10 October 2014 #Commercial Real Estate
The pop-up revolution has been with us for some time now. It was not long before the need for landlords to fill their less popular retail space and new operators wanting more flexible letting arrangements led to a wave of these new age occupiers.
Whether it be a food truck operator opening their first restaurant or an innovative fashion designer looking to sell their wares, most pop-up tenants will initially have a few basic requirements:
Location in or near to a prime retail area – as with any retailer footfall is crucial but this is especially relevant to a new operator who may not have built up their client/customer base yet. As well as the more traditional bricks and mortar locations, public spaces and stations are also obvious targets to maximise footfall. A good example of this is Old Street underground station who frequently host pop up stalls on their concourse. However, pop-up tenants are also embracing the more unusual and quirky spaces and will also heavily promote themselves through social media with the aim of their pop-up becoming a “go to” destination.
Short term let – because they are usually new to market or first time occupiers a short tenancy is usually preferred. This means less financial commitment and more flexibility to see how the business develops. This is not always attractive to a landlord but it can bring a rejuvenating buzz to a poorly rented area and also attract other potential tenants etc. Also, if successful it is likely the business will be happy to take a longer lease once the short term arrangement expires. MEATliquor just north of Oxford Street in London is a good example of this. The business took a short term tenancy of some very low grade space under a multi-storey car park to house their first burger restaurant, having started out as a popular food truck. Due to their success they have become a destination in their own right and subsequently agreed a longer term with their landlord.
Fit-out – again the pop-up tenant is likely to want to spend as little as possible on their fit out and so often will be looking for existing equipment and features that it can utilise whilst also adding character to their unit.
The occupier will also need to consider the following:
Business rates – a landlord will be keen to fill the vacant unit not just to receive some income but also to pass on the business rates liability to the tenant. However, due to the short term nature of the letting a pop-up tenant may wish to avoid this extra cost and prefer agreeing an all inclusive rent.
VAT – it is likely that the landlord will be registered for VAT and be charging this on top of the rent and so unless the pop-up tenant agrees an all inclusive rent then they will need to consider whether they should register for VAT to enable them to recover the VAT they spend.
Security of Tenure – if their venture is successful it is possible that the pop-up tenant might like the certainty of a new lease at the end of their short let. It is however doubtful that a landlord would want to lose its flexibility to let to other potential tenants when the tenancy expires. As such the landlord is likely to insist that the short let is excluded from the Landlord and Tenant Act 1954, meaning that the tenant would not have an automatic right to renew their term when it expires. The pop-up operator would therefore need to negotiate new terms at that point.
Dilapidations/repairing obligations – as touched on above the pop-up tenant wants quirky features and a cheap fit out. They will not want to be responsible for putting the property into any better state of repair than they take it in. Tenants would be well advised to agree a schedule of condition when they take the lease to ensure no potentially onerous rectification requirements are imposed at the end of their short term.
Change of use and planning – a key consideration will be the use the tenant intends to put the property to and the extent of any fit out works. If the existing use needs changing, the building is listed or works are potentially substantial then it is probable that a planning consent will be required. The very nature of a pop-up does not fit well with the potential delay and lack of fluidity this could lead to but if required such permissions will be a pre-requisite to the proper operation of the pop-up.
Premises licences – if the pop-up is a restaurant or other establishment selling alcohol then it will need to have a premises licence in place before it does so.
The short term lettings market has moved a long way from Christmas shops for one month in December. Landlords are now open to the idea of the value a pop-up unit can add to the feel and marketability of their schemes. Add to this the entrepreneurial spirit and desire of new operators to take on these units and it seems the pop-up market is here to stay.