Pop-up outlets are not a new concept, but their popularity has grown considerably in recent times. The Journal explores what agents need to know about short-term leases.
Pop-up shops are becoming an increasingly common component of retail strips as people take advantage of empty outlets to set up a shop, bar, restaurant or some other type of temporary outlet.
“There’s certainly a trend for pop-up spaces in NSW, but ‘trend’ implies that it will pass,” Jones Lang LaSalle’s NSW Director of Retail, Property and Asset Management Peter Turner said.
“Pop-ups are temporary, but their existence in the current environment is anything but.”
Richardson & Wrench Surry Hills/Redfern Principal Daniel Gunning has experience with managing short-term leases for everyone from drinks companies that want to put on a special event through to retailers.
“Obviously strip retail has had a high level of vacancies recently, so there’s been a lot more opportunity to go in and do pop-up shops – especially with online retailers . They might use a space as an opportunity to do a promotion. They can do a store function to promote specific products and then leave them on display for a month,” Daniel said.
Pop-up shops allow retailers to trial new and innovative products before they commit to a longer retail lease. They also offer retailers the chance to experiment in new locations.
“They can also allow retailers who have left retail strips an opportunity to try a shopping centre environment without actually committing to a longer lease,” Peter said.
In February 2013 the Australian Competition and Consumer Commission granted authorisation of the Casual Mall Licensing Code of Practice. The code relates to the granting of a right to short-term leases (less than 180 days) within the grounds of shopping malls.
Peter pointed to the example of Westfield Pitt Street, which offers pop-up spaces in the centre.
“Shopping centres can leverage off marketing and PR to promote the centre, as the pop-up shops and in-centre markets stimulate consumer interest due to their varied and constantly changing nature. In addition, they fill spaces in between other lease agreements,” he said.
Conditions of tenancy
Pop-up spaces must comply with the relevant land use zone in the local council’s Local Environmental Plan.
Tenants are also required to take out public liability insurance and have the required permits from the local council regarding the use of the premises.
The type of licences and permits required depends on the nature of the business. Therefore, it is strongly recommended that agents refer small business operators looking to open a pop-up space to the Office of the Small Business Commissioner's Small Biz Connect program for specific advice.
What do landlords think?
In Daniel’s experience, landlords can be hesitant to enter into short-term leases.
“Owners will consider it if a shop hasn’t been leased for a while, or if a property is under DA or due for redevelopment and the owner does not want to enter into a long-term lease,” he said.
Yet the benefits for landlords that take the risk are numerous. The cost of insuring a property that is left empty is higher than when it has a tenant, risk of vandalism or issues going unaddressed at the property are reduced, and commercial interest in the property may be renewed, particularly if the pop-up is a success.
Chris Yiallouros, Commercial Property Manager at Kellys Property in Newtown, will often advertise a property as available for long- and short-term leases.
“Sometimes if you have an empty property, you might have a water leak and no one would know about it,” Chris said.
“Pop-ups are also good to show passers by that there’s someone in the property.”
Chris recognises that there are many pros to short-term leases. These include the landlord’s right to increase rent within one month’s notice and the ability to ask the tenant to vacate with one month’s notice or as agreed upon.
He warns that locking yourself into a short-term lease too early could cause landlords to miss out on long-term leases, but acknowledges that the pros outweigh the cons.
“It keeps the shops occupied and is good for other shops in the area, as it makes the street look busy,” he said.
Short-term leases can account for as little as an hour through to a maximum of six months under the Retail Leases Act 1994.
Short-term contract tenants who remain in a property beyond six months have the right to revert to a long-term lease with the same terms as their short-term contract. As a result, the tenant may be paying rent long-term at a reduced rate.
Agents are advised to get pop-up tenants to sign a contract that prevents their short-term contract from rolling onto a permanent contract if they choose to stay on in the property beyond six months (see box).
Agents are advised to get all short-term tenants to sign a certificate to prevent short-term contracts rolling over into long-term contracts. Section 16(3) of the Retail Leases Act 1994 defines these rules:
“This section does not apply to a lease if a lawyer, or a licensed conveyancer, not acting for the lessor certifies (before or within 6 months after the lease was entered into) in writing that:
- The lessee or prospective lessee requested the lawyer or conveyancer to give the certificate and;
- The lawyer or conveyancer has explained to the lessee or prospective lessee the effect of the subsections (1 and 2) that the giving of the certificate will result in section 16 not applying to the lease.”
Agents should protect themselves when overseeing short-term leases by ensuring that:
- the short-term lessee signs a certificate to prevent the lease running into a long-term contract;
- the lessee leaves the property within six months; and
- the lessee has public liability insurance.
This article was first published in the November 2013 edition of the REINSW Real Estate Journal.