Pub sales: the right to restrict

By Peter Coulson

- Last updated on GMT

Related tags Restrictive covenant Contract law Beer License

Peter Coulson: 'Be wary of different types of covenant'
Peter Coulson: 'Be wary of different types of covenant'
It is no surprise to me that certain breweries and other owners are continuing to reserve their right to impose a restrictive covenant when pubs are sold, writes Peter Coulson.

Restrictive covenants are back in the news this week with the suggestion that the Government will look carefully at the 'de-licensing' provisions of certain trade sales, where a pub is sold on condition it is not re-opened as licensed premises.

Trade protection has been around for as long as licensing itself, but so has the other side of the coin, with premises carrying strict 'no licence' conditions as a result of fervent anti-alcohol views dating from Victorian times. I can well remember half a pub in Hendon, north London, being effectively stopped from allowing alcohol consumption because of such a legal restriction.

It is no surprise to me that certain breweries and other owners are continuing to reserve their right to impose a restrictive covenant when pubs are sold. In particular, they might want to ensure that a 'rival' business is not started up near one of their own outlets in a shrinking economic environment.

However, there have been attempts to remove the right along the way.

For example, under the second of the 1990 Beer Orders it was attempted to make it illegal for a major brewery group to sell a pub with a 'dry' covenant on it, which would render it impossible for the purchaser to re-license it.

Apart from that, there are numerous other conditions of sale, including covenants and undertakings, which can be written into the contract of sale and will bind the purchasers and probably those who come after.

In many cases, covenants can operate to restrict the activities that may take place on the premises in question. It is therefore unwise to embark upon the purchase of a property, which is subject to such a covenant, without fully understanding its implications. The result of accepting it as an irritation that can be ignored could be the collapse of your business, when it is enforced.

For example, a covenant not to use 'as premises licensed for the sale of liquors' would cover use as a pub, hotel, restaurant or wine bar.

If the fact of the existence of the covenant was not brought to the attention of the licensing authorities at the time of application for a licence, it might well be granted. But if the covenant was subsequently enforced, then the business would either have to stop or go 'dry'.

Covenants are not really the province of the licensing authority, however. On an application for a new licence, it is not concerned to know the details of the terms under which the premises are held by the owners or occupiers.

It wishes merely to have the information required under the Licensing Act 2003 and that the applicant proposes to carry on a business that involves licensable activities.

Nor is it a requirement for the applicant to be personally connected with the ownership or leasing of the property. He or she must simply show they fulfil any qualifying requirements. It follows that certain of the terms and conditions of the lease or rental agreement will not necessarily be revealed to the committee, unless the planning authority makes representations.

It is, of course, open to the individual or company that imposed the covenant and wishes it to continue, to make a representation and object to the grant of the licence, if the covenant forbids sales of alcohol.

In such circumstances, the committee may well take that information into account and, if proved, may refuse the grant of the licence.

It should not be forgotten that a covenant of this type is said to 'run with the land', rather than be related to an individual purchaser or licensee. This means that if you sell on, whoever seeks to sell alcohol on those particular premises will be affected by the covenant.

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