Does a shadow licence provide a safety net for landlords of licensed premises?

Licensing and Gaming Partner, Matt Foster advises why shadow licenses are a protection that landlords of licensed premises should seriously consider. 

Premises licences are permissions granted under the Licensing Act 2003 (“LA 2003”).

This article is written from the perspective of providing protection to a Landlord from the risk of losing that permission, and with it the use or value of their building/asset.

There are a number of ways in which a landlord can protect a premises licence:

• He can protect his position via covenants within his lease;
• He can apply to have his interest noted on the licensing register;
• He can have an insurance policy (monthly premiums); and
• He can apply for a shadow licence.

The purpose of this article is to touch upon all protections, but focus on the concept of a shadow licence as being the one that provides the most protection.

So, what is a shadow licence?

There is no restriction on the number of premises licences that can apply to a particular premises.  Section 2(3) of the LA 2003 states:

Nothing in this Act prevents two or more authorisations having effect concurrently in respect of the whole or a part of the same premises or in respect of the same person.

In short, a shadow licence is a premises licence granted under the LA 2003, on the same or similar terms to an existing premises licence, but held by the landlord.

The existing permission is usually held by the tenant under a lease.

The term Shadow Licence is not officially recognised in the LA 2003, and is more a term of reference to aid in the understanding behind such an application.

The case of Extreme Oyster in 2013 provided judicial approval to this practice.

Why would I need a shadow licence?

Consider it an insurance policy, against losing the premises licence, without the monthly premiums but instead with an annual fee.

If the premises licence is lost, you might not get it back and you could lose the value that adds to your asset.

Be warned, there are a number of ways in which a premises licence can be lost.

• Under section 27 of the LA 2003 it can lapse as a result of:
  • Insolvency (including liquidation, winding up, company strike offs or bankruptcy),
  • Through death (happens lots in small family businesses); and
  • Through incapacity.
• It can be surrendered by the licence holder under section 28; or
• It could be revoked or modified through the process of review via section 52 LA 2003.

Lapses under sections 27 and 28 mean the licence ceases to exist and cannot be operated for licensable activities.

The licence can be reinstated within 28 days by making a transfer application or by an Insolvency Practitioner (“IP”) via an Interim Authority Notification (“IAN”).  IAN’s only last 3 months and so later requires a transfer.

They tend not to be used since IP’s do not want the responsibility of trading a premises, or holding a premises licence.

Would I find out if the licence has been lost?

In most of these circumstances you may not even find out that the licence has been lost.

It is also worth noting that it could be modified by a decision of a Sub-Licensing Committee at a Review Hearing in a way in which it impacts on the viability of the operation, such as loss of hours or imposition of conditions.

A Notification of Interest might at least provide you with a chance of being notified of a change to the licensing register, but that might not be in time.

Notification of Interest under Section 178 LA 2003 provides additional protection

Section 8 of the LA 2003 provides that the Licensing Authority is required to keep a licensing register.

A Notification of Interest can be applied for by anybody who has a ‘property interest’ in the premises.

They would then be notified where ‘a change relating to the premises to which the notice relates is made to the register at a time when the notice has effect.’

This is a 12 month notification so you are going to have to remember to make a fresh application in 12 months, and the Licensing Authority has no obligation to remind you.

A negative of this arrangement is that there is no provision as to when a Licensing Authority might notify you of a change to the register.

But, the lease I have with my tenant provides me with protection.  Doesn’t it?

Does it? How? Are you sure?  The reason I ask is that in almost all of the circumstances I deal with where a premises licence has been lost the landlord thought that his lease would protect him.

However, a lease has no bearing at all on the LA 2003, only (in some circumstances) on damages from the tenant or a course of action.

If the lease is with a company, make sure you also have a personal guarantee in place for the directors.

If the licence has lapsed then somebody still has to apply for a new premises licence, and what’s to say that you will get the licence back or if you do might it be on less favourable terms, such as shorter hours or with onerous conditions?

You mentioned an insurance policy?

I have dealt with circumstances where a licence has been reviewed and revoked and an insurance policy was in place.

This policy was paid for with monthly premiums and was quite expensive.

It also provided no guarantee of getting the licence back, and in the case I dealt with it was a nightclub that had rather late hours.

Those hours were now out of keeping with current framework hours in the councils Statement of Licensing Policy.

In those circumstances the appeal was paid for by the insurance company, but to be honest their requirements on reporting and costs made the whole process a complete pain.

We did get the licence back in the end, but with a 3am, rather than a 4am licence, and with much more onerous conditions.

Technically, it was a WIN, but it never traded again as sometimes the damage caused by a review is lingering.

If I apply for a shadow licence, is it certain that I will get it?  Can I lose that licence?

There are no certainties, and I have applied for a few where there have been objections.

In both those cases the objections related to issues with the existing premises that the responsible authorities and residents required some assurance over.

I was successful in both cases, but in one was required to apply some additional conditions.

Had the applications been made at a time when there were no issues with each premises, objections would have been less likely.

The purpose of the shadow licence is that it sits in the background and is not traded.

However, some councils might review the shadow licence as well as the original licence if they were having issues with the premises, and you may have to defend such an action.

What are the advantages to a shadow licence?

From the Licensing Authorities point of view, they receive an additional annual fee for copying a licence.

They also have the landlord as a point of contact if they have any issues with the premises, and such engagement leaves it less likely that the shadow licence would be caught up in a review of the premises licence(s).

The existence of a shadow licence also leaves the landlord in a stronger position if he has an irresponsible tenant.

The landlord can then be more robust in their approach as they are not saddled with the concern about retaining the premises licence or getting consent to transfer if the tenant were to leave.

If you require any advice or further information on shadow licences, get in touch with Licensing and Gaming Partner at mfoster@mincoffs.co.uk or on 0191 212 7702.