Reap Benefits of Holiday Season Kiosks, Pop-Up Tenants

Traditionally, renting space to kiosks—small, independent stands that sell merchandise—has been a low-maintenance and relatively hassle-free way of supplementing shopping center profits—if it's done correctly. And, for the last two seasons, pop-up tenants—temporary stores that sell only one type of merchandise—have boosted drooping profits from declining sales at traditional “core”—that is, permanent—stores in centers.

But be aware that these types of tenants, if not handled properly, can be more trouble than they're worth. If you plan on renting space to kiosks or pop-ups this holiday season, you should familiarize yourself with the most common problems that owners have run into during past years—and how to resolve them. Follow this advice to make the most of renting seasonal space.

Use License for Kiosk

Avoid signing a lease with a kiosk tenant. Instead, agree to grant a license without a set term. This makes it easier for you, as the licensor, to reclaim the space at any time—with or without notice—because as a licensee the kiosk has no “leasehold interest” in a space, says Minnesota real estate attorney Barry W. McKee, Jr. However, the license must be non-transferable and revocable to prevent the kiosk from transferring its license to another entity, he notes. Adapt this Model Language for your kiosk license agreement after showing it to your attorney.

Model Language

Licensor hereby grants to Licensee a non-transferable, revocable license to occupy and use, subject to the terms set forth herein, the Kiosk Area (as defined herein).

It's crucial to get the kiosk to acknowledge that the license agreement isn't a lease. If the licensing agreement resembles a lease and the kiosk has to make that argument in court, the court might side with the kiosk. The kiosk would be treated as a core tenant, and you would lose your right to revoke the agreement without notice.

To protect yourself, have the kiosk agree in the license agreement that the license agreement isn't a lease, it won't sue you or argue in court that the license agreement is really a lease, and it waives all rights it may have as a “tenant” against you as a “landlord” under a “lease.” Additionally, make the kiosk agree that if a court rules that the license agreement amounts to a lease, you are entitled to exercise the rights of a landlord. Consider using this Model Language in the agreement.

Model Language

Licensee specifically covenants and agrees for Licensor's benefit, and as a material condition to this agreement, that:

1. Neither this Agreement nor any other of Licensee's rights in connection herewith shall constitute a lease, whether of the Kiosk Area or otherwise;

2. Licensee shall not bring any action against Licensor or interpose any defense against Licensor based upon the theory that this Agreement constitutes a lease;

3. Licensee expressly waives any substantive or procedural rights that Licensee may have that are predicated upon this agreement being treated as a lease; and

4. Should this Agreement be deemed by any court to constitute a lease, in such event Licensor shall have all of the rights and remedies of a landlord of real property.

Consider Lease for Pop-Ups

Unlike kiosks, which have limited inventory because of their size and less room for pricey signage and decorations, pop-up tenants may invest significantly in making their temporary space look like a traditional store and stand out among other tenants. Pop-up tenants tend to spend comparatively more money than kiosks by setting up storefront displays, installing temporary fixtures, organizing the layout of their stores, and bringing in a large inventory—so they could balk at the possibility of being asked to leave at a moment's notice.

If you're forced to sign a lease with a pop-up tenant, make sure that you limit the duration of its lease to the holiday season and don't offer a renewal option. It's also important to specify that the pop-up tenant can't assign its lease or sublet to another tenant.

Specify Kiosk Area

Unlike pop-up tenants that you'll negotiate with for specific core tenant space, most kiosks are mobile. And they could try to sign a license with you that doesn't specify ahead of time where they'll be located in your center. Therefore, it's important that you clearly define where the kiosk should be located. If you don't, you could end up dealing with a kiosk that tries to take advantage of foot traffic patterns and conveniently relocates itself without your approval. Think about attaching a copy of the floor plan to the licensing agreement and highlight the designated area. Specify kiosk location using this type of Model Language.

Model Language

For purposes of this License Agreement, the “Kiosk Area” shall mean that portion of the Center containing [insert #] square feet, as more fully depicted in Exhibit [insert #] attached hereto.

PRACTICAL POINTER: Because the set-up is small, kiosks can usually pay more per square foot than other tenants. Keep in mind that because kiosks use the space around them in addition to the space they rent, you can make them pay a disproportionate share of CAM costs. Additionally, there's a good chance that name-brand pop-ups will pay more per square foot in your mall. However, you should have guidelines for kiosks and pop-up tenants: They should be required to have insurance and should be subject to you conducting inspections for the duration of the temporary license or lease.

Control Construction, Restoration of Space

Many pop-up tenants have a recognizable brand and want to install fixtures and displays in their space that are particular to that brand. For example, during last year's holiday shopping season, three new breeds of pop-up tenants appeared in malls: fully branded pop-ups, iconic pop-ups, and seasonal pop-ups of brands that once had permanent operations at the same retail location.

The season's most notable fully branded pop-up shop sold Glee jewelry and accessory lines and coincided with the launch of the second season of the popular Fox television show. FAO Schwarz rented temporary mall space to sell a selection of “iconic” toys and games that traditionally have been popular during the holidays. Borders Express offered a selection of products in smaller spaces at some of the malls where larger Borders stores had gone dark.

If you agree to construction, make sure that the lease requires the pop-up tenant to get your approval of construction plans and specifications. It's important to discuss construction plans or work with your property manager and delegate the day-to-day supervision of pop-up shops in the center.

“The pop-up tenant should handle the cost and the labor, but smart property managers and owners will be sure to be included on the layout and construction plans,” says Christina Norsig, chief executive officer of PopUpInsider, an online resource for finding and leasing temporary space. “After all, the property manager knows the property and the specific area better than the retailers,” she notes. The guidelines for pop-up shops with special or more extensive displays than typical pop-ups will vary depending on your location as well as your personal or individual rules pertaining to merchandising and signage for the property.

You can ensure that the pop-up tenant will do an adequate construction job by having your property manager work with his staff to guarantee that everything is being handled properly. Additionally, you can increase your control over the situation by helping—or offering to help—the pop-up tenant set up shop. “However, it would not be out of line to consider asking for a security deposit depending on the duration of the lease,” advises Norsig.

To preserve the right to stop a pop-up tenant from doing construction that will be difficult or costly for you to remove after the holiday season is over, or from using a design that could clash with the look of your center, consider using this type of language:

Model Language

Tenant, at its expense, at all times, should keep the interior and exterior of the Space aesthetically pleasing and consistent with the architectural style of the Center. Tenant agrees to submit all plans for construction, the display of merchandise, and decoration in the Space to Landlord; and Landlord has the right to disapprove all or any part of such plans in its sole judgment if such plans would result, in whole or in part, in an appearance not aesthetically pleasing to Landlord or inconsistent with the aesthetic appearance of the Center. The decision of Landlord to disapprove of such plans shall be conclusive.

Remember that these three types of pop-up shops sometimes require extensive displays and signage that are difficult to dismantle, notes Norsig. For example, the Glee pop-ups use multidimensional photo mural backdrops in their spaces to recreate the fictional high school where the show takes place. And FAO pop-ups have vivid displays of iconic toys and large holiday signage that basic retail pop-ups wouldn't require. You may be wondering whose—the pop-up tenant's or your staff's—responsibility it is to remove displays and signage.

To put the burden of restoring the space to its original condition and save your property manager and his staff from having to dismantle the pop-up shop after it moves out, specify in the lease that the pop-up tenant will be solely responsible for leaving the space in its original condition.

Evaluate Core Tenant Leases

Regardless of the name brand of a prospective pop-up tenant or type of kiosk, you must consider how renting to it will affect your lease obligations to existing tenants. For example, will it violate a cotenancy clause? Or will the pop-up shop's logo violate the signage provisions in other leases at the mall? Although the themes of specialty pop-up shops, such as the Glee pop-ups, might draw more customers, renting space to them requires extra consideration, Norsig points out.

That's why it's important to have the pop-up tenant or kiosk provide a list of the items that it plans to sell and a copy of its logo and other signage. Make sure that the items meet your approval and don't conflict with any other core tenant agreements. This is especially important because you don't want to undermine and alienate a core tenant that is profitable year round by bringing in a competing tenant that will boost sales for only three months and may never return to the center.

Lease or License on Case-by-Case Basis

Pop-up shops and kiosks can provide many benefits for certain centers. They can generate cash flow in between permanent tenants and renew market interest in a space that has been vacant for an extended period of time. But they are not ideal for every retail property.

It's important to look at each situation at hand, advises Norsig. If the plan is too convoluted or you feel that the building will not get the right attention from the kiosk or pop-up shop, it may be best to pass. But each pop-up should be evaluated on its own merit, stresses Norsig.

Insider Sources

Barry W. McKee, Jr., Esq.: Law Office of Barry W. McKee, Jr., 200 S. 3rd St., Stillwater, MN 55082.

Christina Norsig: Chief Executive Officer, PopUpInsider; www.popupinsider.com.

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