Whilst temporary shops or “pop-up shops” have been around for many years, the current economic conditions have increased their popularity with both tenants and landlords alike; a trend which looks likely to continue for the foreseeable future.
So, why are pop-up shops now so popular and what are the benefits for tenants and landlords?
Benefits for the Tenant:
- A pop-up shop allows a tenant to try out a new location or market area and experiment with a new format. Rimmel, for example, opened a pop-up shop at Selfridges in February 2010 in order to launch a new product without making a long term financial commitment.
- Whilst pop-up shops may traditionally be associated with the many seasonal shops that appear at times such as Christmas, they can also be used as a successful marketing tool to create a buzz or a sense of urgency about a product, to elevate brand awareness, or even to fill a gap previously filled by a now defunct brand. In 2009, the Marmite shop which opened for ten weeks on Regent Street in the run up to Christmas became a temporary but iconic landmark and HMV opened ten stores around Britain to fill the gap over Christmas created by the demise of Zavvi and Woolworths.
- During this tough financial period, landlords are likely to be more flexible than they would usually be when tenants are more plentiful. There are deals to be made with landlords anxious to fill spaces, even if only on a temporary basis, rather than having empty premises. This has been jumped upon by several celebrity backed and high profile brands, for example: the Gucci Icon-Temporary pop-up store in Covent Garden, the Vivienne Westwood shop in aid of Fashion for Relief 2010 Haiti Appeal in the Westfield Shopping Centre and Oxfam’s one week celebrity stocked pop-up shop at Selfridges.
- The willingness of landlords to allow pop-up shops also gives online retailers an opportunity to take advantage of one-off events such as this year’s football World Cup. For example, sports retailer Kitbag has opened a shop in Manchester’s Market Street during the tournament, allowing it to take its first steps from the online market to the high street.
Benefits for the Landlord:
The benefits for a landlord may not be so obvious at first glance but there are many reasons why landlords are keen to allow pop-up shops. These include, but are not limited to:
- perhaps most significantly, following the abolition of empty rates relief and the 2010 rates increases, the tenant will take on responsibility for the rates and not the landlord;
- the ability to recover costs such as insurance and even a fixed service charge that would come out of the landlord’s own pocket if the unit was empty;
- deterring squatters from unoccupied properties; and
- indirectly, occupation by a well-known brand may also help to raise the profile of a landlord’s development or bring in an increase in footfall and interest in a property which could in turn benefit and attract new long term tenants on a more commercial basis.
Whilst the benefits of pop-up shops in the current climate are clearly evident, there are legal and practical issues that should be considered by both parties:
Issues for the Tenant:
- Only limited alterations to shops may be permitted so there may always be the feel of a temporary space. However, a tenant can usually fit out a pop-up shop quickly and cheaply allowing trading to start almost immediately at the same time as keeping cost to a minimum;
- A landlord may insist that occupation is by way of a short term lease. Whilst the landlord may not be willing to negotiate, it is always worth seeking legal advice as to the implications of the document the tenant is being asked to sign;
- A landlord is likely to require a rolling break notice to enable it to terminate on very short notice in the event it finds a commercial tenant willing to take a long term lease. However, it may be willing to agree to a mutual break clause which will allow a tenant to leave quickly should the venture be unsuccessful or even so successful that it decides to take a more permanent space close by;
- In order to obtain some comfort in relation to the maintenance and repair of the property and its reinstatement at the end of the term, a landlord may require a deposit for damage. In this case, a tenant should try to insist on limiting repairing obligations by way of a schedule of condition.
Issues for the Landlord:
- A landlord should ensure that any lease or licence is drafted in such a way as to prevent the tenant from being able to renew the lease and remain in occupation should a more permanent tenant become interested. This will usually be done by using a bare licence or by excluding the Landlord and Tenant Act 1954 provisions;
- By using standard form documents a landlord can reduce the costs of negotiation but he must ensure that the tenant is advised to seek legal advice to avoid any future problems;
- The parties must ensure that the proposed use is covered by existing planning permission and permitted use no matter how short the proposed term;
- If the landlord’s title to the property is leasehold, it should check whether consent is required to any letting. In the event consent is required, this will, of course, add to the costs of any short term letting and may make it financially impractical. This may also be true is the landlord’s property is charged;
- Finally, it is always worth carrying out the same checks on the financial suitability of a proposed tenant as would be undertaken for any landlord and tenant relationship. If the landlord is unsure as to a tenant’s financial standing it could insist upon all rents payable during the term being paid in advance or, alternatively, a rent deposit.