A pop up shop could be expected to occupy and trade from premises for anywhere from a day to three or four months and occasionally longer. The shop could be located in a strip shopping area (such as Sydney’s Oxford Street), a stand-alone building or a kiosk in a large shopping mall.
Pop up shops may be attractive to landlords as a way to temporarily let a vacant space while a more permanent tenant is being sought or as a way to revitalise a vacant space with an interesting tenant. Pop up shops are becoming increasingly popular with landlords and certain retailers alike – particularly retailers who may have a primarily online retail presence but want the impact (for a short time) that can be delivered by having a physical presence or often those who want to gauge the interest of shoppers before committing to more long term lease arrangements.
However, the increasing popularity of pop up shops has the potential to create some issues for landlords.
The Retail Leases Act 1994 (NSW) regulates retail shop tenancies in New South Wales. It is generally accepted that the Act is in need of updating. The NSW Government is currently reviewing the operation of the Act and a discussion paper on the Act and its operation, including the concept of pop up retail has recently been issued.
The Act does not specifically address the concept of pop up retail at all. However, merely because a shop may be a pop up shop (meaning temporary) does not of itself avoid the operation of the Act.
Short term leases
Section 16 of the Act provides for leases of a minimum term of five years for retail shops.
A lease for a term less than five years is possible where a tenant agrees and has provided a certificate from their solicitor who certifies that they have explained the effect of section 16 and the giving of the certificate (s16 Certificate). This is common.
Importantly, the Act specifies that the Act does not apply to a lease for a term of less than six months. However where the total terms of successive or renewed short term leases exceed 12 months then that lease is subject to the Act. The intention of the section is to ensure that the occupation of a retail shop by a tenant pursuant to a series of shorter term leases (such as a periodic monthly lease continued for a year or two successive six month leases) does not avoid the operation of the Act.
Under the Act, at the end of a one year period of occupation, a tenant may give notice to the landlord electing to have the benefit of section 16 of the Act (ie a lease for a minimum term of five years).
Format of the lease document
Irrespective of whether a document entered into with the tenant of a pop up shop is called a licence rather than a lease, if it is named a ‘casual leasing agreement’, if it consists of a simple term sheet or is only a letter is immaterial for the purposes of the Act. Such a document (or indeed a verbal agreement only) could, in certain circumstances be regarded as a retail shop lease for the purposes of the Act.
Take outs for landlords
Points of importance for landlords who provide space to pop up retailers are:
1. Pay attention to when the lease was entered into. If a premises is leased on a month to month basis and the lease has been in place for more than three or four months, then the landlord should obtain a s16 Certificate from the tenant in respect of the initial lease. This should be obtained no later than six months after the lease was entered into. A lease can be entered into before a tenant takes possession – eg if both the landlord and tenant have signed the lease;
2. Before the tenant has been in possession or entitled to be in possession for a year, the landlord should either formalise the tenancy arrangement by negotiating and entering into a lease that complies with the Act (and obtain a s16 Certificate) or end the tenant’s occupation of the premises.
By Sally Tuckfield partner and Matthew Geary senior associate, Gadens Lawyers.*
