Part 1: Introduction

Challenges facing licensing trusts.

Purposes of this report

Licensing trusts are one of the least known parts of the public sector. However, we consider that they have some of the highest risks. There is no comprehensive oversight of licensing trusts, and increasing numbers of them are struggling with profitability and financial viability.

The purposes of this report are to:

  • increase Parliament's awareness of this part of the public sector;
  • highlight the issues and risks that licensing trusts face; and
  • stimulate constructive dialogue among licensing trusts, and between licensing trusts and central government agencies that have oversight or monitoring responsibilities for licensing trusts, to explore options to provide better support to, and between, licensing trusts.

What are licensing trusts?

In the late 19th and early 20th centuries, the temperance movement arose in response to the hard-drinking culture of pioneer New Zealand. Many districts voted to prohibit the sale of alcohol.

Licensing trusts were first established in the 1940s as part of the relaxing of prohibition in New Zealand. They were a new way of licensing the sale and consumption of alcohol.1 They were promoted as a more responsible and accountable alternative to the private licenced trade.

In 1943, Invercargill voted to restore the sale of alcohol after 38 years of prohibition. Most of the votes in favour were cast by soldiers serving overseas in World War II. However, the Invercargill community could not decide on a model for the sale and consumption of alcohol. To allay community concern, the Government decided on the licensing trust model. By the end the 1970s, 28 licensing trusts were operating throughout New Zealand. In 2012/13, there were 19 licensing trusts remaining, and 19 related entities (see the Appendix).

Licensing trusts have a primary responsibility to enhance the well-being of their community. They distribute surplus profits to their community and are accountable to that community through the election of their trustees.

When first established, each licensing trust had what was effectively a monopoly over the sale of alcohol in its district (see paragraphs 1.24-1.26). This is because, at that point in time, district licensing trusts operated most hotels, and legislation gave exclusive rights to sell alcohol from this type of venue. Today, only four licensing trusts continue to retain exclusive rights to operate hotels, taverns and off-licences2 in their districts. These are the Invercargill, Mataura, Portage, and Waitakere Licensing Trusts; alcohol can be sold with no restriction from other types of venues, such as privately operated clubs, restaurants and entertainment centres. The other 15 licensing trusts do not hold such exclusive rights and compete on the open market with other licence-holding premises in their districts, including those defined as hotels, taverns, and off-licences.

Licensing trusts today

Licensing trusts vary significantly. Some are landlords leasing their single premises to third-party licenced operators. Others are much larger entities, some retaining exclusive rights to operate hotels, taverns, and off-licences, and which operate multiple bars, cafes, conference centres, and, through associated charitable trusts, gaming machines.

The administrative capacity of individual licensing trusts ranges from contracting out all functions, to sole part-time administrative assistance, through to full specialised administrative functions. In general, licensing trusts have significant investments in land and buildings, either directly or through their related entities.

As noted earlier, only four licensing trusts continue to retain exclusive rights to operate hotels, taverns, and off-licences in their districts. The other licensing trusts operate in a fully competitive environment. The pressures of this environment have increased substantially since supermarkets started to sell wine and beer (off-licences). This competition has reduced profits for licensing trusts, particularly profits from off-licence/bottle store sales.

In recent years, social attitudes towards New Zealand's drinking culture have changed. There is now tougher legislation aimed at the safe and responsible sale, supply, and consumption of alcohol, and at minimising the harm caused by excessive or inappropriate drinking. Because hospitality industry products are essentially luxury goods, changes in economic circumstances during the past few years have significantly affected profits in many parts of the hospitality industry, including licensing trusts.

A high proportion of hospitality industry transactions are in cash, and they trade in small but attractive items. These factors increase the risk of fraud and theft by customers and staff for licensing trusts compared to other public sector entities.

Licensing trusts make significant contributions to their community through associations with charitable organisations that operate gaming machines (class 4 gambling – non-casino gaming machines) on licensing trust premises. Since 2005 legislation has not permitted persons engaged in the operation of a gaming venue to be involved in the operation of the gaming machines. Some licensing trusts have set up trusts to ensure the required management separation in relation to gaming machines located on licensing trust premises. Others contract the services of charitable organisations for this purpose. The legislation specifically allows elected trustees of licensing trusts to sit on boards of charitable organisations operating gaming machines.

The profits that the charitable organisations make are distributed in the community in which the machines are located. There are specific requirements for transparency about the source of profits in all public announcements, so there is a clear distinction between profits of venue operators and those of the charitable organisations operating the gaming machines, particularly where there are common board members. These requirements are rigorously monitored by the Department of Internal Affairs.

Regulations administered by the Department of Internal Affairs require class 4 gambling organisations to return a minimum of 37.12% of gambling proceeds to the community. In general, class 4 gambling entities with links to licensing trusts return proceeds to the community at higher levels than private sector entities. For example, Mount Wellington Foundation Limited had a return level of 46.76% for 2012/13.

The New Zealand Licensing Trusts Association considers that the involvement of elected trustees in the boards of charitable organisations operating gaming machines significantly influences the equitable distribution of gaming profits within their communities. In its view, this is a positive element of the licensing trust sector, and influence over these distributions is even considered justification for the continuation of licensing trusts that are struggling financially in their other activities.

Currently, seven licensing trusts have set up charitable organisations that hold operator and venue licences. For the other licensing trusts, the most commonly used charitable organisation is The Trust Community Foundation Limited.3


An outline of the legal framework

The Sale and Supply of Alcohol Act 20124 (the 2012 Act) sets out the statutory objectives of licensing trusts, which are to:

  • sell and supply alcohol;
  • establish and operate premises to sell and supply alcohol, provide accommodation for travellers, and to sell and supply food and refreshments; and
  • conduct any other business that, in the licensing trust's opinion, can be carried on conveniently with any business associated with the above objectives.

Licensing trusts are public entities under the Public Audit Act 2001. They are statutory body corporates that are required by the 2012 Act to prepare annual financial statements, which must be audited by the Auditor-General.

Licensing trusts also have an inherent responsibility to operate commercial businesses efficiently and profitably.

Licensing trusts can spend or distribute their net profits as they see fit for all or any of the following purposes:

  • promoting, advancing, or encouraging education, science, literature, art, physical welfare, and any other cultural, recreational, and philanthropic purposes; and
  • establishing, maintaining, and repairing any buildings or places to further any of the above purposes.

Licensing trusts pay income tax, rates, and other taxes and duties, as if they were a body corporate formed for private pecuniary profit.

In most instances, licensing trusts raise funds to distribute to their communities in two main ways:

  • by selling alcohol and providing other hospitality-related services such as meals and accommodation; and
  • by hosting gaming machines at their premises under licence held by their related entities.5

Licensing trusts own or have an interest in a wide range of related entities. These entities are involved in property investment and development, financial investments such as share and bond portfolios, a hydro-electricity scheme, and social housing.6

In 2004, the Sale of Liquor Act 1989 (the 1989 Act) was amended to allow local licensing trusts to operate outside their districts. The 2004 amendments also gave licensing trusts the option of restructuring as community trusts with charitable objectives that may or may not include selling alcohol. A community trust has a much wider scope for its activities than a licensing trust. The 2012 Act continued these changes.

Exclusive rights

Under section 350 of the 2012 Act, a licensing trust may hold exclusive rights in a district. This means that a licensing trust has the sole right to establish and operate hotels, taverns, and off-licences in their districts.

The 2012 Act provides that 15% of eligible voters who live in a licensing trust district can challenge that licensing trust's exclusive rights. When this occurs, the licensing trust must call a referendum.

Removing licensing trusts' exclusive rights has been considered on several occasions.7 We note that while there is a mechanism in legislation to remove exclusive rights there is no avenue for reinstating them, even if a community wished to.

Governance by election

Communities elect trustees of their licensing trust every three years on the same day as they elect local body councillors. Any person who is an eligible voter for an address in the defined licensing trust district may stand for election as a trustee. The Local Electoral Act 2001 applies to every election of trustees of a licensing trust. At the licensing trust's first meeting after the election, the trustees elect the president of the licensing trust.

Licensing trusts are accountable to their community through the election of trustees.

Remuneration of the president and trustees of licensing trusts must not be more than the amount fixed by the Minister of Finance after consulting with the Minister of Justice. In 2002, the then Minister of Finance determined that the Cabinet Fees Framework (the Fees Framework), used for setting fees for members of bodies in which the Crown has an interest, would be the mechanism used to determine the remuneration of presidents of licensing trusts. Under the Fees Framework, licensing trusts are classified as Group 3a Governance Boards. The State Services Commission provides guidance on the application of the Fees Framework.

Other relevant legislative obligations

Licensing trusts are considered to be local authorities for the purposes of Parts 1 to 7 of the Local Government Official Information and Meetings Act 1987. The provisions in that Act for access to official information and procedural requirements for meetings apply to licensing trusts.

Trustees of licensing trusts are subject to the Local Authorities (Members' Interests) Act 1968 (the Members' Interests Act) in the same way as councillors of local authorities. The Members' Interests Act helps to ensure that personal interests do not affect trustees when they participate in decision-making. It also helps to ensure that trustees cannot use their position to get preferential access to contracts. The two specific rules in the Members' Interests Act are that trustees cannot:

  • enter into contracts worth more than $25,000 in a financial year with the licensing trust they have been elected to govern; or
  • participate in matters before the licensing trust in which they have a pecuniary interest, other than an interest in common with the public.

1: The licensing trust model was influenced by a liquor licensing system in the United Kingdom known as the Carlisle Scheme.

2: An off-licence (issued to, for example, bottle stores and supermarkets) allows the sale or supply of alcohol for consumption off the premises. It contrasts with an on-licence, which allows consumption on the premises where the alcohol is sold or supplied. .

3: he Trust Community Foundation Limited is a charitable trust providing services to support class 4 gambling (non-casino gaming machines).

4: The 2012 Act applies from 18 December 2013. It replaced the Sale of Liquor Act 1989. The 2012 Act made minimal changes to the accountability requirements of licensing trusts, and the changes made do not affect any of our comments, findings, or recommendations.

5: Site rentals received by licensing trusts for hosting gaming machines are controlled by the Department of Internal Affairs, and are based on cost recovery.

6: In this report, references to licensing trusts include a licensing trust's related entities.

7: For example, in 2010, by the New Zealand Law Commission in "Review of Regulatory Framework for the Sale and Supply of Liquor”, New Zealand Law Commission R114, Alcohol in our lives: Curbing Harm.

page top