Pop up lease is an all-round solution
Vacant shop spaces in shopping centres and precincts around Australia are not an uncommon sight. Online shopping is certainly having and will continue to have an impact on the bricks-and-mortar shops.
Standard retail leases run between 3 and 5 years, requiring confidence and financial security that some small businesses don’t always have in an uncertain economic climate.
For many property owners and tenants alike, a Pop Up lease offers a handy solution. Short-term leasing arrangements can be established almost anywhere: in underused shops or parts of shops, office spaces and shopping centres, or on government-owned property like parks, footpaths and railway stations.
The Pop Up lease allows both landlords and tenants to take advantage of periods of high seasonal demand like Christmas, Valentine’s Day, Easter or financial year-end. It can help direct shopper traffic to a newly established shop, to an under-utilised area of the shopping centre, or to enable a retailer to sell old stock at discounted prices. A Pop Up lease presents an opportunity for the tenant to assess consumer interest in innovative products or services without breaking the bank and is also a great way to encourage interest in, and demand for, the work of artists, designers and people who work from home.
The benefits of a Pop Up lease often outweigh the downsides, but just as the conventional retail lease can become problematic, so too can a Pop Up lease. It is important to know the legal implications and to understand the difference between a licence and a lease, particularly as a lease that is governed by the Retail Leases Act 1994 (NSW).
A lease provides comprehensive security for both the landlord and tenant and gives the tenant a proprietary interest in the land being leased. This means the tenant has the right to exclude all others from the land – even the landlord, subject to certain rights the landlord may retain.
The Retail Leases Act, which sets out legal arrangements between landlords and tenants for certain retail shops, specifies that the occupancy becomes subject to the Act when a person enters into an agreement (whether express or implied, oral or in writing or partly oral and partly in writing), enters into possession or begins to pay rent under the agreement (whichever happens first).
Given the exponential rise in online shopping, the Pop Up lease is likely to become more popular. In understanding the pros and cons of this type of lease, it should be embraced and not feared.
Benefits for landlords
- Maximise income: Short-term leases allow landlords to maximise their income.
- Assess potential tenants: In some circumstances, starting with a short-term leasing arrangement allows a landlord to assess a tenant’s viability and trading record before entering into a long-term lease.
- Flexibility: Given appropriate conditions in a Pop Up lease, a landlord may be able to recover possession of the premises quickly if an acceptable long-term tenant becomes available.
- Higher rent: A Pop Up lease invariably entails above-market rent.
Benefits for tenants
- Quick and easy: With a Pop Up lease, the tenant usually sets up and operates quickly and at low cost, with minimal fitout or structural change, minimal maintenance obligations, and minimal repair or make-good obligations when the tenancy ends.
- Try something new: The Pop Up lease enables the tenant to try out new ideas, or operate on a limited scale, without making a large and risky up-front commitment.
- Physical presence: People who currently sell goods only online, or at local markets or from other people’s shops, can test the feasibility of running a shop on a Pop Up lease.
- Testing the market: Entrepreneurs can test demand for their product and the feasibility of the business. If the hoped-for level of consumer demand does not eventuate, losses are minimised.