Preventing Trouble From “Popping Up”

For lease sign

Pop-up stores have become fashionable among small businesses and large companies alike because they offer a company the opportunity to sell merchandise and to test retailing concepts with minimal investment.  They are also advantageous for landlords who hope to rent space that is temporarily being carried without rental income.

From the perspective of tenant counsel, however, there can be difficulties.  Because the whole point of the exercise is to offer customers a temporary retail experience at minimal financial exposure, the client is seeking to avoid expending large sums on legal fees.  If the client concludes that there is very little financial risk due to the short-term commitment, there can be a tendency to ask for minimal or even no involvement by counsel.

Complicating matters, the landlord is also looking to minimize legal fees, with similar pressures on its counsel to hold down fees.  The attorney for the landlord will therefore often send its standard lease form with only minimal modifications to tailor the lease to the pop-up concept.  Because standard form commercial leases typically impose maximum liabilities on the tenant (which is contrary to the pop-up concept, at least from the tenant’s point of view), the tenant’s lawyer may well find it difficult to deliver a fair lease at the right price.

As an example, the lease form from landlord might provide that, in the event of fire damage, the landlord has a substantial time to rebuild.  That makes no sense for a pop-up store.  The draft lease may also provide for tenant to make all sorts of repairs to the premises, often including building systems.  That is hardly an expectation of the tenant when signing a lease for temporary space.  Compliance with law can prove tricky under the best of circumstances.  Even a long-term tenant must protect itself from expenditures in case the premises need to be brought up to code.  Although the pop-up tenant must of course comply with applicable law, it likely will not want to be responsible for any expense to the pop-up due to deficiencies in the building or the leased premises.  The date of delivery of the leased premises is also an issue.  A landlord typically wants a grace period if it is late in delivery.  For a pop-up tenant, for whom every day of a short-term rental will likely count, any delay in delivery could spoil everything.

Fighting out the applicable clauses concept-by-concept and line-by-line with the landlord’s attorney cannot lead to satisfaction for anyone due to time constraints and the desire to keep down legal fees.  In my experience, the best way to handle the problem is to put in an “omnibus” clause such as:

Notwithstanding anything in this Lease to the contrary, the parties agree that Landlord shall be responsible for all repairs, ventilation, utility lines, maintenance and compliance with laws regarding building repairs that commercially reasonable parties would expect a landlord to perform, taking into consideration the length of this lease and the demised premises’ use as a “pop-up” store, and all other provisions of the lease (including, without limitation, casualty, condemnation, access to premises for improvements, failure to timely deliver possession, and use of existing facilities such as electrical wiring and meters) shall be deemed so modified in the light of the same reasonable expectations.  No “To Let” or “For Sale” signs shall be permitted at the Premises.

Credit:  Steven J. Rabinowitz

Steve is counsel in Phillips Nizer’s Real Estate Law practice.