What is a shadow licence?
A “shadow licence” is a simple way of describing a licence which has been obtained by one party in respect of premises for which another licence has already been granted to someone else. Although the term is not referred to in the Licensing Act 2003, the concept of shadow licences being granted was approved in the High Court case Extreme Oyster Ltd and Star Oyster Limited v Guildford Borough Council.
Shadow licences are particularly useful in situations where a landlord owns a licensed premises operated by a tenant and where the tenant holds the premises licence. A Landlord can apply for a shadow licence in their own name to mirror the existing licence held by the tenant which then effectively sits behind the primary licence. A shadow licence will usually be granted on the same terms as the current licence held by the tenant (occasionally some updated conditions are requested by responsible authorities, for example standard wordings for CCTV or incident books etc).
The primary licence can be lost at short notice – this may be due to the tenant becoming insolvent (or bankrupt if an individual) and as a result the licence lapses; the licence may have been surrendered without giving the landlord any notice; or the licence could be reviewed due to poor running of the premises resulting in onerous conditions being added to the licence, permitted hours cut back or, in serious cases, the licence being revoked.
Given a premises licence can add significant value to a property, some landlords want to protect their asset against these risks. They may already protect themselves through provisions within the lease agreement – however, whilst these provisions may allow a landlord to take legal action against the tenant, they cannot prevent a licence from lapsing or being reviewed. It is here where a shadow licence is most valuable, offering protection to the landlord should such unforeseen circumstances occur. The landlord has a backup licence to rely on and a premises that is still licensed.
However, possessing a shadow licence is not the panacea for all ills. Where for example the primary (tenant’s) licence is reviewed, some councils have a policy to also review the shadow licence ( although in such review proceedings, there is a strong argument that a shadow licence should be unaffected, as long as any problematic tenant is taken it out of the equation). Also, responsible authorities may seek to add conditions to a granted shadow licence ensuring that in certain situations where a landlord needs to rely on it that appropriate changes to the operation are made or a cooling-off period is honoured before trading can begin.
Notwithstanding these potential issues complications, shadow licences can often be attractive to landlords of licensed premises and can act as a key protection and insurance policy.