Shadow Licences – The Landlord’s Safety Net

The term “shadow licence” describes the situation where a premises licence is granted to one party in respect of a premises where another party already holds a separate licence. Although they are not explicitly referred to in the Licensing Act 2003, the concept of shadow licences was approved under the modern licensing regime in a 2013 High Court case between Extreme Oyster & Star Oyster Ltd. v Guildford Borough Council.

A common situation in which a shadow licence may be applied for is when a landlord’s licensed premises is operated by a tenant and the licence is held in the name of the tenant (as was the case with Extreme Oyster). In these circumstances there are several ways in which the tenant’s actions could have a negative impact on the licence: they might become insolvent or bankrupt and the licence will lapse, or the licence might be reviewed due to poor management of the premises resulting in restrictive conditions being added, hours cut back or even revocation.

A premises licence can obviously add significant value to a property – especially if the premises is located within a cumulative impact zone where Councils are extremely reluctant to grant new licences – and therefore many landlords wish to protect this asset against the risk posed by potentially insolvent or irresponsible tenants.

Although landlords often seek to protect themselves against such risks through provisions in the lease, these will rarely have a bearing on the licensing process. Such provisions may provide a landlord with a right of action against a tenant, but they cannot prevent a licence from lapsing or being reviewed. A shadow licence solves this problem for the landlord.

A shadow licence will typically be granted on the same terms as the existing licence being operated by the tenant. However, in the event that something goes wrong with the tenant’s operation and a landlord needs to rely on the shadow licence they should not expect this to be a straight-forward process. When granting a shadow licence the Responsible Authorities might, for example, seek to add conditions ensuring that appropriate changes are made to the operation or a cooling-off period is honoured before trading can begin again. Some Councils even have a policy of Reviewing the shadow licence whenever the original licence is Reviewed.

Despite these hurdles many landlords are attracted to the idea of a shadow licence, whilst the Licensing Authorities get an extra fee for not a great deal more work. Expect to see more of these in the future.