F&B legalities

4 April 2018

Concessions, or F&B, sales remain a critical revenue-source for cinemas, and continue as both a dynamic and evolving marketplace. Indeed, may things yet turn full-circle, with outside concessionaries reoccupying traditional cinema lobby-space? With this prospect ever in mind, Fladgate LLP’s Gavin Whitney offers a reminder of some of the legalities governing the use of foyer-space in cinemas.

It is of course commonplace, if not essential, for cinemas to include F&B stands for customers and whereas, once, these once might have all been “in house”, as well as branded as such, we are now seeing more and more concessions for well-known high street leisure operators keen to get a piece of the big screen market.

There are two main reasons for this. First, as we know, customers like to buy what they consider to be premium products from recognised brands, and this helps to drive cinema food and drink sales, as well as cinema visits, in general; and, second, amid the rise of online ticket-purchasing, there is no longer a need for such an expansive box office area, and operators are keen to ensure that any under-utilised space is put to good use.

As good as it is to have a popular ice cream, coffee or frozen yoghurt retailer in your foyer, such presence – if you choose to go this route – can create some legal risks for cinema operators that do need to be borne in mind. Here are some top tips to avoid pitfalls:

  • If, as the cinema operator, you yourself a tenant under a lease, check first to see whether you are even able to allow any concessions, as restrictions may apply. This will usually be in the ‘alienation clause’ in your lease. If consent is needed from your landlord in relation to any concessions presence, there may be limits on the type and number permitted as well as how they are documented.
  • Do not agree to any informal arrangements – instead, ensure that everything is documented in writing, preferably in a formal contract signed by both parties. Again, this becomes even more important if you are a tenant yourself, since you will need to satisfy your landlord that everything is above board.
  • Consider the best means of documenting the concession. There are many options: the grant of a lease, the entry into a franchise agreement, the grant of a licence to occupy, or some other form of sharing, perhaps with a related company.
  • If the decision is made to sublet, which is the safest method of documenting an arm’s length occupation, where the concessionaire is going to have exclusive possession of part of the foyer – make sure a formal lease (contracted outside the security of tenure provisions of the Landlord and Tenant Act 1954) is used.
  • In any sublease, there are a number of factors to consider in addition to the usual tenant covenants:
    • To what extent do you want to limit the range of products sold by the concessionaire? You may want to be careful that concessions don’t compete with each other or, for example, with your own in-house operation.
    • Do they need alcohol licences and, if so, do you want to be in charge of obtaining the licence and ensuring that it is kept by you if the concessionaire leaves?
    • What rights, if any, should they have to deal with the sublease? Probably none, since you will want to be very careful to keep control of the brands and mix of uses.
  • Consider any employment issues that might arise – such as under TUPE, for example – if you decide to contract-out any previously in-house operation to a concessionaire.
  • Is planning permission needed for the changes of use inside the foyer, or maybe for any changes in external signage to advertise the new concessionaire?
  • Finally, if you decide to grant licences-to-occupy to concessionaires, ensure that they are regularly moved around the foyer so that there is no possibility of their claiming that they are in fact ‘tenants’.

This article was published in http://www.screentrademagazine.com ‘s Winter March 2018 edition. 

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Gavin Whitney
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