Gambling has become a growth industry over the past decade or so with the explosion of online gambling sites increasing its popularity. Data suggests that 65% of adults in Scotland and England gamble each year, whether that be the purchase of a lottery ticket, a flutter on the Grand National, or a spin of the roulette wheel. This has made gambling operators such as bingo halls or bookmakers’ attractive tenants for commercial landlords. In the right location the tenant can thrive meaning stability of rental income for the landlord.
So what are the key considerations for Scottish commercial property landlords when letting premises to a bookmaker, bingo hall or other gambling establishment?
What are the key regulatory requirements for gambling premises?
Putting a lease in place is only part of the story. There are a number of additional regulatory steps to go through.
Firstly, the unit will need permission to operate as a bingo hall. Bingo halls and casinos fall under Class 11 (assembly and leisure) of the Scottish Use Classes Order 1997. That may mean applying to the local authority for planning permission for change of use for the premises. That, in turn has timing and cost implications. Whether the landlord or tenant runs (and pays for) that process, and whether that is a pre- condition of the lease being granted, are commercial points which are best addressed when negotiating the letting heads of terms.
Secondly, the tenant / its operator must obtain the necessary gambling licences and adhere to the relevant regulations. The Gambling Commission regulates gambling and processes gambling licences for Scotland. The tenant will need to ensure it has all of the necessary licences in place and continues to comply. The landlord should consider making it a tenant lease obligation to obtain and retain the gambling licence to ensure the tenant can trade for the permitted use.
As with the change of use application, the timescales for the gambling licence need to be considered. The tenant will not be able to operate without it, and the landlord want to ensure the tenant opens for trade as soon as possible (e.g. as soon as it has fitted out the premises).
What about ancillary uses?
Once planning permission for the relevant use has been secured, the ancillary uses of the premises need to be considered. Studies show that 30-60% of income generated from bingo halls comes from the sale of alcohol and income generated from slot machines.
It can therefore be key to the operation of a bingo hall that the tenant obtains a premises (alcohol) licence and / or any necessary gaming machine permits. These are both obtained from the licensing board. They are separate applications and the timing of those can differ. In respect of the premises licence, licensing boards generally sit monthly to hear applications, which will require input from third parties such as the police. When the tenant’s application is heard has inevitable implications for the overall timing of the lease start. Applications can take four - six months, sometimes longer, to be determined.
What are the ongoing responsibilities once the lease is in place?
Once all of the consents, permits and licences have been obtained the tenant is able to operate from the lease premises. It would be common for lease start to be conditional on that so once they are in place the lease commences. From that point onwards there are ongoing regulatory requirements on the tenant.
A prudent landlord would want to ensure that under the lease the tenant is required to both (a) maintain their various operating licences and (b) fully comply with regulations. That goes towards ensuring that the premises will be open and trading for the permitted use, which should enable the tenant to comply with its lease obligations including rental payment.
How can the landlord future proof the premises for gambling use?
Landlords should be aware that operating licences and gaming machine permit are granted to the applicant, being the tenant or its operator. The landlord would not be able to obtain the benefit of these licences for use by a future tenant.
Conversely, planning permission for use attaches to the premises. That remains in place until an application to change the use is granted. That use remaining in place come lease expiry enables the landlord to let to another gambling operator in future without needing to obtain a further change of use consent.
Similarly, the premises (alcohol) licences attach to the premises and can be transferred. They are therefore capable of being utilised by any future operators / tenants of the premises. The premises licence can be held in the name of the landlord or an entity on behalf of the landlord, or the tenant. A landlord holding a premises licence itself can have certain consequences (e.g. potential TUPE exposure) so should be carefully considered. The tenant would need to be involved in the application and consent to the transfer of the premises licence to a new tenant/operator. Landlords should consider that at the outset when negotiating the lease. It may be prudent to include provisions in the lease to cover that eventuality at lease expiry. For example, the lease could provide for the outgoing tenant to facilitate the transfer of the premises licence to the landlord or incoming tenant (e.g. an obligation to provide the necessary information / sign off on the necessary forms to transfer the premises licence to the incoming tenant/operator).
Key takeaways
Whilst the regulatory requirements for gambling premises and ancillary uses sit with the tenant as operator, ensuring they are all in place for the tenant to operate has implications on the overall lease viability and transaction timing. Landlords should also consider whether the lease has the necessary provisions to require the tenant to meet the ongoing requirements to keep all of those permits in place; and whether there are any arrangements or additional obligations in respect of those licences to be covered off at lease expiry.
Contributors
Senior Paralegal
Senior Associate
