Pop-Up Shops: The Positives and Legal Pitfalls

Far from a fading trend, pop-up shops are fueling the retail revolution and it is easy to see why these temporary brick-and-mortar spaces have soared in popularity in recent years. A flexible and innovative use of retail space for both commercial landlords and tenants, the pop-up market, which now generates over £2.3 billion ($2.99 million) in turnover for the economy, employs more than 26 million people and has tempted brands ranging from established names like Hermes, Chanel and Louis Vuitton to niche labels, such as Kith. They have also played home to Kanye West's tour merch and Kylie Jenner’s cosmetics venture.

Aside from the appeal to consumers – pop-ups enable them to see e-commerce-specific brands’ wares in the flesh, for instance – there is a lot that brands landlords and tenants (the latter being the brand hosting the pop-up) like about the pop-up phenomenon.

For the commercial landlord, the pop-up shop enables him to enter into a short-term agreement with a tenant, (generating income and reducing their business rates and other liabilities). This 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 that 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 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.

But such attractive set ups are not without potential legal concerns. As Louis Vuitton and Supreme learned this week, many of these proposed projects never make it off the ground. On the heels of the debut of the parties' collaboration during Louis Vuitton’s Fall 2017 menswear show, the parties planned to hold a pop-up from June 29 to July 2.

However, their proposal was shot down by Manhattan’s Community Board No. 2, which voted unanimously to deny Supreme’s proposal to hold a multiday pop-up at 25 Bond Street. According to the board, Supreme did not present a proper management plan to control the more than 1,000 people expected to attend. Instead of providing a detailed plan for the 4-day event, Supreme merely stated that it planned to hire more than 20 security guards and set up barriers to prevent a large-scale disturbance. 

According to reports, in denying Supreme's request, the city board noted that Supreme "has a history of violating New York City permit requirements, and that in the future, all Street Activity Permit applications involving a 'line-forming product launch' should present the Board with a plan to prevent 'unnecessary disturbances that have been plaguing our community for the past several years.'” 

If brands can get the necessary clearance to host a pop-up, the real estate arrangement, while temporary in nature, creates a legal interest in property, and thus, should be documented properly by way of a license or even a short-term lease, which outlines terms that 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.

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. While planning permission laws concerning change of use of certain properties have 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 the way the retail space has been used as previously.

And 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 dependent 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.

Emma Preece is an associate specializing in both commercial and residential property litigation at Charles Russell Speechlys in London -- with edits/additions courtesy of TFL.