Small print can be critical to pop-up success
Making a success of a pop-up store involves more than good location and footfall: retailers and landlords should also avoid some legal pitfalls, writes Stacy Campbell, Director in Lindsays’ Commercial Property team.
Christmas is prime time for pop-up shops, selling anything from cashmere to calendars, but pop-ups also provide year-round possibilities for retailers and would-be retailers. In addition to seasonal opportunities from Valentine’s Day to Halloween, a pop-up shop can help to trial a business idea. The founders of Innocent Drinks famously used music festivals to test their idea for a smoothie business; a pop-up shop obviously offers a warmer, drier way to do this.
Landlords too can benefit from pop-up stores: not just filling empty space, but as an alternative to entering a longer-term arrangement with a particular tenant. For retailers, the prime attraction of the pop-up approach is clear: flexibility. In general, this extends to the legal arrangements for the property. Typically, the retailer will be committed for a few weeks only, and there are likely to be fewer requirements in terms of repair and maintenance. However, before signing on the dotted line, it’s important to watch out for pitfalls in the legal arrangements. They could turn out to be less flexible than you expected and, in the worst case, eat into profits. The legal background here is complex, partly because one of the pitfalls involves the difference between a ‘lease’ and a ‘licence to occupy’, the subject of on-going debate and many a legal case. Without going into full legal detail about the differences and their ramifications, a licence to occupy property is generally intended to cover short term sharing of occupation and for this reason tends to be more flexible than a lease.
However the differences between a lease and a licence to occupy can become blurred and, as the law is clear that if certain factors are present, a document which is referred to as a licence may actually constitute a lease. This may result in retailers unknowingly signing a lease as opposed to a licence. It’s worth remembering that a licence to occupy doesn’t always do what it says on the tin! Rather than veer into the legal detail, let’s focus on some of the possible consequences of this, and the aspects retailers and landlords must be clear about. All can be readily avoided with advice upfront.
Notice periods. Generally, both parties will intend the arrangement to run for a defined period – let’s say 10 weeks. However, do not assume that the deal automatically terminates at that point: it may be necessary to give formal notice as well. Getting this wrong could mean the retailer having to pay extra rent in lieu of notice or for the landlord, being unable to recover possession of the property immediately.
Repairs. Regardless of whether there is a lease or a licence, both parties must understand their obligations in terms of repairs and maintenance. Is the retailer liable for external repairs as well as internal repairs? Could they be obliged to restore the property to a better condition than they found it in?
Location, location, location: If the shop is located within a shopping centre it is important to establish whether there may be a payment of service charge in addition to rent.
Access and exclusive use: Is the landlord free to access the property? Does the retailer have exclusive use of it, or could the owner also let others use the property in some way?
Scottish and English legal arrangements: If you have experience of running pop-ups south of the border, do not assume that the arrangements will be identical in Scotland, as the legal landscape for commercial property is different.
None of these issues should deter anyone from opening a pop-up shop. Pop-ups can be an excellent business opportunity, but paying proper attention to the small print is essential to fully enjoy the benefits. If you want your pop-up to be a stand-out success rather than falling flat financially, take good legal advice.
Director, Commercial Property