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It’s Not Hard to Calculate the Value of a Premises Licence…

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It’s Not Hard to Calculate the Value of a Premises Licence…

It’s Not Hard to Calculate the Value of a Premises Licence…
April 03
10:54 2018

In recent years it has become apparent that some operators have ceased to understand the value of a Premises Licence (PL). Indeed, it would appear that those who dabble in the sector often fail to properly advise clients on why a license is so crucial for trade-related businesses.

Pete Seymour explains the importance of operating licences and the consequences to a business if it fails to successfully apply or reapply for one…

It seems to me that many operators assume that the process of obtaining a Premises Licence is merely a bureaucratic exercise.This could be because licensing boards have of late become more amenable to granting new licenses in order to boost employment and the local economy. Or, it could be that licensing boards have been more amenable to granting new licenses in order to boost employment and the local economy; or it may be that the main institutional lenders are at fault.

Whatever the reason, maybe this false sense of security has come about because PLs last in perpetuity providing the licence fee is paid, even if the premises no longer trades.

Essentially, a Premises Licence is a restricted legal consent to sell a restricted product. Here are some of the practical reasons why they hold such value for operators:

Building Regulations

If a Premises Licence is lost, for whatever reason, then an application for a new licence must be lodged with the local Licensing Board. Operators will require Section 50 Certificates from Planning, Building Control and Health and Safety. Building Control have the right to demand that operators physically adapt the property to comply with modern building standards before issuing the Section 50.

Over-provision

Each Licensing Board is meant to issue their Licensing Policy every three years. At this time we understand that Glasgow are overdue on their new Policy Statement and are considering expanding on the seven current areas where over-provision is evident.

Edinburgh, meanwhile, is also currently reviewing its policy and has seven areas where over-provision is evident. It will be interesting to see if these are expanded.

For operators who lose their licence in an area of over-provision, the consequences could be serious, as it is highly unlikely they will get it back. This, in turn, will prevent the sale of alcohol and diminish the value of the underlying asset.

Specialist valuers will understand this and act accordingly, which is why RICS-accredited surveyors only ask those who understand this market to issue reports on assets in this class.

Landlord Vs Tenant

As surveyors, we are regularly asked if it is the landlord who should hold the Premise Licence. While we acknowledge that there is an ongoing liability that should be taken seriously, handing over to a tenant such an asset that is fundamental to a business’s value should not be considered lightly. For one thing, it would prevent anyone else from trading from the premises until it had been transferred to the landlord or new operator. By way of example, I once witnessed a pension fund refuse to take a Premises Licence when they had the opportunity. The Licence was then lost and it took over 18 months to recover it.  The rent roll was £90,000 per annum, which meant the business lost nearly £150,000 during the time it was out of operation.

Licensing is not a subject that should be taken lightly. It is a highly specialised area where expert advice is crucial in order to ensure that the unique hurdles present when applying for one may be overcome. The overriding message to operators, therefore, is this: Putting a Licence in jeopardy could cost far more time, money and worry, so it is best to avoid devaluing an asset by cutting corners and costs in the short-term.

Pete Seymour is Head of Licensed Trade and Leisure Agency at Graham & Sibbald. Their team of specialist chartered surveyors are currently working on a market analysis of the Scottish licensed trade market, to be released this April.  Keep an eye out here at CateringScotland.com or email licensed@g-s.co.uk to receive your copy.

For more information on this and other properties marketed by hospitality and licensed trade specialists Graham & Sibbald, visit www.g-s.co.uk.

 

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Catering Scotland

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