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Pop-Up Restaurants, Shops & Cafes: The Pros and Cons of a Growing Phenomenon for Landlords and Clients

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Pop-Up Restaurants, Shops & Cafes: The Pros and Cons of a Growing Phenomenon for Landlords and Clients

Pop-Up Restaurants, Shops & Cafes: The Pros and Cons of a Growing Phenomenon for Landlords and Clients
January 26
10:39 2016

Gillian Downie lowPop-up restaurants, stalls and shops are everywhere, these days. Gillian Downie sets out the legal issues for landlords and tenants…

Pop-ups offer opportunities and pitfalls for landlords and tenants alike

Ranging from tiny stalls to large shops – and some opening for only an hour while others stay for months – thousands of pop-up shops, restaurants, venues and events have sprung up across the UK in recent years. The fast format offers attractions to both tenant and landlord, but the same legal and contractual considerations apply for both parties as they do in the case of a long-term lease.

Who’s using pop-ups, and why?

Pop-up outlets have proved popular with start-up businesses and multinationals alike; Global brands from Prada to Nike have tried them in recent years, mainly for temporary on-street stores which can be used to carry out discreet, informal market research. Generally perceived as better value for money than an entire advertising campaign – partly because businesses have the opportunity to connect with their target market directly – pop-ups are quick and easy to set up, and landlords are often willing to enter into relatively informal agreements which allow traders to rent their premises without the need to take on conventional leasehold obligations such as a repairing covenant.

What’s in it for the landlord?

Pop-ups can be an extremely attractive proposition for landlords whose premises have lain empty for a long period, as they offer an opportunity to promote a building and reduce business rates liability. Often, they will benefit from a degree of free maintenance and decorating work, and the rejuvenation of one derelict building can lead to more in the area experiencing the same, giving a once tired high street or shopping mall a new lease of life. Pop-ups can also provide landlords with the chance to trial new tenants before deciding whether to commit to a longer term option.

What kind of contract should be used?

Potential landlords and tenants must consider what type of tenancy agreement to enter into. One option would be a short-term lease, but such a document takes time and money to put together – which flies in the face of the objective of the pop-up project. Another option is the use of a diluted form of lease agreement, known as a licence, or the increasingly common ‘hybrid’, which combines the key tenant covenants of a lease with the short format of a licence. Often called a ‘flexilease’, such documents require careful drafting to avoid providing the tenant with unintended rights.

What factors should the parties consider when negotiating a pop-up lease or licence?

The commercial terms of the deal will depend on the circumstances of the property and the nature of the business: will there be rent-free provisions?; Will the rent be linked to the success of the business?; If a tenant carries out improvement work, will this be taken into account in the rent?; Will either party have the right to renew in the case of a successful venture, and can the landlord terminate the deal if a better proposition comes along?

What other legal issues should a tenant consider?

If the tenant wants to sell alcohol or play music, a separate licence will be required from the local authority and the Performing Rights Society (PRS) respectively. They may also wish to ensure that the landlord can’t claim for any defects or damage which is already evident.

Gillian Downie is a property partner with Maclay Murray & Spens LLP and a member of the firm’s Food and Drink team

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Catering Scotland

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