5 tips for landlords and tenants about Pop up Shops

An exciting and fashionable business trend to emerge over the last few years is pop up retail. A pop-up retail space is temporary in nature and involves a shop ‘popping up’ one day and disappearing anywhere from the next day to several weeks or months later.

The benefits for a tenant in setting up in a pop up arrangement, is that it can be a perfect way to market and test their products, see if the location is a good fit for the goods/services of the tenant and, of course, it is a low-cost way to start a business without committing to a long term lease. Famous brands which have used pop up shops to build their profile such as Nokia, Louis Vuitton and Marc Jacobs, who created a ‘Tweet Shop’ in exchange of "social currency" for free products.

A landlord can also reap the benefits of a pop up shop. In times of economic uncertainty and increased tenant administrations, many shop units have been left vacant, leaving landlords with unwanted costs. Pop up shops provide a great opportunity for landlords to cover their basic overheads while also the unit is made more attractive and effectively advertises itself to potential new long-term tenants.

Whilst pop up shops can provided a stream of benefits, certain considerations must be borne in mind, particularly as they are small and are temporary in nature:

1. Lease or License?
Both parties must consider which type of agreement is best suited for the retail space and the tenant’s requirement – a lease or a licence. This is dependent on the length of the tenancy and the prospect that it could turn into a longer term arrangement in the future.

Both parties must be aware of the fundamental difference between a lease and a license. A licence does not confer any legal interests in the retail space but instead gives permission to the tenant to use the location for an agreed purpose, in this case as a pop-up shop.

A lease gives the tenant exclusive possession of a space in exchange for rent over an agreed term and with a number of agreed liabilities and responsibilities on both sides.

Landlords should be aware that even if a license is used instead of a lease and problems arise – such as the tenant fails to vacate the space in a timely manner - the tenant may allege the license still denotes a landlord-tenant relationship exists and claim a right to possession which may result in litigation.

2. Alterations
A retail tenant may want the right to undertake necessary alterations to make the space suitable for their short term needs, and may want to minimise the need for approval of the landlord because of the limited timeframe of occupancy.

Given the short-term nature of pop-up arrangements, landlords will want to make sure the space is kept in good condition by the tenant and is easily returned to its original state should a long-term tenant show interest. Landlords should ensure that the amount and type of alterations are limited to reduce the amount of money which would have to be spent to return it to its original state.

Most agreements will aim to ensure the landlord’s property is returned in the same condition as it was let. Both parties will want to ensure an agreement is reached at the outset as to whether the property is be retuned in the same condition or a better condition. Ideally, photographic evidence should be attached to the agreement in order that both parties know where they stand.

3. Insurance
A landlord must ensure there is adequate public liability, product liability, employers liability, and accidental damage liability insurance is in place. The type of insurance will depend on the retail space available to let.

4. Term
A lease arrangement will usually specify a term but, by its nature, the pop-up shop may want flexibility in the length of its tenancy.  If the agreement gives exclusive use to the tenant for a defined period of time and for a defined space, a court may find that the pop-up arrangement is in fact a lease. This gives rise to the existence of a formal landlord-tenant relationship and therefore removing a tenant may not be all that simple.
A landlord must, therefore, ensure that they are adequately protected and compensated should a tenant fail to vacate the space upon expiration of the agreement, even if an agreement includes standard provisions such as the right of the landlord to revoke the tenancy “at will”.
At the same time, tenants, especially small business retailers, will want to negotiate minimal penalties for failure to timely vacate whether using a license or lease structure.
5. Utilities and Maintenance:
The agreement must ensure it is clear as to who must pay for utilities and maintenance of the premises. From the tenant’s perspective, they will want the landlord to deliver all systems properly and functioning from day one. The tenant will also want the landlord to be responsible for all costs and expenses of continual maintenance of these systems. However, the landlord may want to minimise the amount that he is investing in the space given that the tenant is short term.
Although pop-up arrangements are short in nature, the risks may be just as substantial as those found in a long term leasing arrangement.

These points should serve as a starting point for issues to consider in the context of a pop-up arrangement and are by no means exhaustive. If you are a landlord or a tenant, you must always seek legal advice before opening a pop up shop, however short the arrangement may be.