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A legal perspective on retail pop-ups

What does the globally popular boy band, One Direction (1D) have in common with purveyor of floral homeware and vintage patterns, Cath Kidston? Probably not a taste in fashion, but both have embraced the latest retail trend and recently opened pop-up shops.

1D World first launched in Sydney in 2012, with thousands of fans queuing to secure a piece of their favourite band's merchandise. Meanwhile, Cath Kidston has capitalised on her brand's growing appeal in Asia and opened a temporary pop-up store at Heathrow's Terminal 5. Whilst 1D World is open for a few weekends and moves around cities to coincide with the band's tour, Kidston's shop will be open for four months.

These examples highlight the appeal of the pop-up shop – a flexible and innovative use of space for targeted retail. The phenomenon is helping to rejuvenate flagging high streets and shopping centres, as well as creatively making use of empty space to promote brands. A pop-up shop set up can range from a new business starting up and utilising a small shop unit (independent retailers are credited with pioneering the trend) to larger scale enterprises such as the Southbank's Udderbelly and Box Park, Shoreditch – the world's first pop-up Mall.

From a property perspective, pop-up shops are an innovation which can benefit both retailers and landlords. Kiosks and Retail Merchandising Units (RMUs) have already paved the way in creative use of space in the changing retail landscape. In the current difficult trading environment, both landlords and tenants have had to adapt further. Fortunately, pop-up shops can offer the perfect solution.

From a landlord's perspective, pop-up shops offer a legitimate way to fill voids and reduce business rates liability. Being flexible, they appeal to a variety of different tenants and can suit different requirements. Pop-up shops are usually quick to set up and quickly encourage footfall, which can benefit a scheme as a whole. They also generate publicity and keep a scheme fresh and "on trend". Restaurants, bars and salons are at the heart of the pop-up revolution and all attract a variety of customers to an area. 

As with RMUs, the rental yield for pop-up spaces can be high – the set up appeals to consumer giants such as Nike and high-end brands such as Chanel and Fendi have also recently opened temporary stores – the former famously in the chi-chi ski resort of Courchevel during the season. Pop-ups are equally suitable for start up businesses and sole traders, and a landlord is able to monitor how a tenant is trading from the location before committing to a longer term venture. This is particularly important where the tenant is a craze-driven brand, and whose bubble may quickly burst.

The benefits for those with vacant space to let are clear from the way pop-ups have been embraced by a range of landlords – Westfield is fully on board with the trend as might be expected, but institutional heavyweights such as British Land and Hermes Real Estate and even the more traditional institutional landlords like Shaftsbury, Cadogan and Grosvenor Estates have dipped a toe in the water, for example, Jo Malone, Fine Cell Work and Jenny Packham pop-ups have opened on the Grosvenor Estate.

For tenants, again, the flexibility offered is key – from the relatively short term nature of the arrangement, to the way a shop can be quickly and easily set up. Pop-ups are also a way to limit costs and rent and will not usually come with onerous tenant obligations such as repair. Tenants may also benefit from rent concessions. A pop-up shop is the perfect way to test the market and if successful, could lead to the tenant taking a longer term lease or RMU.

However, despite their trendy packaging and temporary nature, at heart, a legal interest in property is often created with each pop-up venture. Both the landlord and the retailer will want to properly document the terms of the tenant's occupation and this is commonly done by use of short form lease or licence. From both parties' perspectives, many of the same issues will apply as do on the grant of a standard retail lease. These include:

• Strength of the tenant covenant and suitability for a scheme;

• Planning;

• Proposed use and any safety considerations;

• Commercial terms – rent free? Turnover rents? Inclusive rents? Rates liability? Contribution to service charge? Exclusivity?

• Fit-out considerations – will the pop-up be freestanding, will it need services? Will any structural or exterior works be required? Equally, what obligations will the tenant have on vacating the unit?

• Suitable documentation – a licence, tenancy at will or lease? Potential security of tenure issues;

• Responsibility for looking after the unit and repair;

• Other rights required e.g. use of common parts; and

• Timescale and certainty.

Broadly, unlike a standard RMU, a pop-up shop cannot be easily physically classified. Pop-up shops have opened in empty stores in shopping centres, freight containers, department stores and even tents. Some are available as pre-pack units which can be slotted quickly into an available space and often only the storefront and Zone-A space is needed. Therefore, as well as the usual legal issues encountered on a new letting, there may be further considerations relevant to the type of tenant and pop-up.

A pop-up can quickly disappear, so it is important to get the arrangement right so that both parties can benefit from the pop-up payoff.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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