Pop-ups are associated with innovation, novelty and creativity; offering businesses a temporary space in which to trial a new location, product or service. The retail and hospitality industries have been hit hard over the last year, could pop-ups offer the solution to kick-start these markets and generate additional revenue in a post-lockdown world?
This article will discuss the anticipated rise of pop-ups in the hospitality and retail sectors post-lockdown and the key legal considerations for UK businesses.
From 12 April 2021 hospitality venues are able to serve seated customers outdoors. Restaurants which have limited or no outdoor space are using out-of-the-box thinking in order to re-commence trading in a way which maximises the number of seats whilst ensuring that venues are COVID compliant. The use of new pavement licences could be a lifeline to some venues. Cadogan recently announced that it is adding 500 seats to pedestrian streets in Kensington and Chelsea – creating spaces with additional covers and the potential to increase revenue which can also be adapted with the relaxation of restrictions. If venues don't have access to outdoor space, they will lose out on the chance to recoup some of the lost income and will need to wait until 17 May when restrictions on indoor dining are, we hope, lifted.
Hospitality businesses are also expanding and re-modelling their existing properties in order to capitalise in a post-lockdown world. For example, pub company Punch announced that it is investing £1 million in outdoor spaces and pub gardens and it is reported that Young's planned the launch of two new pubs with outdoor terraces on 12 April. It is clear that astute businesses are re-evaluating their portfolios, reassessing the use of their current real estate and using creative solutions to maximise covers and ultimately re-coup lost sales.
Self-contained dining spaces are also proving to be a popular way to offer customers a novel experience which adheres to social distancing regulations. Examples of this include pre-established concepts such as the insta-famous igloos at Coppa Club, Tower Hill and innovative new experiences which launched from 12 April, such as The Berkeley Beach Huts. One benefit of pop-up constructs is that they can be designed and built fit for purpose and have the ability to be erected and disassembled at low cost, giving businesses the flexibility needed whilst COVID restrictions remain in force.
We also anticipate a rise in collaborations between companies pooling knowledge, branding and financing in order to create innovative pop-up concepts which differentiate them from their competitors. One example of this is the pop-up Annabel's members club in the Kingdom of Saudi Arabia which returned in 2021 after a successful pop-up during the Winter at Tantora event in 2019/20. Pergola on the Roof, London is an example which is closer to home, situated on the top of a multi-storey car park in White City this pop-up dining experience proved so popular that Pergola subsequently expanded to its first permanent location in Olympia and to Paddington.
It is widely acknowledged that "in every crisis there is an opportunity" and there are certainly businesses which have thrived during the pandemic. Pop-ups are not solely for the hospitality sector and may prove attractive for online retail start-ups which have established over the last year; providing an affordable way to trial a physical space and location, whilst enabling businesses to refine their offering and business plan. One pre-pandemic example of a successful retail pop-up is Glossier which opened in Covent Garden in November 2019 and extended its run after achieving record breaking footfall in the brand's history. Pop-ups provide companies with the opportunity to 'test the waters' before taking on significant expense and this approach will certainly be attractive to businesses, given the unpredictable market conditions over the last year.
Pop-ups could also be beneficial for the commercial real estate sector, which has been significantly impacted by the COVID-19 pandemic; short term leases provide landlords with income whilst also enabling tenants to test the post-lockdown market without a long term commitment. Pop-ups could provide an opportunity for landlords with empty real estate to generate revenue, whilst potential tenants wait for the market to stabilise and footfall to return to pre-pandemic levels.
Existing big brands have used pop-ups as an effective method of coming to their customers during the pandemic, for example in Summer 2020 Dior launched a number of 'Dioriviera' pop-ups across Mediterranean summer hot-spots to cater for customers whose holiday plans were restricted to Europe. Additionally, whilst city centres wait for footfall to recover the flexibility of pop-ups also enables businesses to come to the neighbourhoods of customers. New York menswear brand Todd Snyder demonstrated this approach by opening a temporary store in the Hamptons last summer – bringing the brand to the doorsteps of customers who had temporarily re-located from New York City. Pop-ups enable businesses to reduce the rental obligations associated with permanent bricks and mortar spaces and provide an opportunity to connect with new and existing customers and road-test different markets.
Corporate/commercial considerations to bear in mind
If you are collaborating with a business for a pop-up project, any agreement should be carefully reviewed and there are a number of key legal obligations which should be considered and captured by an agreement:
- Each party's initial and ongoing responsibilities should be clearly set out in the agreement.
- The agreement should include the term and any renewal rights.
- Ownership of IP should be clearly set out and any approval rights relating to marketing / promotion materials should be included.
- Consideration should be given to further COVID specific scenarios e.g. cancellation, suspension, further lockdowns, a shut down, an outbreak, and these should include practical next steps, associated costs and termination rights. A key issue that has come up on many commercial contracts is the extent to which a force majeure clause will cover the occurrence of COVID related events.
- Budgets / costs / expenses should be set out – both in terms of who is responsible for these payments and how regularly payments will be made.
- Insurance – the industry has seen a rise in claims for business interruption insurance and so it's important for agreements to be clear on what policies are in place if COVID, or similar, struck again. Businesses should know in what circumstances the policy will pay out and also how much. A policy which provides cover but only at a significantly reduced level may be next to worthless. In particular new insurance policies are likely to have new style wordings, and businesses should not assume that following the recent FCA test case that policies will provide cover if there is another similar pandemic.
Prior to the pandemic, indoor pop-ups fell into a grey area in the planning system. Whether a particular use requires planning consent depends on whether the change of use can be considered "material", which is highly subjective. Whilst the duration of an event goes to materiality, there is no hard and fast rule in that regard. So for example a temporary pop-up restaurant within a retail unit could potentially have required planning consent. However, in response to the pandemic the Government has created a new use Class E which now covers a wide array of non-industrial commercial uses. New Use Class E now covers most "town centre" type uses (for example offices, restaurants, cafes, premises providing services to members of the public, gyms, crèches, medical centres).
The effect of the new Class E is that businesses can change the use of premises between the wide range of uses within Class E without planning consent. They can change the use for an hour, for a week or forever, and they can change the use of the whole or part of a building to facilitate pop-ups. This means that a business could sub-divide a building into multiple different uses within Class E without the need for planning permission.
For out-door pop-ups, even before the pandemic there were permitted development rights to use "land" (as opposed to buildings) for almost any use for 28 days in a calendar year without the need for planning consent. In response to the pandemic the Government has expanded the temporary use period to 56 days in a calendar year, which opens up a wide range of opportunities for pop-up uses including outdoor restaurants and bars, glamping sites and other leisure attractions. It is important to note that the temporary permitted development rights do not allow the temporary use of land if that land is within the curtilage of a building. Where land is within the curtilage of a building the planning rules relating to indoor pop-ups will apply – it would be necessary to consider whether the proposed outdoor pop-up use fell within the same use class as the building itself.
On 25 March, the Secretary of State laid a Written Ministerial Statement to Parliament which emphasised that local planning authorities should continue to take a positive and flexible approach to planning enforcement action to support economic recovery and support social distancing. Whilst the Written Ministerial Statement is not binding, it does indicate that the Government expects local authorities to take a more relaxed to temporary uses to support businesses.
Real estate and licensing considerations
- Pop-up operators will need to ensure the terms of their occupation are clearly laid out in the lease or licence which gives them exclusive and unfettered occupation of the space, perhaps during specified hours.
- It is worth pop-up operators understanding the level and nature of competition nearby, which might increase footfall so could be welcome, but could also hurt sales if it is too close to the product you are providing.
- Contractual arrangements need to be made, where there is communal seating, to ensure that customers of your pop-up have access to that seating (or to your own).
- Licensing restrictions should be considered, for example what spaces can serve alcohol, opening and closing times, noise abatement rules etc.
- Hospitality operators looking to remodel their outdoor offering will need absolute clarity on:
- the extent of their demise: how much of the outdoor areas are situated within it and any boundary issues.
- the use restrictions in the lease: whether the outdoor areas can be used in the same way as the indoor areas and what additional restrictions (e.g. on alcohol and numbers) are in place.
- the alterations regime: what physical changes can be made to the space and which of them will need landlord's consent.
Pop-ups have the potential to provide a concept which complies and flexes with regulations, creates a unique experience for consumers with capital to spend and maximises revenue potential, particularly with the added benefit of occupying outdoor space during the Spring/Summer months. These factors make pop-ups an attractive option for many businesses and we anticipate a rise in the use of pop-ups in the retail and hospitality sectors and a drive for new and unique concepts, to set organisations apart from their competition.
Businesses considering a pop-up should be mindful that there are a number of significant considerations which should be taken into account when planning, launching and running a pop-up concept – to ensure that it is legally compliant and ultimately, a success.