Ignore restrictive covenants at your peril

It is no surprise to me that certain breweries and other owners are continuing to reserve their right to impose a restrictive covenant when pubs are sold.

In particular, they might want to ensure that a "rival" business is not started up near one of their own outlets in a shrinking economic environment.

This has been part of English law for a very long time, and has cropped up regularly within the licensed trade ever since I started writing. However, there have been attempts to remove the right along the way.

For example, under the second of the 1990 Beer Orders it was made illegal for a major brewery group to sell a pub with a "dry" covenant on it, which would make it impossible for the purchaser to re-license it.

Apart from that, there are numerous other conditions of sale, including covenants and undertakings, which can be written into the contract of sale and will bind the purchasers and probably those who come after.

In many cases, covenants can operate to restrict the activities that may take place on the premises in question. It is, therefore, unwise to embark on the purchase of a property subject to such a covenant without understanding its implications.

The result of accepting it as an irritation that can be ignored could be the collapse of your business, when it is enforced.

For example, a covenant not to use "as premises licensed for the sale of liquors" would cover use as a pub, hotel, restaurant or wine bar.

If the fact of the existence of the covenant was not brought to the attention of the licensing authorities at the time of application for a licence, it might well be granted. But if the covenant was subsequently enforced, then the business would either have to stop or go "dry".

Enforcement right​

Covenants are not really the province of the licensing authority, however. On an application for a new licence they are not concerned to know the details of the terms under which the premises are held by the owners or occupiers.

They wish merely to have the information required under the Licensing Act 2003 and that the applicant proposes to carry on a business which involves licensable activities.

Nor is it a requirement for the applicant to be personally connected with the ownership or leasing of the property. He or she must simply show that they fulfil any qualifying requirements.

It follows that certain of the terms and conditions of the lease or rental agreement will not necessarily be revealed to the committee, unless the planning authority makes representations. It is, of course, open to the individual or company that imposed the covenant and wishes it to continue, to make a representation and object to the grant of the licence, if the covenant forbids sales of alcohol.

In such circumstances, the committee may well take that information into account and, if proved, may refuse the grant of the licence.

It should not be forgotten that a covenant of this type is said to "run with the land", rather than be related to an individual purchaser or licensee. This means that if you sell on, whoever seeks to sell alcohol on those particular premises will be affected by the covenant.

Breweries have been known to be prepared to negotiate a release from a restrictive covenant, usually on payment of a substantial consideration. But they may also enforce

covenants against occupiers who turn a blind eye to the conditions imposed on the lease or contract of sale, by taking them to court.

Clearly, there are still those operators within the trade who want to retain this enforcement right, although others have said they will not do so.