Pop- ups are growing in popularity. Last year saw Noel Gallagher’s Pretty Green (Carnaby Street (July 2010)), Maybelline ( Covent Garden (September 2010)) and Elizabeth Lau (Carnaby Street (December 2010). This year has kicked off with EMU Australia (Lamb’s Conduit Street, London). There is even the prospect of a pop-up mall in Shoreditch. Indeed the pop-up phenomenon is attractive to tenant retailers and landlords alike.
Continued economic uncertainty and increased tenant administrations and liquidations has left many landlords with a glut of vacant space and consequential rising operational costs. Pop-up shops, particularly in larger shopping centres have provided the perfect opportunity for landlords to cover basic costs with the added attraction of potentially increasing footfall, so keeping current tenants happy and possibly increasing income from long term tenants on turnover rents.
For many retail tenants, particularly those first testing the water be it as to retailing generally, as to a new brand or simply as to location, or taking advantage of an event e.g. marketing official merchandise at “away” games, Wimbledon, 2012 or F1 meetings, the attraction of a short term let, not to mention no long term financial commitment, is irresistible. It makes commercial sense!
So, to a few details and some useful tips when considering and negotiating a pop-up letting having chosen your location and selected a property preferably with the assistance of a specialist agent with either local knowledge or knowledge of your particular trade.
• Manage Costs Exposure
Try to agree an ‘all inclusive rent’ so that you are aware of the total financial commitment, not just the basic rent but also insurance, service charge, business rates and VAT (if you are not VAT registered). Also bear in mind the cost of utilities, although this will be less likely if the pop-up is not in a shopping centre.
Some landlords, generally those in shopping centres with lots of vacant space, are only looking to recover their liability for business rates, insurance and service charge for the empty unit and will often agree a figure which is simply the sum of these amounts and not a rent in the usual sense of the word.
Due to the short term nature of the pop-up shop lettings landlords rarely require any form of security e.g. rent deposits or guarantees. In the event that this is required by a landlord offer to pay all rent up front instead as the landlord is really only concerned that it gets paid. Whilst there may be some cash-flow issues in doing this there is no point in you paying a rent deposit sum equivalent to, say, half the term length and then rent on top. A landlord may resist on the basis that the rent deposit is to ensure that the property is looked after and returned in good condition but as repairing obligations are likely to be limited try to stand firm or limit the amount as much as possible.
• Make sure you know what you’re getting
Most landlords are prepared to make a small investment to get a property up to a reasonable condition before a letting and are happy to carry out a basic whitewash provide basic floor covering.
If however, you have plans for a more adventurous, whacky or elaborate fit out or signage be sure to discuss and agree this with the landlord before signing up to avoid finding yourself with a property unsuitable to your needs or with a landlord that is unwilling to agree to a fit-out which is critical to your brand. Remember to factor in the timing of your fit-out. Most pop-ups are very short term by nature, and you don’t want to be using valuable time paying rent but not trading whilst your fit-out is completed. Check also restrictions on fit-out access particularly in shopping centres where there are also likely to be tenant fit-out guides or manuals which are strictly enforced.
Lastly, when designing you pop-up check that you have enough storage for your stock. Note that specialist companies are now manufacturing bespoke pop-up units.
• Make sure you know what is expected of you at the end of the term
Depending on the wording of the tenancy agreement landlords will require a tenant to return the property in the same condition as was received or, the nightmare scenario, in a better condition than at the outset! Either way there is frequently an argument as to what is required. Be sure to reach agreement at the outset Where it is the former agree the condition of the property at the start of the term ideally by a set of photographs taken before your fit–out. Even if the landlord is unwilling to attach photographs to the tenancy agreement (this is often a problem due to time constraints), ensure that you take pictures, preferably dated, send the landlord a copy and ask him to acknowledge receipt. If the principle is agreed there should be no reason why the landlord would not agree to this.
At the end of the term, take a further set of dated photographs If the landlord suggests that you have not returned the property in the required condition you will have evidence and hopefully will be able to reach agreement .
Where your fit-out is unusual agree at the outset as to whether it must be removed and your whacky colour scheme whitewashed!
• Check utilities
Check at the outset the utilities available at the property and that they are or will be connected from the date you move in. Properties that have stood empty for a while will often have been disconnected. Beware that utility companies can take several weeks to reconnect supplies which could leave you with an unusable property. As to a phone line, whilst you may be able to rely on your mobile you are likely to need a line for your credit card sales.
As with moving house, take meter readings at the start and expiry of the term and pass on to the utility company or to the landlord.
Consider insurance for your contents and buildings insurance if the landlord has not agreed to insure. Will your insurer require alarms to be fitted and security?
Timing is crucial not only as to fit-out but also in hitting the market at just the right time. Consider also shipping and returns. In the lead up to opening where should stock; it may not be possible to deliver to the property, a particular problem for overseas brands. Whilst you may only be in situ for a short time there may be the occasional customer return after the date you vacate so ensure that you make your return policy clear to avoid disgruntled customers!
Finally DIY may be an attractive way to limit your costs but it can only be preferable to check first rather than find yourself with a legal headache and a costly dispute all for a 2 month letting!