The importance of doing due diligence

The EP Legal Briefing
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“THE IMPORTANCE OF DOING DUE DILIGENCE”

As the economy comes back to life there are many companies in the hospitality sector looking to expand into new sites, especially in London. However, as competition for the best sites reaches fever pitch, it’s important to always take a step back and evaluate everything about the property other than just the size/location. Otherwise, operators and investors run the risk of being caught out and left “holding the baby”.

Niall-McCann

Niall McCann, Joelson Wilson LLP

Niall McCann is Partner at Joelson Wilson LLP with a specific remit for licensing & gambling. At the presentation yesterday morning he began by describing the process of due-diligence as “a somewhat mundane must-do”. However, it was self-deprecating as Niall’s presentation was an interesting insight into what hospitality businesses need to know about new venues and properties – specifically in relation to licensing law and allowances. With some alarming examples of situations where due diligence wasn’t carried out in good time and the resulting catastrophic outcomes for the companies involved, Niall’s presentation was certainly illuminating.

The legalities of the licence

Ana-Maria-Ignat

Ana Maria Ignat, Hotel Homes

It’s important to understand, first of all, that licensing law applies to all businesses in the sector from hotels to restaurants and nightclubs to corner shops. No business hoping to sell alcohol or food, or provide late night entertainment or be open 24-hours per day is entirely free of licensing obligations. Knowing what a premises is allowed to do is essential before ever entertaining the thought of purchasing or renting for business use. Not carrying out this essential piece of “research” can have a hugely negative impact on the business which in extreme cases could lead to 6 months in prison or a £20,000 personal fine.

When applying for a change to an existing licence it’s important to act quickly. For example in the case of the death of the licence holder for a bar/restaurant, an application to change the name must be made within 28 days. After this time the licence will have to be applied for as a new request, and these are not always easily granted.

The process of due diligence will invariably, by its very nature, raise questions about existing licence conditions. If a tweak or change to an existing licence needs to be made for the new business to be viable, how long can the process take?

  • A minor tweak in conditions can be applied for with a standard waiting period of 28 days. The intentions of the owners/operators must be made known by way of an advertisement in a local paper and an A4 sized note on blue paper being placed prominently on the premises themselves. If no obligations are raise by a local resident or the council or other concerned body, then the licence will be granted on the 29th day.
  • If, however, an objection is raised – as so often does happen – then the courts have another 20 working days within which to review the application and corresponding objections. If the objection is held up, the licence will not be issued. However the applicant is free to appeal.
  • An appeal can, and often does, take as much a 6 months to get before a
    magistrate

What are the most essential enquiries to make first?

  • What activities does the licence permit?
  • Are the hours workable?
  • What “conditions” are in place on the licence?

It’s important to understand that just because a business has a licence to remain open until 2am doesn’t mean that it’s allowed to serve alcohol or play music until that time too.

Similarly, if the plan is to open a “family friendly” restaurant then it would be important to know if the licence stipulates that after 11pm “security” must be clearly placed at the front entrance – “that would probably impact on the kerb appeal of a family on holiday looking for a venue to have their post-theatre evening meal”

Bruce-Isaacs-Aaron-Resch-Inga-Hjartardottir

Bruce Isaacs, Aaron Resch, Inga Hjartardottir

The unfortunate situation in the UK for business operators, is that each Council operates to its own set of requirements and obligations when it comes to licence applications and control. There is no “one size fits all” scenario.

Licence applications for a new business or change of purpose to an existing building can be a lengthy and time-consuming task with every minute detail taken into consideration.

Even in-house security can be built into the application process. For example in some districts restaurants and bars are not only required to have comprehensive CCTV cameras throughout the property but how long the videos are stored for can also be dictated. Some Councils require all businesses to hold CCTV footage for up to 31 days whereas in others businesses are required to hold images for 20 days.

One London Borough requires all licensed properties to have a person on-site who is fully conversant in all aspects of the CCTV system 24-hours per day.

Gillian-Thomson

Gillian Thomson, ACT Ltd

Piero-Sardano

Piero Sardano, TAG Restaurant Holdings

Toby-Davidson

Toby Davidson, HSL

What are Cumulative Impact Zones and how do they affect my plans?

“Cumulative impact refers to the potential impact on the promotion of the licensing objectives of a significant number of licensed premises concentrated in one area”

Cumulative Impact Zones are, essentially, areas within which there already exists a large number of operators. These are areas within which it is increasingly hard to obtain a licence for a new establishment. Councils can and do demand proof from applicants that the new business will not impact negatively on crime in the area; noise pollution; late night disturbances from revellers etc.

A local authority usually considers including an area within the Cumulative Impact Zone if there is sufficient evidence to justify that a particular region is suffering from unusually high crime & disorder rates associated with the consumption of alcohol etc.

This does not mean that the authorities have the right to reassess all existing licences in the area, however the granting of new licences involves a far greater list of conditions.

While not all authorities have adopted a policy of naming a particular place as being a Cumulative Impact Zone, they are at liberty to do so at any time so anyone intending on applying for any new licence should consult the relevant authority to ascertain their intentions for the future.

Bruce-Isaacs-Andrew-Guy

Bruce Isaacs & Andrew Guy

Eivin-Berget

Eivin Berget

How can a business go about making the necessary checks?

The first port of call, naturally, should be the company’s solicitor. Ask them to carry out the process of due diligence on the relevant property and make sure that a thorough check is carried out.

If there is any concern that a property’s licence is being reviewed then speak to the relevant authority or Police. In many instances they will provide up to 12 months of reports regarding how many Police call-outs there have been and how many local resident complaints have been made etc. These will often go a long way in establishing the likelihood of a review being planned in the near future.

Another thing to remember is to protect your self and your business.

“You can do every bit of due diligence there is but if you don’t protect yourself then
it will all have been for nothing”

  • Insert clauses into leasing agreements which stipulate that the deal is predicated upon the granting of a licence as required
  • If concerned about the time or cost involved, then have the seller/landlord take on the responsibility of reviewing the licence status

Some people think “We can’t afford to do all that at this early stage of the process”,
but the truth is, you can’t afford not to

For more legal advice on starting up a new business contact Joelson Wilson LLP
For information on how to join the next EP and Joelson Wilson Legal Briefing,
contact Arlene Tobin

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