Millennials are eating out and staying away far more than generations before them and have very different wants and needs. A meal is no longer a white table cloth affair and a hotel stay is no longer about doilies and a trouser press. Ok, it has probably not been that for a while but people now want an “experience”. This has led to a huge increase in pop-up’s which are a continually increasing trend in the Leisure and Hospitality Sector.
Temporary retail shops, bars, cafes, restaurants and hotels are popping up at various events, street corners, shopping centres and in bespoke makeshift structures across the UK. They can be seasonal operations, one-off trade tied to a specific event or a small business testing the water.
Many of these are fantastically creative ranging from shipping containers, shoe boxes, large foldable crates and you could have even eaten your Christmas dinner in the Great Hall at Hogwarts.
Pop-up’s are clearly very popular and can benefit both landlords and tenants.
From a tenant’s perspective, they are a flexible and innovative way to showcase products or trial physical retail without the burden of a long-term lease and offer a low risk opportunity to raise brand profile, test new locations and carry out market research with immediate feedback.
For landlords, they appeal to a variety of different types of tenant and can be set up quickly filling voids and reducing business rates liability almost immediately. In addition, they often generate publicity that can be of great benefit to the surrounding area.
A pop-up arrangement is likely to be documented either by way of licence (if taking space within a department store or market) or a formal short form lease (if occupying a single space which is not intended to be moved around) granted outside of the security of tenure provisions of the Landlord and Tenant Act 1954.
What should be included?
Even though pop-up arrangements are short-term and may be seen as informal, the substance of them is still as important as a long-term lease in order to protect both parties’ interests.
The main terms that need to be included within any licence or short form lease are as follows:
- Length of term
The length of occupation should be fixed and not mention any statutory continuation. A tenant may want an option to break the lease in the event that the business is not viable and a landlord may want an option to break the lease if the arrangement is affecting their own business or if they find a genuine potential long-term tenant.
- Payment of rent and rates
The rent can be fixed or linked to the pop-up’s turnover and the dates and methods of payment should be expressly dealt with. A tenant may ideally want an all-inclusive rent to avoid any surprises. For example, a landlord may have made a VAT election however the pop-up business may not have generated enough income to become VAT registered impacting on the affordability of the arrangement.
There should be a standard requirement for the pop-up business to keep the property clean, tidy and in good condition. A tenant may want to limit this obligation to no worse a condition than they found them in and this would most effectively be evidenced by way of annexing a written and photographic schedule of condition to the lease.
Works of any nature should be prohibited absolutely. A tenant is likely to want to do some basic fit out or adaptation to make the property suitable and these should be agreed at the outset with a specific obligation on the tenant to remove the fit out works at the end of the term and make good any damage caused by the removal.
It is likely that there will be a prohibition against assigning the lease or subletting the property (either in whole or part) to reflect the nature of the personal arrangement with the pop-up business.
- Permitted use and planning
The permitted user should be specifically stated as tailored to the tenants’ requirement. There has been greater planning flexibility since 30 May 2013 with buildings within use classes A1 (retail), A2 (financial and professional services), A3 (restaurants and cafes), A4 (drinking establishments), A5 (hot food takeaways), B1 (businesses), D1 (non-residential institutions) and D2 (assembly and leisure) being able to temporarily change to any use within A1, A2, A3 and B1 without obtaining planning permission for a single period of up to 2 years for properties with a gross internal floor space of up to 150 sq. m.
- Statutory compliance
There are a number of statutory regulations to be complied with by a pop-up business and there should be an express obligation on the tenant to comply with them. These can include obtaining licences from the local council and PPL and PRS if selling alcohol or playing music as well as complying with health and safety law, food safety laws and general statutory compliance.
Increasing numbers of businesses within the Leisure and Hospitality sector are taking advantage of pop-up arrangements and whilst there are many benefits to them it is important to seek legal advice, whether landlord or tenant, to ensure that you get the arrangement right and are not left with any nasty surprises.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.