Picture this: you’re the owner of a building in a bustling downtown hub and you find yourself with vacant retail space in a highly visible location. The previous tenant just left and you are still looking for the right long-term tenant, though you suspect the search could take several months. Or perhaps you are considering pursuing a zoning change to convert your retail space to office space, and although you aren’t in a position to sign a lease with a long-term retail tenant, you’d like the opportunity to collect rent from a short-term tenant while you pursue zoning relief. Imagine instead that you’re a store owner with too much space during the off-season and rather than commit to a sublease, you’d like to bring in a compatible retailer for just a few months to contribute to your rent payments until you can comfortably fill the entire space yourself.
In any of these scenarios, a pop-up store could be just what you’re looking for. “Pop-up” or “flash” retail refers to the trend of opening short-term storefront spaces to house up-and-coming retailers, or retailers who otherwise lack the physical presence necessary to raise their brand’s profile. The trend matches vacant capacity with demand for capacity in a way that benefits both landlords and retailers.
A few recent examples of retailers who have opened successful pop-up shops include the recently-launched Kate Spade Saturday concept, the stylish maternity label Hatch, and online eyewear retailer Warby Parker. And the trend isn’t limited to the sale of apparel and accessories – tech giants Google and Microsoft opened pop-up locations in time for the last holiday rush, as have headlining artists such as Kanye West, whose tours only stop in select cities for a few days at a time and can benefit from having a physical location where tickets and merchandise can be sold in the days or weeks preceding a show.
Fortunately, a few new online services make it easier than ever to jump on the pop-up bandwagon. Storefront bills itself as the “Airbnb” of retail, referring to the popular website that allows homeowners to rent their homes directly to guests. Although most of its listings are in San Francisco and New York, the site includes listings for locations in Boston and elsewhere in Massachusetts. Each listing includes photos, customer reviews, and a calendar showing rates and availability. Storefront charges a commission of 6 to 12 percent, and provides renters with general liability insurance. A similar service called Appear Here has emerged in the UK, proving that the pop-up phenomenon isn’t only happening stateside.
While pop-up retail presents an attractive opportunity for landlords and retailers alike, parties should be aware of how the trend relates to the language in their leases. Landlords looking to fill vacant spaces on a “flash” basis without using one of the online services described above might consider preparing an abbreviated “pop-up” form of lease which includes only the most critical lease provisions. With respect to pop-ups located within existing stores, we note that many leases restrict tenants from assigning their lease or subleasing a portion of their space to a third party without the landlord’s consent. However, given the novelty of the pop-up trend, many assignment and sublease provisions do not clearly address short-term arrangements between the tenant named in the lease and a retailer seeking shelf space in which to launch a “flash” retail presence. Landlords looking to avoid any ambiguity and retain approval rights over this type of arrangement may consider explicitly addressing pop-up retailers in their leases by specifying that these types of short-term arrangements are to be considered subleases subject to landlord’s consent.
Similarly, tenants should carefully review the provisions of their lease before welcoming pop-up retailers into their space so as to avoid any unintentional violation of their assignment and sublease provisions. Tenants entering into new leases may wish to explicitly address the issue of pop-ups and add an expedited pop-up approval mechanism to their leases for those types of deals. Be aware that in lieu of obtaining landlord’s consent up front, some tenants entering into pop-up arrangements with other retailers might retain the right to terminate the pop-up arrangement on relatively short notice, so that in the event a landlord alleges a breach of the lease, the tenant can terminate the pop-up arrangement before the landlord can exercise its remedies under the lease.
Given the pace at which the pop-up retail trend is moving, landlords and tenants should prospectively review their lease language to ensure that they are poised to take advantage of these fleeting opportunities – after all, in retail, as in many things, timing is everything.