Zachary Bredemear looks at some questions a landlord might face if its tenant breaches the terms of a sex establishment licence

Recently, several lap-dancing clubs have been investigated for non-compliance with the conditions of their sex establishment licence (SEL). Breaches identified have included issues relating to the nature of the performances (for example, disregard of the “no touching” rule) and concerns about the welfare of the dancers.

The first the landlord may know about the breaches of an SEL is when the local authority publishes papers for the licensing sub-committee dealing with the SEL, likely leading to a number of questions.

What are the consequences of breaching the conditions of the SEL?

Since 6 April 2010 (when section 27 of the Policing and Crime Act 2009 came into force in England), lap-dancing clubs have been classified as “sexual entertainment venues”, and require an SEL to operate in the area of a local authority that has adopted the legislation to regulate sex establishments in Schedule 3 to the Local Government (Miscellaneous Provisions) Act 1982 (the 1982 Act).

A breach of a condition of the SEL is not itself an offence, but by paragraph 20 of Schedule 3 to the 1982 Act an offence is committed if the holder of the SEL without reasonable excuse knowingly contravenes or permits the contravention of a term condition or restriction in the SEL.

A licence holder can “knowingly” breach a condition of the SEL if the person to whom they have delegated the control of the premises had the requisite knowledge (see Vane v Yiannopoullos [1965] AC 486).

If the conditions of the SEL are breached, the SEL can be revoked or the tenant’s annual application to renew the SEL can be refused.

What happens if the tenant loses its SEL?

It is an offence to use premises as a sexual entertainment venue without an SEL in the area of local authority that has adopted Schedule 3 to the 1982 Act.

The tenant can appeal the loss of an SEL. An appeal is to the magistrates’ court and is by way of a rehearing. The SEL is deemed to remain in force until the appeal is determined (paragraph 27(10) of Schedule 3 of the 1982 Act).

Can the landlord be liable?

The landlord is not liable for its tenant’s breaches of the SEL.

How can the landlord get the property back?

If the tenancy has already expired or is due to expire, the breaches of the SEL could provide the landlord with grounds for opposing the grant of a new tenancy on ground (c) of section 30(1) of the Landlord and Tenant Act 1954.

The landlord might find a tenant with a licensing problem willing to negotiate a surrender. However, a landlord seeking to recover possession is likely to need to forfeit the lease.

What is the breach of the lease?

If use as a lap-dancing club is permitted by the lease, the landlord will need to look carefully at the wording of the tenant’s covenants to identify a breach.

Provisions in the lease relating to the premises licence may not catch a breach of the SEL licence; the breaches of the SEL may not be sufficiently grave to amount to a breach of the covenant not to use the property for an immoral or illegal purpose.

A well-drafted covenant requiring the tenant to observe and perform the requirements of legislation should, however, catch a failure to operate a lap-dancing club in accordance with the terms of the SEL.

What about the rent?

Most breaches of an SEL will be once and for all breaches. If the landlord is aware of the breach and demands or accepts rent falling due after the conduct complained of occurred, it will waive any right to forfeit.

If the landlord issues and serves a claim for possession, it can claim the rent that fell due before the claim was served without waiving the right to forfeit. It can also apply for interim payments under CPR 25.7(1)(d) in the proceedings.

Can the breach be remedied?

Before the landlord can issue a claim for possession it needs to serve a section 146 notice and, if the breaches are remediable, give the tenant a reasonable time to remedy the breaches.

A breach of a negative covenant can be remedied if “the mischief caused by the breach can be removed” (Savva v Houssein [1996] 2 EGLR 65). In cases of immoral use (for example, use for prostitution) the courts have drawn a distinction between cases where (i) the tenant committed the breach or deliberately closed his eyes to the breach, and (ii) cases where the tenant was unaware of the conduct.

In the latter case, the breach is remediable (see Patel v K&J Restaurants Ltd [2010] EWCA Civ 1211; [2010] PLSCS 276). A further consideration is whether the breach caused “a stigma” (ie a diminution in value) to the premises. Even where no stigma can be proven, the courts have treated the “slur” to premises from being associated with illegal gaming (Hoffman v Fineberg [1949] 1 Ch 245) and espionage (Van Haarlam v Kasner [1992] 2 EGLR 59) as being irremediable.

Will the tenant get relief from forfeiture?

If the breach is irremediable, the tenant may find it difficult to obtain relief from forfeiture.

The court will still consider the damage sustained by the landlord and ask whether that is proportionate to the advantage the landlord will obtain if no relief is granted. Valuation evidence can be helpful when this question is considered. A landlord may therefore be more likely to recover possession when proceedings are brought for estate management reasons than when the landlord hopes to increase the value of its reversion.

Zachary Bredemear acted for the landlord in proceedings to forfeit the lease of nightclub premises in Ealing for breach of an SEL

This article was originally published on 23rd November 2019 in the Estates Gazette: