Tim O’Callaghan, a member of our Fashion Group, produces regular pieces for Lingerie Insight, a trade paper for the lingerie sector. This article focuses on the benefits and and problems associated with Pop-up shops:
“Pop-Up shops remain popular with both new lingerie brands who want to test the market and with established brands who want to trial a particular retail area. Their short term nature may make them appear to be more casual than taking a lease, and with less significant legal consequences, but is that really the case….?
The rise of the Pop-up brings obvious benefits for landlords. Vacant units can be disastrous for them. Not only is the landlord not collecting rent, but they are also still responsible for outgoings such as rates, insurance and security costs. As occupants can pop up relatively easily, landlords can let space quickly and cheaply and recover all outgoings and possibly even a market rent.
Landlords have shied away from short-term lets in the past, preferring to secure long-term lettings. Yet pop-up arrangements are ideal for landlords with redevelopment plans. An arrangement can be put in place whereby a landlord covers all overheads and generates income, while retaining the ability to end the tenancy when the landlord is ready to take the property back, or when a more long-term arrangement comes along.
The recent relaxation of planning rules has made pop-ups a more viable option as, in many cases, a lengthy planning procedure will not be necessary.
In addition of course, pop-ups can create a real buzz and are a great way to generate publicity. Occupiers are becoming increasingly creative with their concepts and pop-up shops.
As well as advantages for landlords, and more important for our purposes, pop-ups can have benefits to lingerie brands who don’t want to be tied to a lease for a number of years.
The advantages for the brand taking a pop-up shop are these:
• A brand can test a new location, market area or experiment with a new format. The flexible nature of a pop-up means that the tenant is not left with an expensive liability if the venture is not a success;
• pop-ups can be a great way to attract publicity and raise brand awareness;
• Landlords may be more flexible with their terms in this tough market. A tenant might be able to negotiate an inclusive rent if the unit has been vacant for some time;
• Temporary uses of up to 28 days do not require any form of planning permission;
The key points to consider for the brand about to take a pop-up are these:
• Is the tenancy long enough and should the brand consider negotiating breaks if flexibility is required?
• How much will the unit cost: rates, rent and service charge?
• Is fit-out (shop dressing) feasible in the timeframe?
• A brand should watch out for any repairing liability and should seek a schedule of condition.
• Is there sufficient room for stock and can deliveries be made to the unit?
A very common scenario is that of the ‘shared pop-up shop’, where two or more brands decide to get together and approach a landlord about taking a pop-up shop. In those scenarios there are even more complicated issues to consider. The complicating factor is the Partnership Act 1890.
By agreeing to take a pop-up shop together, brands will often unwittingly form what in law is deemed a Partnership. In the law of partnership, partners will be jointly and severally liable for the debts and liabilities of the partnership. In laymans terms this means that you can find yourself liable for the debts of your partner if the person trying to recover the debt thinks that you are more likely to be able to pay than your pop-up Partner….
By way of an example to illustrate the point; you meet another like minded designer at a trade-show, you both agree that you have complimentary designs and you decide to take a pop-up shop together. You agree to split the rent and rates 50/50. You also agree that you will be responsible for finding a new member of staff, whose job will be to work on the till, and whose wages are to be split 50/50 between you. Your pop-up partner agrees to deal with the insurance.
You move into your pop-up space and your pop-up partner installs quite a spectacular stuffed moose head on her side of the pop-up shop for visual effect. Alas, visual impact is not the only sort of impact the giant moose head generates when one day it becomes detached from the wall and lands on someone browsing the brassieres beneath. Unfortunately, the customer suffers shoulder and arm injuries. The brassiere browser’s solicitor, being shrewd, looks into how the pop-up shop had been formed, discovers from Companies House that your accounts are in better shape than those of your pop-up Partner and decides to sue you rather than your partner. This is despite the fact that the injury was caused by your partner’s moose head and that it happened in her side of the shop. Your annoyance at being on the receiving end of an expensive claim is only exacerbated when you discover that your pop-up partner forgot to arrange any insurance.
This rather dramatic scenario demonstrates the need for having a proper agreement in writing with your pop-up partners before you sign up with the landlord.
The agreement will need to cover the following:
• Your respective responsibilities for claims and expenses;
• Responsibility for rent, rates and utility bills;
• Whether you will have individual tills or sharing a till? if so you will need to devise a system of attributing cash received;
• Will you be using your own staff or sharing responsibility for staff (salary and any employment law claims);
Whilst pop-up shops can be a great opportunity for new brands to test the water with retail, those about to embark on a pop-up adventure should do so armed with an understanding of the possible risks and the services of a good solicitor!