Cut Four Risks of Renting to Seasonal Pop-Ups
Retail real estate experts predict that more, not fewer, national-brand “pop-up” shops will appear in shopping centers this holiday season than during the past few years. Pop-up shops can be a great way to add pizzazz to your center, but only if you protect yourself from common risks that temporary tenants can present.
Risk #1: Inadequate Security Deposit
You may be tempted to waive the security deposit requirement for a pop-up tenant, but don't. Collect at least two months' rent from a pop-up tenant, suggests New Jersey attorney Evelyn Leonard. Pop-up tenants that are not part of a lucrative national chain could have fewer assets than your other tenants. If the pop-up tenant defaults under the lease or doesn't pay its rent, the security deposit gives you protection. Additionally, require the pop-up tenant to restore the security deposit to its original amount if you must use the security deposit to cure—that is, fix—a default, says Leonard. Ask your attorney to adapt our Model Lease Language for your lease with a pop-up tenant:
Model Lease Language
Tenant shall, as a condition precedent to its rights hereunder, deposit with Landlord, for Landlord's general account, the sum of $[insert amt.] as security for the performance of each and every term and condition of this Lease on Tenant's part to be performed hereunder (“Security Deposit”). Landlord may use, apply on Tenant's behalf, or retain (without liability for interest) during the duration of this Lease the whole or any part of the Security Deposit to the extent required for the payment of any Rent which may be unpaid, or for any sum which Landlord may expend to cure any default of Tenant, whereupon Tenant shall promptly restore the Security Deposit to its original amount. Tenant's failure to restore the Security Deposit to its original amount shall constitute a default under this Lease. Provided that Tenant has complied with all the terms and conditions of this Lease, the Security Deposit (less any amount applied as provided above) shall be returned to Tenant, without interest, after the Expiration Date and after surrender of possession of the Premises to Landlord in accordance with the terms and conditions of this Lease.
Risk #2: Ambiguous Permitted Uses
Make sure the use clause in the pop-up tenant's lease is very specific. Spell out the items the tenant can sell, says Leonard. Allowing it to stray could create unfair competition for your permanent tenants. To do this, use this type of Model Lease Language:
Model Lease Language
Tenant shall use the Premises for the display and retail sale of [insert merchandise] and for no other purpose.
Risk #3: Hours of Operations
Require the pop-up tenant to be open and continuously operate during the center's business hours—even if you extend the business hours on particularly busy days. A pop-up tenant won't bring much to your center if its space is dark at a time when the rest of your tenants are open. Pop-up tenants may balk at these requirements, but don't compromise, says Leonard. It's important that the tenant function during the same hours as your other shopping center tenants, especially during the busy holiday season.
When drafting leases with all of your tenants, not just pop-up tenants, remember to include provisions that give you the right to extend mall hours during certain months when the center will have the most shoppers. You can extend mall hours for all tenants during the holiday season by setting out in your leases that shopping center hours are to be determined solely by you as the owner, and not by the tenants or by a merchant's association, and that you can alter the shopping center hours by way of a notice to all tenants, points out Toronto solicitor and Insider board member Harvey Haber.
Model Lease Language
Tenant agrees to open and continuously operate its business in the Premises during all business hours of the Shopping Center and shall conduct its business in a high class and reputable manner and in accordance with the Shopping Center Rules and Regulations set forth in Exhibit [insert #] attached hereto.
Risk #4: Parking Shortage
During the holiday season center parking lots can become overcrowded and prone to accidents. And if there are no parking spaces available when a shopper is trying to park his car, he may drive to the next center to shop, causing you to lose business.
Typically, tenants' employees are permitted to park in center parking lots. But you may have to remove employee parking (or move it to the lot's least customer-convenient areas) in order to make room for the increase in customers who need parking during the holiday season.
Be prepared for pushback from tenants that are concerned that if their employees have to find alternative free parking or pay for parking elsewhere, they won't come to work in a timely manner—or at all. And pop-up shops that are selling the new “hot” item for the season may attract hordes of customers that need to park their cars in order to shop. Specifically set out in your leases where employee parking is to be situated, says Haber. Specify whether and how that will change during the holiday season. “Some landlords indicate a site not even on the shopping center grounds, but on property controlled by the landlord,” he adds. Make sure that you include that information in the lease provisions.
Insider Sources
Harvey M. Haber, Q.C., J.D., LSM, DSA, C. MED., C. ARB., B.A.: Senior Partner, Goldman Sloan Nash & Haber LLP, 480 University Ave., Ste. 1600, Toronto, Ontario M5G 1V2; www.gsnh.com.
Evelyn S. Leonard, Esq.: Vice President-Gen. Counsel, Levin Management Corp., 893 Highway 22 West, N. Plainfield, NJ 07060; eleonard@levinmgt.com.
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