An exciting and fashionable business trend to emerge over the last few years is pop-up retail and with the Christmas season fast approaching (a time typically popular for pop-up shops) we take a look at one of the key factors to consider which type of agreement is best suited for the retail space and the tenant’s requirements – a lease or licence?
What is a pop-up shop?
Simply put, a pop-up is a ‘here today, gone tomorrow’ shop that can sell anything. While some might be in place for three days or up to three months (or longer), others will only be seasonal. Pop-ups certainly are proving popular for both new and existing businesses. For new entrants they provide an opportunity to connect to new customers, collaborate with other small businesses, launch or test new products and offer a limited (and thereby selective) window of opportunity for their merchandise to be sampled.
The pop-up option is also popular with existing online retail businesses, as it enables them to provide existing and potential new customers with a ‘real life’ opportunity to see or try on merchandise in the flesh, without denying customers the chance to buy online and in their own time. In both cases, the main advantage is to limit costs and risk for the tenant.
From a landlord’s perspective, a pop-up shop means the property is not empty, rental income is coming in (which may include a contribution to business rates, outgoings, insurance etc.) and the property is seen trading and (hopefully) obtaining footfall. If structured properly, pop-up operations also give the landlord flexibility by allowing them to reclaim the property without warning if a long-term tenant appears.
Whilst pop up shops can provide a stream of benefits, it is important that any business which owns or occupies commercial property understands the legal basis for which it is occupied. Two of the most common methods for a business to occupy commercial property is through either a lease or a licence. Parties must be aware of the fundamental difference between a lease and a licence.
What is a lease?
A lease is a legally binding contract between a business tenant and a landlord, which gives the tenant ‘exclusive possession’ of a space in exchange for rent over an agreed term. The lease will also outline the rights and responsibilities of both parties during the period of the lease. Typically, this will include the landlord rights of entry onto the property, repairing obligations for the tenant and any rent review procedures
What is a licence?
Unlike a lease, a licence does not confer any legal interests in the retail space but instead gives permission to the tenant to use the location for an agreed purpose, in this case as a pop-up shop.
Crucially, a licence provides no security or tenure, so the licensee occupies entirely at the pleasure of the licensor. If the licensor disposes of their interest in the property, the licensee’s right of occupation ceases immediately.
Despite the clear disadvantages of a licence, particularly for the occupier, there are nevertheless some scenarios where they may be more suitable than a lease. They can be granted quickly, cheaply and may be appropriate where only very short-term occupation is required, such as with a pop-up shop.
Although pop-up arrangements are short in nature, the risks may be just as substantial as those found in a long term leasing arrangement. If you are a landlord or a tenant, you must always seek legal advice before opening a pop-up shop, however short the arrangement may be.
For more information, or to speak to one of our Commercial Property specialists, please call 01603 677077.