Pop-Up Businesses: Are They a Good Opportunity for Landlords to Fill Vacant Commercial Space?

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Vacant properties can be a real challenge for landlords, causing them a loss of rental income, as well as the potential for higher costs related to insurance, security, maintenance and business rates. While vacancy rates vary based on the property type and location, high-street retail units have seen particularly high vacancy rates in recent years.

For most landlords, the ideal tenant is one who will take a property on a long-term basis, providing a stable income. However, renting on a short-term basis to “pop-up” businesses can provide a good option for filling vacant properties, especially over the festive season, when there tends to be an increase in seasonal businesses.

In this article, we cover what pop-ups are and which kind of businesses might suit different types of properties, the advantages and risks for landlords of renting to pop-up businesses, whether it is best to offer a short-term lease or licence to occupy, the responsibilities of tenants and landlords in these situations, and how our team can help.

Need help with granting a lease or licence to occupy for a pop-up business? Please contact Annette Monthy who will be happy to advise.

Key points for landlords to know about pop-ups

  • Pop-ups are businesses set up for a limited time and/or for a specific event
  • They can allow landlords to fill vacant commercial space, might lead to longer term occupation and can make a property more attractive to other potential occupants
  • Landlords will need to consider and manage risks around issues such as planning and licensing restrictions, liability, property damage, challenges in recovering costs and securing vacant possession
  • Landlords can either offer a short-term lease or licence to occupy with the former offering both parties more security and the latter greater flexibility
  • Landlords have certain statutory responsibilities when renting commercial property even on a temporary basis and each party’s rights and responsibilities should be clearly set out in writing
  • Getting expert legal advice when creating a short-term lease or licence to occupy can significantly reduce the risk of disputes and provide strong grounds for legal action if a problem does arise

What is a pop-up business and what kind of properties might they use?

A pop-up business is one that is set up for a short period of time, usually for a specific event or season. Pop-up shops and food outlets are well-established concepts, but other short-term businesses can include event spaces, seasonal activities and markets.

Different types of spaces may be suitable for particular pop-up businesses depending on the facilities they offer and issues around licensing and permitted usage. Some uses might be straightforward; for example, an empty retail unit might be ideal for a Christmas-themed shop, while a vacant food outlet could be used for a seasonal food business. Others might require more creative thinking, such as repurposing a warehouse as a Christmas party venue or a barn as a Christmas tree shop.

Any costs and potential legal or licensing hurdles must be carefully considered, especially if a change of use is involved. Landlords also need to be realistic about the condition of the spaces they wish to rent out, especially if they have been vacant for some time.

Advantages for landlords of renting commercial space to temporary businesses

The obvious immediate advantage of renting a property to a pop-up business is the income from the tenant. The temporary occupation could also lead to a longer-term lease or a repeat arrangement in future years.

Having the property occupied could also help to showcase its potential to other possible tenants, increasing the landlord’s chances of finding a permanent tenant. If the tenant makes any improvements to the space, this could make it more attractive to other tenants.

A landlord could also benefit from the empty property relief from business rates after the pop-up business vacates the premises, allowing them to save money even after the short-term occupation is over.

Risks for landlords renting space to pop-up businesses

One of the first things a landlord will need to consider is the property’s intended use and whether this is allowed under current planning restrictions. They may need to apply for a temporary or more permanent change to planning conditions to facilitate the intended use. This will cost money and could be turned down, affecting the viability of the change of use.

Landlords must be clear about their liability and what responsibilities they must impose upon the business occupying their property. If the public will be accessing the property, appropriate insurance will be required.

There may be a greater risk of damage to the property as the tenants may be less concerned about maintaining goodwill with the landlord, given that they are not entering into a long-term relationship. This could also be an issue regarding compliance with the agreed terms of the occupation and licensing and planning rules. This could, in turn, result in higher costs and risk of legal complications for the landlord.

When dealing with a temporary business, recovering any costs from property damage or other issues may be harder if the business has ceased trading.

While the intention may be for the occupation to be temporary, another concern is that the occupant could refuse to leave when the agreed term is over. The landlord would then potentially need to take action, such as seeking vacant possession through the courts. Alternatively, the occupant could fail to clear the property at the end of the agreed term of occupation, leaving the landlord with the cost of removing anything left behind.

How to manage the risks when renting commercial space to temporary occupants

The most important step a landlord can take when renting property to any occupant is to have clear, legally enforceable terms for the occupation. Ideally, these should be in writing and drafted by an experienced commercial property lawyer. This helps to avoid confusion, clarify each party’s rights and responsibilities, and give the landlord a strong basis for legal recourse if a problem arises.

It should also be clearly agreed in what condition the property will be handed over to the occupant and in what condition it should be returned. This can help to minimise the risk of disputes over any dilapidation issues.

A landlord can offer a short-term lease or a licence to occupy commercial premises temporarily. Each has different advantages and disadvantages, as covered below.

Should you use a lease or licence to occupy for temporary occupation of commercial premises?

A lease creates a landlord-tenant relationship with the occupant of a property, giving them exclusive occupation of a space for an agreed time in exchange for the payment of an agreed rent. The tenant has security of tenure, meaning they have the right to stay in the property for the agreed term of the lease as long as they do not breach the lease agreement.

A licence to occupy allows the licence holder to occupy the property for a particular purpose. They will not be guaranteed exclusive use of the property and they do not have security of tenure, meaning the landlord could require them to leave at any time.

As a landlord, deciding whether to offer a lease or a licence to occupy will entirely depend on the circumstances. Generally, a licence can give both sides more flexibility while a lease offers both landlord and tenant greater security.

Whichever you choose to use, the terms must be well drafted so they convey exactly the rights and responsibilities intended and nothing more.

What responsibilities does a tenant have when occupying a commercial property on a short-term basis?

The occupant’s responsibilities should be very clearly set out in the lease or licence to occupy. Key points to cover include:

  • The agreed rent, when it should be paid and how non-payment will be dealt with
  • What activities can be carried out at the property and between what hours
  • Who is responsible for maintaining the property
  • Who is responsible for the cost of insuring the property
  • What each party’s health and safety obligations are
  • Terms for extending the lease/licence or ending it early
  • What state the property should be returned in at the end of the occupation
  • How any disputes should be resolved

Generally, a lease is more detailed, and a tenant has more responsibilities than someone occupying a property under a licence.

What are the legal obligations of a landlord when renting to a pop-up business?

A landlord has certain statutory responsibilities when allowing someone to occupy one of their properties, including making sure that the property is safe and providing a valid Energy Performance Certificate (EPC).

A landlord’s health and safety obligations cover issues including maintenance and repair of any fixtures and fittings they own, fire safety, gas and electrical safety, and assessing and mitigating any risks from asbestos.

The lease or licence should cover any other responsibilities the landlord has, for example:

  • Maintenance of communal areas, the fabric of the building etc.
  • Providing insurance
  • Securing any relevant planning permission

To make a short-term lease more attractive, a landlord may wish to consider maintaining more responsibility for the property than would be normal with a long-term lease. However, this must be carefully considered. Proper legal advice should always be sought and each party’s rights and responsibilities agreed and set out in writing.

How Longmores can help with leases and licences to occupy for pop-up businesses

At Longmores, our Commercial Property team are highly experienced in supporting landlords with leases and licences to occupy commercial property. We can assist with drafting short-term leases and licences to occupy, ensuring the terms meet your requirements and protect your interests. We can also ensure you are fully aware of your legal obligations and be on hand to advise should any problems arise.

To discuss how we can help with leases and licences to occupy, please contact Annette Monthy who will be happy to advise.

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.