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18 May 2017

Pop Up Shops: the positives and pitfalls

Introduced to regenerate the face of the nation’s high streets and increase footfall, it is easy to see why pop-up shops (pop-ups) have soared in popularity over the years. A flexible and innovative use of retail space for both commercial landlords and tenants, activity is buoyant in the pop-up market, which now generates over £2.3 billion in turnover for the economy, employing more than 26 million people.

In essence, there’s a lot landlords and tenants will like about the pop-up phenomenon. For the commercial landlord, the pop-up shop enables them to enter into a short term agreement with a tenant, (generating income and reducing their business rates and other liabilities), which also allows them the opportunity to “vet” potential longer-term tenants, before entering into a more permanent arrangement. For tenants, pop-ups provide a retail platform but without the commitment and onerous obligations (such as repair) which are part and parcel of longer term tenancies.

Initially seen as a convenient platform for start-up businesses to “test the water” and gain retail exposure, pop-ups are increasingly being used by even the world’s most popular brands (Google, Apple and Net-a-Porter to name but a few) to test new products, boost brand awareness, shift stock or test new ideas. Increasingly, pop-ups have become a middle ground for online retailers, breaking down the divide between online platform and real world consumer. With such a vast variety ranging from small shop units to large commercial premises, street food to seasonal gifts stores, the high street to shopping centres, the world is alive with pop-ups, and a lot of us want to be part of it.

Getting in on a slice of the action is Appear Here, an online marketplace linking landlords’ available spaces to brands, retailers and entrepreneurs with great ideas – think AirBnB but for retail space. Aimed at making renting as easy as booking a hotel room, the brand was created by young entrepreneur Ross Bailey (previously a tenant of a pop-up shop), who wanted to make it easier for tenants to find useable spaces. The company have worked with brands ranging from Nike, Coca-Cola and Topshop, to Stylist Magazine and countless start-up companies. All landlords need to do is fill in a form online to list their available space, and enter into a Licence Agreement (provided by Appear Here), when a suitable tenant is found.

So far so simple, however commercial landlords who have sought out their own arrangement with a potential pop-up tenant should be aware of the following:

  • The arrangement, whilst temporary in nature, creates a legal interest in property, and should be documented properly by way of a Licence or Occupy or even a short term lease. 
  • The document should include terms which a commercial landlords and tenants would expect to find in a lease of commercial premises – including payment of rent and rates, repairs, alterations, termination, and obligations when leaving the premises.
  • The Licence must contain a rolling break, which allows a landlord to terminate the arrangement at various opportunities. This is particularly important for landlords granting a licence to a pop up whilst looking for a long-term tenant, as flexibility is required to terminate the arrangement in order to guarantee a start date for a new tenant.
  • The landlord should not grant the pop up tenant with an occupation term exceeding 6 months, unless a Statutory Declaration is executed, excluding the security of tenure provisions of the Landlord and Tenant Act 1954. If not, there may be an argument that the pop up tenant has been granted a lease with protection under the 1954 Act.
  • Landlords should be mindful of ancillary considerations which will vary according to the tenant’s business – including planning permission, insurance, and additional licensing and safety requirements (particularly if the retail space is being used to sell hot food and/or alcohol). Whilst planning permission laws concerning change of use of certain properties has been relaxed (to encourage businesses to take advantage of empty high street shops), landlords should seek to clarify the position before committing to any retail arrangement where the use differs significantly from manner in which the retail space has been used as previously. For short term pop-ups, planning permission is not needed for use that does not continue for more than 28 days in a 12 month period.
  • If the tenant fails to pay rent, or breaches some other provision of the licence, a landlord should take legal action accordingly and immediately to prevent any inferences being drawn or uncertainty as to the nature of the tenant’s occupation.

In addition to the legal issues, there are some practical hurdles to overcome as well. Electronic payment systems, internet connection and Wi-Fi access are all challenges experienced by tenants who have tried and tested the pop-up arrangement. The availability of such amenities is often dependant on location – which unsurprisingly, pop up tenants consider as the key ingredient of success. 

Pop ups allow for a creative use for commercial premise and have created opportunity for businesses, landlords and consumers alike. Having had such a significant impact on the retail sector in a relatively short space of time, it is clear that the pop up shop is undoubtedly here to stay. However, despite temporary in terms of tenure, and perhaps informal in nature, landlords and tenants should not underestimate the scope for things to go wrong. Each pop up venture will vary in terms of nature and requirements, and therefore both landlords and tenants should still seek legal advice at the outset of negotiations in order to avoid the potential pitfalls.

For more information please contact Emma Preece, associate, on +44 (0)1242 246379 or