is possible for the landlord to apply for and obtain a premises licence.
This is quite common, for example, in the case of some of the large breweries who are often very prescriptive about the way in which their tenants run their business. In effect, the tenants (who are usually individuals) will often run the premises on behalf of the landlord and will be named on the licence as the designated premises supervisor.
This arrangement will not suit every letting because many landlords will want to hand the premises over to their tenant and let them get on with running the business but in some circumstances it does make sense for the landlord to hold the premises licence.
There are therefore a number of measures which can be used by landlords of licensed premises to try and safeguard the position of the licence and the premises in the event that anything happens to the tenant which may place the licence in jeopardy. Whilst the circumstances will vary in each case we find that in practice clients often use a combination of some or most of the measures set out above to provide them with the best possible protection.