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How to acquire a Pop-up Retailing leaseBy: Charlotte Gray

Pop-up shops are good for first time retailersChristmas offers a significantly increased demand for retailers and it is common at this time of year for tenants to open pop-up shops.

Landlords are increasingly appreciative of the benefits of pop-up shops to decrease void percentages, cover rates (and allow fresh empty rates relief once the tenant has vacated) and to increase footfall.

Although a number of veteran retailers have opened pop-up shops in recent years including Liberty, eBay and Marmite, the pop-up shop option is often most appealing to first time retailers who wish to test the water before committing to a long term lease. For those who are considering a pop-up shop, there are a few important points to consider.

  • Time is of the essence. Footfall dramatically increases by mid November and to take full advantage, retailers need to have a completed lease and be in occupation of a fully fitted-out unit well in time for this period. 
  • Costs are an important issue for all tenants. One of the advantages of a short-term lease is that this will frequently involve a one sum rent that also covers service charge and insurance. Be aware of the additional costs of rates and gas/electricity and check anticipated figures with the landlord to ensure you are fully aware of the total cost of your lease.
  • Your lease is likely to have a fixed rent, but it may be that the landlord would like to incorporate a turnover rent. This is a rent that varies according to the amount of trade done at the premises.
  • The most common form of turnover rent is a “top-up” where you pay a fixed rental sum, frequently about 80 per cent of the full market rent, and on top of this you pay a percentage of your turnover to the landlord. The percentage can range from 1 per cent to about 13 per cent and the general rule is the higher the tenant’s margin, the higher the turnover percentage. Landlords are frequently agreeing to turnover rents and if this method fits better with your economic model, request this early in negotiations.
  • Ensure you view the state and condition of the unit to understand the full extent of your repairing obligations. If the previous tenant has left racking in the unit that you would like to use, obtain the landlord’s confirmation that you have a right to use this. Be clear about what will be done with the racking when you vacate the unit and bear in mind that you may have to pay to strip out the unit and leave it in good condition. If the previous tenant has caused damage to the unit, ensure the landlord is fully aware of the disrepair and is not expecting you to make good before you vacate. A simple solution is to ensure that the repairing obligation obliges you to keep the unit in no better state of repair than that evidenced by a photographic schedule of condition.
  • Pay careful attention to the alterations clause in the lease. Be familiar with your fit-out to ensure that, for example, your proposed racking does not require bolting to the floor, which would be a structural alteration that is usually prohibited under leases. If you can demonstrate that your proposals are tasteful, attractive and in keeping with the centre, you should not come up against strong opposition from the landlord. Provide the landlord with as much detail on your plans as early as possible and keep an open dialogue to prevent any delays in obtaining this approval which could ultimately delay shop opening and your income stream.
  • It may be that consents are also required from other authorities. The landlord should have information on the planning use permitted at the unit, so check that this will cover your business. Obtaining planning permission will take some time, so it would not be economical or practical to sign up to a short term lease where a change in use is necessary. An alcohol licence will also take time and if this is necessary for your business, you need to make the application as soon as possible.
  • If trade does well and you are interested in taking a longer lease, open negotiations as early as possible with the landlord. The advantage of being in occupation is that the landlord will be aware of the quality of your fit-out and the advantages you can bring to the centre. It is important to prove your reliability by making payments on time to add financial weight to your argument that you will be an asset to the scheme.

So if you act quickly and pay attention to rent, alterations and repair, hopefully your pop-up shop will allow you to take full advantage of the financial perks of the festive season.

About the author

Charlotte Gray of Boodle Hatfield solicitorsCharlotte Gray is a solicitor in the commercial property team at law firm Boodle Hatfield

Features October 2013

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