The COVID-19 pandemic hit businesses hard, but retailers have faced one of the hardest recoveries. Nearly two years on from the first lockdown, which forced many businesses into financial difficulty and even permanent closure, shopping centres, retail parks, and high streets have not recovered.

New data now reveals that across the UK, 14.5% of retail units are vacant, with shopping centres and fashion retailers being hit the hardest.

This has, of course, placed serious economic pressures on commercial landlords who rely on income from retail tenants. And units that are filled can also cause problems. If a tenant under a commercial lease is struggling to keep up with rent payments, landlords currently cannot take legal action to evict them or take certain types of legal action to recover rent arrears caused by COVID-19.

As such, many landlords have been considering their options for the future. Pop-up shops, which can be let on a short-term basis, are one effective way for landlords to quickly fill retail units and prevent units from standing empty while maintaining flexibility to retake possession of the property.

What is a pop-up?

Pop-ups are temporary shops that are often set up for a specific purpose, such as to:

• Create marketing buzz around a brand, especially online brands
• Set up exhibitions or run community projects
• Sell seasonal items (such as Christmas gifts and decorations)

Pop-ups are often let under a licence to occupy or a short-term lease, usually for a period of six months or less.

With Christmas fast approaching, pop-ups may be a great option for landlords looking to fill units, reduce costs and boost rental income.

Why let to pop-ups

Traditionally, landlords have preferred to let retail units to long-term tenants under a commercial lease to provide certainty and a steady income stream. However, the COVID-19 pandemic has made running a long-term retail business harder, and commercial landlords have ended up bearing much of the cost of their tenants’ difficulties.

Short term lets, such as pop-ups, can be beneficial to landlords in many ways, including:

• The landlord can fill a property that may have otherwise stood empty
• The tenant will pay rent, generating income for the landlord
• The occupied unit is often safer, can deter vandalism or squatting, and may lower the landlord’s insurance premiums
• The landlord will not be responsible for paying business rates while the unit is occupied by a tenant
• The pop-up can create publicity, increase footfall to the area and make the landlord’s property more attractive to future long-term tenants

However, pop-ups are not without their pitfalls. Before letting to pop-up tenants, landlords should consider things like whether to let under a lease or a licence to occupy and whether the pop-up is cost-effective, even with rental payments incoming and business rates covered.

Retailers should also be careful not to be drawn in by what appears to be a good deal. They should bear in mind whether the unit is actually suitable for their needs, for example, in terms of location, footfall and space.

Lease or licence to occupy?

The basis upon which you let your commercial property is crucial. Pop-ups tend to either be let on a short-term lease or a licence to occupy.

Short-term lease

A lease is a legal contract between a landlord and a tenant which gives the tenant exclusive possession of a business space for a certain period of time in exchange for rent. The lease will outline the parties’ rights and responsibilities.

Short-term lets less than six months are not covered by the COVID-19 restrictions on commercial rent arrears recovery, so it may be an attractive option for landlords during this time.

Licence to occupy

A licence gives permission to a tenant to occupy a business space for a particular purpose. The tenant has fewer rights and no security of tenure. The landlord has much more flexibility to end the licence and regain possession of the property. Although licences appear to put tenants at a disadvantage, some prefer the flexible nature, particularly retailers looking to set up a pop-up.

Licences to occupy are not covered by the COVID-19 restrictions on commercial rent arrears recovery, so it may be an attractive option for landlords during this time.

Who pays business rates for a pop-up?

Typically, when a business premises is occupied, the tenant takes on the responsibility of paying business rates from the landlord.

Where a tenant occupies a property for at least six weeks, the landlord is also allowed to claim a three month exemption from paying empty property rates once the property becomes vacant again (this applies to non-industrial properties). For small businesses who occupy one property, small business relief from business rates may also be available on properties with a rateable value of up to £15,000.

Do you need planning consent for a pop-up?

Pop-ups do not need planning permission to occupy the property for up to 28 days in a calendar year.

Since the pandemic, outdoor pop-ups have been allowed to operate for up to 56 days in a calendar year without planning consent, which opens up a new realm of possibilities for outdoor restaurants, bars, campsites and other businesses.

Longer term pop-ups (occupation up to two years) may need to apply for a change of use and the floor space of the property will be an important consideration.

Speak to our Commercial Property team for expert advice about pop-ups

To discuss letting retail units to pop-up businesses or any other commercial property matter with our highly experienced Commercial Property team, please get in touch.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.