Premises Licences: A Valuable Asset
Author: Gina Sandhu
Key Contact: Rob Morgan
Valuable Asset
In the current climate with businesses struggling to stay afloat and strict council licencing rules, the status of a premises licence is of even greater importance than it had been previously.
It was only a couple of months ago that Westminster City Council refused an application by Greggs to sell food and drink in their Leicester Square store from 23:00 until 05:00. It was blocked over worries that businesses serving 24/7 could become a ‘hotspot’ for trouble.
This has meant that businesses with a premises licence, such as Duck & Waffle, have become even more valuable as, for example, there are few high-end bars in Central London that can serve alcohol 24 hours on the weekend. It is imperative that both a landlord and a tenant know how to protect such an asset.
What is a premises licence?
Under Licensing Act 2003 (the Act), premises are required to be licensed if a tenant wishes to carry out any of the following activities at a particular venue:
- the retail sale of alcohol (on or off the premises);
- regulated entertainment (plays, films, indoor sporting events, live/recorded music or any performance of dance); and
- the provision of hot food or hot drink between 23:00 and 05:00 on any day.
The premises licence can remain in place for as long as the premises exists, unless the premises licence is, for whatever reason, terminated or surrendered.
How can you protect your premises licence as a landlord?
As a landlord, you should ensure that any premises licence that benefits your premises has not lapsed or been revoked. For prospective tenants, it may be essential to their business that the premises they propose to lease from a landlord has a premises licence, so that they can, for example, sell alcohol. If a premises licence is no longer in place, a prospective tenant may be encouraged to look for other premises which benefits from a premises licence, as the application process for a new premises licence can be time-consuming and there is no guarantee that one would be granted. It would be quicker and easier if the landlord were able to transfer an existing premises licence to the tenant.
In addition, a valid premises licence could add significant value to your premises, especially in areas such as Westminster where the council is incredibly reluctant to grant new licences. Therefore, potential tenants could be willing to pay a higher rent to hold a premises licence with favourable terms (for example, being able to sell alcohol past 3:00am, as such a premises licence may not be easily granted by the council again).
It is also imperative that the prospective tenant is trustworthy and has solid references, because once a premises licence has lapsed or has been revoked, it can be very difficult for it to be restored. For example, 7 Seas Grocery Store (previously trading as One Nation) in Westminster, had their premises licence suspended because they sold alcohol past their permitted hours and their application to transfer the premises licence to a new tenant was deemed invalid. The business applied to Westminster Licensing Authority to review the case on the basis that the owner did not understand the conditions that were attached to the premises licence and was also unaware that a review application had been submitted. However, the council’s sub-committee decided that the punishment should be harsher than the premises licence being just suspended, and the premises licence was subsequently revoked. The council made it clear should the owner make an application for a premises licence, he would need to, at a minimum, prove that he understood what the responsibilities of a licence holder were and would also have to provide evidence that all the people connected with the sale of alcohol from the premises had completed very thorough training. This would be time-consuming and expensive for a landlord to undertake, and there would be no guarantee that a new application would be successful.
Transferring a premises licence to a tenant
It is important that a landlord ensures that any premises licence that benefits their premises is safeguarded when being transferred. The impact of the Covid-19 pandemic, for instance, has resulted in the closure of many premises. As a landlord, it is recommended that you apply for a ‘shadow premises licence’ to protect the premises licence in the unfortunate circumstance that the tenant licence holder becomes insolvent or bankrupt. A shadow premises licence will sit behind the existing premises licence and is typically granted on the same terms as the existing premises licence. If a premises licence is subsequently lost by the tenant, the shadow premises licence could then be used. It is, essentially, an insurance policy for a landlord.
A landlord should ensure that any lease granted has premises licence provisions that sufficiently protects the landlord. Such provisions could, for example, require the tenant to seek landlord’s consent for any variations the premises licence. A lease could also include a provision that would oblige the tenant to transfer the premises licence to the landlord once the lease comes to an end. This would provide the landlord with control and protection over the premises licence.
How can you protect your premises licence as a tenant?
As a tenant, it is also important to protect your premises licence as the licence holder. When inspecting new premises, you should check that the premises licence is in force and that a new application does not need to be submitted. If the previous tenant has left the premises due to bankruptcy, then there is a greater risk that the premises licence may no longer be valid. This could dramatically affect your profit margins if your business relies on the sale of alcohol. The tenant can check the status of the licence with the local authority.
A tenant should also check that the terms of the premises licence, the operating plan and the layout plan correctly reflect the layout of the premises or have been updated should the layout of the premises have changed since the premises licence was granted. This ensures that the tenant can accurately determine the value of the premises licence and can be satisfied that the terms of the licence match their business needs.
How is the current climate impacting businesses which need premises licences?
Businesses are slowly recovering from the effects of Covid-19 and some have been looking to expand and occupy additional premises. However, post-Covid-19 has also seen more local residents being vocal and submitting complaints about the opening of new licenced premises in the area, especially if they think the premises may encourage noise issues, crime and general disruption. Greggs’ application to serve 24/7 in Leicester Square, as mentioned earlier in the article, attracted several complaints, as it was feared that extending Greggs’ licence could “undermine the licensing objectives in relation to the prevention of crime and disorder“, according to the Local Democracy Reporting Service.
Small business owners have also been hit hard by the cost of living crisis as they’ve been affected by soaring energy prices and rising inflation. Increasing inflation has led to businesses having to pay more for materials, products, and stocks and as demand increases, this can also cause supply chain issues and staff shortages. Consequently, the optimism businesses had at the start of the year for growth, has taken a turn as businesses now need to save money and ease the pressure if they are to survive. Many are doing this by pausing growth plans and putting off expansion. Therefore, with expansion plans being put on hold, the demand for properties with premises licences has lessened as businesses are trying to conserve cash and are not seeking to hold any new premises licences in the near future.
Overall, a premises licence is granted to the premises and not to the Landlord, so having a valid premises licence will increase the value of the premises. However, a revocation of a premises licence could, in turn, decrease the value of the premises. Therefore, it is crucial that you ensure that such a valuable asset is protected and in the hands of someone you trust. Failure to do this can result in a loss of profit and as we have seen from Westminster City Council, punishments can be severe.
For further information or advice, please reach out to our Real Estate Team or speak to Rob Morgan.
