Why landlords sometimes safeguard their interests with a separate premises licence
Recently, I have been made aware of a case where a premises licence, held in the name of a tenant, has been surrendered maliciously due to disagreements with the landlord.
As a result, I had to urgently apply for a new licence on behalf of the landlord. This experience highlights the importance of a legal safeguard known as a “shadow licence” a useful tool for landlords looking to protect their interests.
What is a shadow licence?
A “shadow licence” refers to a premises licence obtained by one party (typically the landlord) for a property that already has a valid licence held by another party (usually the tenant).
While the Licensing Act 2003 doesn’t explicitly mention shadow licences, their legitimacy has been confirmed in court, notably in the High Court case Extreme Oyster Ltd and Star Oyster Limited v Guildford Borough Council.
Shadow licences are especially helpful when a landlord owns a licensed property operated by a tenant.
In this scenario, the landlord can apply for a licence that mirrors the tenant’s existing one.
Although it’s secondary in practice, this backup licence often contains the same terms and conditions as the primary one, sometimes with minor updates requested by authorities, such as standardised wording for CCTV or to notify the licensing authorities if the ‘shadow licence’ is to become active.
Why consider a shadow licence?
A premises licence can be lost with little or no warning. This could happen if the tenant becomes insolvent or bankrupt, resulting in an automatic lapse. In other cases, a tenant might surrender the licence without informing the landlord, or the licence could be reviewed and severely restricted or even revoked due to poor management.
Because a premises licence can significantly impact the value of a property, many landlords seek ways to shield their investment.
Lease agreements often include clauses to mitigate some of these risks, but they offer limited protection when it comes to the actual licence itself.
A shadow licence, on the other hand, gives landlords a fallback option, helping ensure that the property remains licensed even in the face of unexpected problems.
Limitations and considerations
While shadow licences offer strong protective value, they are not without complications. If the tenant’s primary licence is reviewed, some local authorities may also review the shadow licence - though it can be argued that the latter should remain unaffected if the problematic tenant is no longer involved.
Additionally, responsible authorities may attach conditions to the shadow licence. For instance, they might require operational changes or impose a temporary cooling-off period before the premises can reopen under the shadow licence.
Final thoughts
Despite these potential hurdles, shadow licences remain a smart and increasingly popular strategy for landlords who own licensed premises. They provide a critical layer of protection, acting as both a contingency plan and an insurance policy against unexpected disruptions.
- Alex Tomlinson is a solicitor at Poppleston Allen.
