However, behind their temporary nature lie important legal and practical considerations that both landlords and occupiers need to be aware of.
In this article, our Retail lawyers explore the key legal issues to consider when setting up a pop-up shop, including whether to opt for a lease or licence, what terms to include in your agreement, and the planning and insurance requirements to bear in mind.
What Is a Pop-Up Shop?
It’s a store that “pops up” for a limited period of time, for example, for a few months in the lead-up to Christmas, in an empty retail space.
Pop-ups can take many forms, including kiosks, booths, or compact freestanding stores.
Benefits of Pop-Up Shops
The pop-up space is usually already set up as a store, so it won’t take the tenant long to get set up and start trading.
The temporary nature of pop-up shops also means that if it doesn’t quite work out in one location, the retailer is free to move to a new location to test out the market there.
A pop-up shop will help landlords who are struggling to fill a vacant unit. The landlord will receive rental income, and the transaction is likely to be concluded quicker than the grant of a lease to a more permanent tenant.
Pop-ups are also a reprieve for landlords in relation to business rates payable on empty properties.
Where the landlord owns a shopping centre or retail park, temporary storefronts create buzz for the property and will help attract new occupiers.
There is also the potential for a longer-term landlord and tenant relationship if things work well for both parties and they agree for the retailer to stay permanently.
Lease or Licence?
Licences are short documents and are generally quicker and cheaper to negotiate. A licence is a more flexible arrangement than a traditional lease and grants the retailer permission to occupy the property without the commitment of a lease.
Both parties have greater freedom to terminate the licence on short notice. The property owner can access the shop at any time and can relocate the retailer to a different space on little notice.
Tenants should be aware of the true temporary nature of a licence to occupy and have a plan for when the licence period comes to an end.
Granting a licence to occupy may be convenient, but if exclusive possession is granted, there is a risk for the property owner that the arrangement may later be challenged by the occupier.
If the occupation has lasted for more than six months, or is on a periodic basis, a property owner could face a claim that the licence is really a lease, which is protected by the security of tenure provisions conferred by the Landlord and Tenant Act 1954 (LTA 1954).
Instead, a short-term lease can be put in place, which is contracted out of the LTA 1954. This means a tenant will not have rights of security of tenure (the right to occupy the pop-up space after the lease expires).
A lease grants the retailer a guaranteed fixed term and exclusive possession of the shop. This provides greater security to the tenant regarding their occupation but is likely to impose greater obligations on the tenant with regards to repair obligations and costs such as utilities and service charge.
It can also be more difficult to end a lease, and the tenant may have to wait for a certain period until they can serve notice on the landlord to terminate the lease, meaning the tenant is potentially stuck in a location or market that isn’t working for their business.
Key Terms of the Agreement
Repairs and reinstatement
If the retailer’s repair obligation is not limited in this way, it will be responsible for putting the property into a good and substantial state of repair before handing the space back to the owner, regardless of the condition it was in when it took occupation. This could be very costly.
Alterations and signage
Retailers should bear in mind that the fit-out costs need to be kept to a minimum to make the pop-up viable. The property owner will require removal of signage and alterations, and reinstatement of any damage caused by that removal, at the end of the term or licence period.
Insurance
Early termination
Planning
However, a standalone pop-up shop may require planning permission. Retailers should also look out for planning conditions attached to existing planning consents, such as restrictions on the hours of opening, noise levels, or the sale of items outside the premises. Regardless of what your landlord tells you, you should make separate enquiries to the planning authority to check that the pop-up space has the appropriate planning consent.
Contact Our Retail Lawyers
Our Retail Property team can help you navigate the legal and practical aspects of setting up a pop-up shop.
Whether you’re a landlord looking to fill vacant space or a retailer exploring new markets, our experts can advise on the right agreement for your needs.
0161 941 4000
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