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Shadow Licences – A Cause for Concern or not?

I have been involved in a number of cases recently in which the issue of “shadow licences” has been raised.  The term “shadow licence” has come into existence after the implementation of the Licensing Act 2003 and is not defined in the legislation.  It is a simple way of describing a licence which has been obtained by one party in respect of premises in relation to which another licence has already been granted to someone else.  The most common scenario for a shadow licence to exist, and this is particularly true in Westminster, is where a landlord has let premises to a tenant who has a premises licence in their name (i.e. the tenant’s name) and where the landlord then applies for an identical licence in its name, to “sit behind” the licence held by the tenant.  The usual reason for this would be to protect the landlord in case the tenant surrenders the licence without giving the landlord any notice or if review proceedings are brought against the licence and the licence is revoked and the landlord has no knowledge of this.  (It is of course open to the landlord at all times to serve a notification of interest under Section 178 of the Licensing Act 2003, which requires the local authority to notify the landlord of any relevant developments including applications made in connection with the licence).

The leading case in respect of shadow licences involved Extreme Oyster/Star Oyster Limited and Guilford Borough Council. The High Court decision in the matter was given by Mr Justice Turner on 22 July 2013.  The Judge concluded that the applications by the landlord for “shadow licences” were compliant with the Licensing Act 2003 and must be allowed to proceed to substantive consideration and determination in the usual way.  A number of issues were looked at during the case.

The High Court considered whether a landlord qualified under one or more of the criteria set out in Section 16 of the 2003 Act as determining “who may apply” for a licence, and it was concluded that it was possible for a landlord to carry on a licensable activity at premises, notwithstanding that the premises had been let and notwithstanding the existence of the landlord/tenant relationship.

It is also interesting to note that Guilford Borough Council took issue with the use of the term “shadow” licence and challenged the assertion that such arrangements are and were commonplace.  The judge was of the view that as long as the term is treated as being “no more than a convenient label” and “not one to be accorded any special legal status” then there was no harm in the term being used.

The Council also argued that the existence of multiple licences would make enforcement difficult and that unrestricted numbers of licence applications placed an undue burden on licensing authorities.  The judge acknowledged the difficulty in enforcing multiple licences but concluded that that argument was not sufficient to preclude a broad interpretation of Section 16.  The Judge specifically referred to the comments by Mrs Justice Black, in the leading licensing case of Daniel Thwaites, that “the Licensing Act 2003 was intended to provide a more efficient, more responsive and flexible system of licensing which did not interfere unnecessarily.  It aimed to give business greater freedom and flexibility to meet the expectations of customers and to provide greater choice for consumers, while protecting local residents from disturbance and anti-social behaviour”.

It was also noted by Mr Justice Turner in the Extreme Oyster case that if Parliament had wished to preclude the making of a second or subsequent licence application, then this would have been made clear either in the legislation or the guidance.

In my experience shadow licences are not uncommon, especially in Westminster.  The shadow licence can provide some protection to the landlord, without affecting the tenant’s premises licence.  If there is a situation where there is more than one premises licence in existence, then it is clear that it is the person who has the right to occupy the premises who can trade their own premises licence.  If the tenant has a ten year lease and enshrined in the lease is the right to occupy and trade the premises, the fact that the landlord applies for a shadow licence has no impact on either the tenant’s right to occupy, or on their right to trade the premises.  It merely gives protection to the landlord, should unforeseeable circumstances arise.