Should a landlord shadow its tenant's premises licence?

Should a landlord shadow its tenant's premises licence?

Published:

Author: Andrew Tatlock

Loss of a premises licence can have a significant impact on the value of a property.

A recent High Court case has confirmed that landlords of licensed premises can use shadow licences to protect their position.

Where a tenant operates a licensed business such as a pub, the premises licence will normally be held in the tenant's name. This can create an issue for the landlord if the tenant's licence is suspended or revoked.

Although landlords quite correctly seek to protect their position by including provisions about the premises licence in the lease, such provisions do not have any impact on the licensing process - they simply provide a right of action against the tenant.

A simple but more effective step to address this issue is for a landlord to apply for a 'shadow licence' for the premises - this will be a premises licence in the name of the landlord which sits in the background and can be used should the primary licence become suspended or revoked. The term shadow licence is not defined in either statute or case law, it is just a phrase commonly used to describe the situation where a second licence is held in parallel.

In Extreme Oyster Limited and Star Oyster Limited v Guildford Borough Council, the High Court has confirmed that shadow licences may be granted by a licensing authority to landlords, if the application falls within the statutory framework in the Licensing Act 2003.

In this case, the local authority had rejected several applications made by a pub landlord to obtain shadow licences to protect the businesses in the event that the tenant's licences were suspended or revoked.

The court held that the landlord was entitled to apply for a shadow licence stating: "So long as the extent of the shadow licence application does not stray beyond the parameters of the premises used by the applicant as a business and that the matching categories of licensable activities are carried out."

An applicant for a shadow licence must demonstrate a sufficient link between its business and the relevant licensable activities. The judge also commented that developers may be excluded from using shadow licences, and borderline cases will be decided on their facts.

However, provided that they are within the scope of the Licensing Act 2003, an application for a shadow licence should be less complicated as any issues or objections attaching to the initial licence application by the tenant will have been dealt with through the application for the primary licence.

This is in stark contrast to the potential difficulties that a new tenant, or the landlord, will face in making a fresh application for a premises licence, where the previous licence was previously revoked.

Landlords who have concerns about their tenant putting the original premises licence at risk can also consider registering their interest on the licensing register. This will ensure that they are notified of the large majority of proposed action in respect of the licence, and will have an opportunity to act promptly.

A combination of practical steps and lease provisions will help to ensure that the value of licensed premises is maintained.