Pop-up-shops – a licence to occupy or a licence for disaster?
The way people shop and the demand of customers has changed enormously. Customers continue to search for variety in their shopping experience, especially because of the increase in use of online shopping. Physical shopping outlets need to offer something different to draw customers in and pop-up shops are becoming a more and more popular way of attracting customers.
Pop-ups offer landlords a way to maintain variety by having short term agreements and changing occupiers on a regular basis. Short term arrangements provide flexibility to both parties. Although for a landlord it means not having the security of a long term agreement, it can be a way of creating income for an area which might not otherwise be let.
It can also be extremely cost effective for occupiers. Service agreements often include a fee, but without the additional obligation to pay electricity, service charge or rates. Pop-ups are a great opportunity for smaller businesses and start-ups. In particular, food and drink providers who need the opportunity for customers to sample their goods. They can largely be a marketing tool and give the opportunity for businesses to test whether a particular location will work for their business before entering into a long term arrangement.
As they become more popular, it is important to understand the legal considerations that both parties need to take into account.
Considerations for landlords and occupiers
- Defining the agreement – Will the agreement be a short term lease, or a licence? Licences offer more flexibility. However, it is important to carefully consider the drafting to ensure a lease is not created accidentally, even if the agreement is called a licence. The essential elements of a lease are: exclusive possession, a defined term and a rent. Usually, such arrangements will be by way of licence. In which case, the occupier also needs to be sure they have sufficient rights to use the area.
- What businesses can the landlord allow? Will the business type be permitted under planning laws and other requirements for the property?
- Is the rent going to be fixed or is this going to be a percentage of the occupier’s sales? This might be better for start-up occupiers who aren’t sure how successful the pop up will be, although it does mean a level of uncertainty for landlords.
- What is the extent of the area being occupied? – Is the area sufficient for the proposed use? Does it include landlord’s fixtures and fittings? Is there the ability for the landlord to relocate and how flexible is this right? This is important for repair and reinstatement obligations. Relocation gives the landlord flexibility, but the tenant will want to ensure the new space is sufficient for their needs.
- Ensure the permitted use is sufficiently wide to cover the initial use and any changes the occupying business is considering e.g. expanding what they are selling.
- What else is needed in order to carry out the proposed use? For example, licences for sale of alcohol and playing music.
- Is the location right for the business? Occupiers should carry out some research before signing up to longer arrangements.
- Length of the agreement and options to bring it to an end early? Do both parties want a rolling ability to end the agreement, or does the landlord want to fix a term?
- Rights to ensure the occupier can make the space their own and display their signage. Consider how far this goes and the rights of alterations and reinstatement obligations.
There are clearly a number of benefits for both landlords and occupiers in the flexibility of short term pop-up arrangements. However, in order to maintain this flexibility and a good relationship between the parties, it is essential that the terms of the agreement are agreed early on and the legal implications understood.