Pop-up shops are a great way of building hype around a new product. The main benefits of a pop-up offer an opportunity to:
trial a physical store set-up without the significant overheads of a long-term leasing arrangement;
make good use of empty premises; and
inject vitality back into the high street.
Pop-ups come with their own costs and obligations, which you will need to be aware of in order to get the most out of your venture.
We discuss the key legal issues facing brands when opening a pop-up shop in the following points.
Legal issues for brands opening a pop-up shop
1. Lease or licence?
Property owners often offer pop-up retailers short term licences instead of longer leases.
Licences, being quicker and easier to negotiate, generally mean lower legal fees, and typically have an all-inclusive rent that encompasses service charge and business rates.
Licences also offer more flexibility for both the property owner and the retailer than more traditional leases, usually allowing the retailer to vacate the premises on short notice. Critically, they do not grant exclusive occupation rights to the occupier, meaning the owner of the premises can access the space at any time and could relocate the occupier to a different space on very short notice.
In contrast, leases have a fixed term and guarantee uninterrupted occupation, provided the tenant does not breach its obligations under the lease. In return, they often require that service charge contributions for the use of any services and common areas at the premises be paid in addition to the rent. Tenants are also separately responsible for utilities and business rates. Where the main rent does not include these additional fees, occupiers can find themselves responsible for hefty overheads. Negotiation of the lease terms prior to signing is crucial to avoid unexpected additional charges.
2. Fit out and alterations
The spaces used for pop-ups are often already fitted out, presenting lower setup costs than when taking a full lease. However, pre-fitted spaces may also be subject to stricter restrictions on the retailer’s ability to carry out alterations, meaning that any big plans for elaborate signage and interiors may be thwarted. Early discussions with the property owner are recommended before spending time and money on the design and fitting out of the space.
Where landlords let space on a series of short term lets, it is possible that the planning permissions for one use do not extend to the use required by a subsequent occupier. It is, therefore, important to check that the property you are looking to occupy benefits from the proper permissions that you require. There may also be specific planning conditions attached to an existing planning permission, such as restrictions on the hours of opening, music, sale of alcohol or the sale of items outside the premises. It is important to remember that your arrangement with the landlord may not necessarily reflect the Local Planning Authority’s position; whilst the landlord may grant wide permissions under the lease or licence, you must also ensure that these are permitted by the local planners.
Regardless of what your landlord tells you, you should make separate enquiries to the planning authority and ensure any late night food and alcohol licences are also in place if required.
We frequently come across short term lets that are deemed to be ‘plug and play’ – ready to go – but in fact, the internet and telecommunication connections are simply not ready. Telecommunication providers can be slow to engage due to lead-in times. If you have a particular provider you want to use or a specific required level of connectivity, this should be raised as early as possible so you are not left hot-spotting while you are trying to trade!
It is important to be clear on the extent of your repairing obligations in the lease or licence agreement.
For a short term let you should be taking on minimal repairing liabilities and documenting the condition of the property at the outset with a detailed photographic schedule.
In contrast, if you have agreed to a full repairing lease, you will be obliged to put the property back into a good state of repair regardless of the condition in which you took it, which could mean significant dilapidation costs.
Bear in mind that the landlord is also likely to require you to reinstate the property to the layout in which you found it, which may impact your decisions around the extent and cost of the fit-out of your pop-up.
To ensure flexibility in bringing your pop-up to an end, you may want to consider an early termination option, which will need to be negotiated at the outset. If you exercise the option, it is vital you follow the correct process, particularly in the case of leases, which typically allow you only one opportunity to serve a break notice.
If you get this wrong, a landlord in a difficult market may look for ways to challenge your break notice to keep you paying rent for the remainder of the lease term!
Consider a rolling break option. This enables you to terminate the agreement at any time provided the notice provisions are complied with, although this flexibility is usually reflected in higher rents.
It is important that you pay very careful attention to the drafting of any break clause, particularly the conditions precedent, service and notice requirements, as mistakes in the drafting of any of these provisions can be incredibly costly.
7. Going abroad?
A word of warning: if you are setting up overseas, you will need to consider the difference between the laws in England and Wales and the laws in your country of choice, particularly in areas such as employment, health and safety, and disability discrimination, which can vary widely.
You will also need to seek specific advice regarding taxation on the sale of goods overseas and whether by establishing an overseas pop-up you are creating a permanent establishment for tax purposes.
Looking for further advice?
In summary, pop-ups can be a great use of space and a lot of fun for the consumer. Get it right from the outset, and it could be the beginning of a whole new brick-and-mortar world.
Need more information about the above people and legal expertise? Talk to one of our lawyers: +44 (0)20 7628 2000
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