This article was written for and first featured in Eat Out in April 2011
It won’t be long and those summer months will soon be with us. And the trend for popup restaurants won’t be far behind. But if you’re thinking of launching your own temporary, pop-up restaurant you’ll need to know the rules. Rebecca Watkins, a senior associate in the Real Estate team at Fox Williams LLP explains the points to consider
Despite scepticism from some, the popup restaurant phenomenon has been around for some time now and shows no sign of abating, and why should it? With world class names such as The Ivy popping up in Edinburgh last year and the London Eye Pop-Up Restaurant featuring Gordon Ramsay and Richard Corrigan creations, pop-up restaurants seem to be the obvious choice for those wishing to promote a new enterprise, test a new location, do something for charity, or take advantage of a specific event or season without being tied down to any longterm financial obligation.
In turn, the continued economic uncertainty and increase in tenant administrations and liquidations have left many landlords with an abundance of vacant units and a corresponding increase in liability for operational costs that are usually paid by the tenant. Pop-up shops, restaurants and now even hotels have provided landlords with the perfect stop-gap allowing them to cover their basic costs and take advantage of increased footfall and profile to their properties.
So, having chosen your location and property what else should you be considering before finally opening your restaurant?
Keeping control and awareness of your costs
When negotiating with your future landlord try to agree an “all inclusive rent”. This will allow you certainty in respect of the total financial exposure of the venture. If possible, this should include insurance, service charge, business rates and VAT (if you are not VAT registered) on top of any basic rent you have agreed. Depending on the location and type of property, many landlords, generally those with a lots of vacant space, will only be looking to recover their basic overheads and may be willing to agree an all in figure that covers only business rates, insurance and service charge as the “rent”.
However, remember that in addition to these costs there will be other financial liabilities in terms of the property, such as utilities (e.g. telephone, gas, water), as well as those relating to the set-up and running of the restaurant.
Due to the short term nature of pop-ups, landlords rarely require incoming tenants to provide security (such as rent deposits or guarantees) for the letting. However, in the event that you are requested to do this, and depending on the length of the term agreed, you could offer to pay all rent for the letting period up-front instead as your landlord’s first priority will be getting paid and covering liabilities.
Whilst in some circumstances there may be a justifiable reason for a landlord requesting security, for example where the tenant wishes to carry out extensive works and installations, more often than not there is no point in a tenant paying a sum equivalent to the rent it will be paying during the term of the letting only for it to incur time and costs trying to recover it from the landlord at the end of the term.
Make sure you know what you are getting and when
Many landlords are prepared to make a small investment into a property to ensure that it is in a reasonable condition before a new letting, for example, by providing some basic floor covering and whitewashing the unit. However, if you have more ambitious ideas for fit-out or signage ensure that you discuss these with your prospective landlord at the negotiation stages before signing up to avoid any delays or finding yourself with a landlord that is unwilling to agree to a fit-out which is critical for your brand or even a property that is unsuitable for your needs.
It is essential that you factor in how long it will take to fit-out your new restaurant so that the opening can be the success that you will be aspiring to. By their very nature, pop-up restaurants are short term so you do not want to lose valuable time fitting out the property and paying rent when you could be trading nor do you want to have your opening day delayed while you wait for the fit-out to be completed particularly if you are trying to co-ordinate with a particular season or event.
Access to the property is key so remember to check both in terms of access for the restaurants customers and for contractors for the fit-out works and the delivery of equipment and food.
What is required of your at the end of the term?
Depending on the wording of your tenancy agreement, some landlords may require you to return the property to it in the same condition as you received it in or, the worsecase scenario in a better condition than it was in at the outset of the term. Either way, it is important to avoid the potential argument and try to agree the condition of the property at the negotiation stages with your landlord.
Ensure that both you and your landlord are clear on what is expected of you. Whilst, in an ideal world, you would agree to attach a schedule of condition (either photographic or otherwise) to the letting agreement this is often not practical for such a short term letting (when time is of the essence) or your landlord may simply not be willing to agree to this. Therefore, it is advisable to take some photographs before moving in, preferably dated, and send a copy of the complete set to your landlord asking it to acknowledge receipt and the condition as of the date of the photographs. If you have paid for the production of the photographs there should be no reason why the landlord will not agree to this.
Similarly, at the end of the term take a further set of dated photographs once you have moved out of the property recording the condition in which you returned the property to the landlord. If the landlord argues that you have not returned the property to it in a suitable condition you will have evidence of this and will hopefully be able to prevent any long and drawn out negotiations. Where your fit-out has been particularly unusual or required extensive work, check with your landlord whether it does actually want the works removed. It may be that a subsequent tenant with similar trade has agreed to take the space and could benefit in some way from the works you have previously carried out, which should ultimately save you reinstatement costs, both in time and money.
You must always remember that, despite the restaurant being a temporary one, it must still meet with all laws and regulations. The obvious and most important ones in this situation are Health & Safety Regulations, planning and licensing requirements. Is the property allowed to be used as a restaurant or will you require a change of use? If you intend to sell alcohol, do you have a licence to do so? These are all issues which could severely delay your enterprise if they have not been addressed from the outset.
Utilities and connections
Needless to say, it is essential to check with your potential landlord and on inspection the property that you will have access to all necessary utilities and connections for the running of your restaurant and that these are, or will be, connected before you enter into the letting agreement.
It is likely that properties that have been empty for a while will have been disconnected from services. Beware in the event the property is not connected that it can take several weeks to reconnect supplies which could result in an unusable property.
Additionally, many utility companies insist on a 12 month supply contract. If this is the case try to agree that any supply contract is taken in your landlord’s name and not yours and that costs passed down to you under the letting agreement only for the duration of the term. As with moving house, on the day you move in and the last date of the term remember to take meter readings if possible and either inform the relevant utility company or the landlord.
In addition to buildings insurance which is likely to be covered by the landlord and then recovered through the rent, remember to consider any insurance you may need for the running of the business (e.g. public liability). Will your insurers require additional alarms or security devices to be fitted and, if so, does the property have the necessary connections?
Some planning and thought is crucial in order to ensure your opening happens at exactly the right time. Once you have your property remember to consider more practical aspects such as deliveries. Depending on the size of the property, will it be possible for you to have not only your fit-out contractors on site at the same time as equipment and, possibly also, food delivered to the property? Finally, negotiations and “doing-it yourself” may be an attractive way to bring down costs but it is far better to check first with you legal advisers and avoid a financial nightmare at the end of the term.