Pop up Shops – a guide for landlords and tenants

Pop up shops may not be new, but they remain a feature on the high street and in shopping centres. They are popular with landlords seeking to monetise retail space that would otherwise remain empty and tenants looking for a short-term commitment.

In St Albans, they are mainly associated with small seasonal retailers seeking to get the most out of Christmas trade. However, established brands are also beginning to take advantage of the many opportunities offered by the pop up model to trial a new concept or location or launch a new campaign. Online retailers can use it as an opportunity to engage with customers face to face, generate PR and boost online sales without the costs associated with a permanent bricks and mortar store.  The pop up model can also offer some financial relief for retail tenants struggling to pay their rent and business rates as they can launch a pop up within their own premises. In addition to sharing the financial burden, tenants who welcome pop ups into their store could find that they also benefit from increased footfall and the buzz created by pop ups. Tenants seeking to share their space would need to ensure that the terms of their lease allow them to do so or, where it doesn’t, would need to approach their landlords for the appropriate consents.

For landlords, the attraction of pop up shops mainly lies in the fact that they allow them to avoid paying business rates and other outgoings on an empty unit and instead generate income on a short-term flexible basis that enables them to regain possession quickly. However, landlords can also utilise the model to trial new tenants with a weak covenant strength or a change in the retail mix of a shopping centre, all on a low risk, temporary basis.

Notwithstanding the short-term nature of pop up shops, landlords and tenants should avoid rushing into any property arrangement without first giving some thought to the potential legal implications. It would be sensible to document any arrangement by way of a licence to occupy or short-term letting agreement to make sure that both parties are clear about their rights and obligations during and at the end of the period. However, time will usually be of the essence, particularly for those tenants seeking to take advantage of a short window of opportunity for their venture and neither party will want to spend a long time negotiating a licence or letting agreement.

Landlords considering letting space to a pop up tenant should make sure that they have the requisite planning consents in place and that any licence to occupy or letting agreement does not allow the tenant to acquire security of tenure under the Landlord and Tenant Act 1954. It would also be appropriate to limit the tenant’s rights to assign or underlet the premises or carry out alterations beyond an initial fit out.

Tenants should try to limit their repairing obligations under the licence to occupy or letting agreement with a schedule of condition to avoid unwittingly taking on liability for dilapidations that could potentially wipe out their profit. Tenants will also want to limit their financial exposure under the licence to occupy or letting agreement as much as possible by negotiating a rental figure that is inclusive of service charge, insurance and rates.

Both parties will want to consider what termination rights they require. Landlords may want the ability to terminate the licence to occupy or letting agreement early if they find a long-term tenant for the premises or if they are ready to begin redevelopment and tenants may want the flexibility to terminate if the venture is not profitable.

Please contact Neil Mercer for more information or advice on entering into a licence to occupy or letting agreement.