Rebecca Facey, a Real Estate legal director, and Stephen Sidkin, a commercial law partner at Fox Williams LLP, cover the legal issues involved with opening a pop-up store.

 

Pop-ups are a great way of building hype around a new product, as well as trialling a physical store set-up without the significant overheads of a longer-term leasing arrangement. That said, pop-ups come with their own costs and obligations. So, six key legal issues facing brands when opening a pop-up.

1. Lease or licence?

Landlords often offer pop-ups on 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 than more traditional leases, usually allowing tenants to vacate the premises on short notice. Critically, however, they do not grant exclusive occupation rights to the brand, 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 are paid in addition to the rent, with tenants also being separately responsible for utilities and business rates.

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 brand’s ability to carry out alterations, meaning that any big plans for elaborate signage and interiors may be thwarted.

3. Planning

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. 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. Your leasing arrangement with the landlord may not necessarily reflect the Local Planning Authority’s position.

4. Telecommunications

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 aren’t ready. Don’t be left hotspotting while you are trying to trade.

5. Repairs

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.

If you have agreed to a full repairing lease this will oblige you 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 condition in which you found it, which may impact your decisions around the extent and cost of your fit out.

6. The end

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. Should you exercise the option, it is vital you follow the correct process, as leases will typically allow you only one bite of the cherry when serving a break notice. Get this wrong, and 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.

For increased flexibility, consider a rolling break option; this enables you to terminate the agreement at any time provided the notice provisions are complied with, though this level of flexibility is usually reflected in higher rents. It is important 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.

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