Legal and practical issues to consider when negotiating a licence agreement or a short term lease agreement for a pop up restaurant or a pop up bar
Ratnadeep Hor specialises in retail and commercial property leases and license agreements, commercial contracts, and space sharing agreements.
We can prepare a license agreement for a pop up shop, or to rent a space in a shop or shopping centre at a very reasonable price. Feel free to contact Ratnadeep directly:
T (02) 8257 5710
Valuable features of the pop up restaurant and pop up bar concepts
- If you own a restaurant, a café, or a shop that is vacant or under-utilised, allowing a short term lease or shared occupation will enable you to maximise income from your property.
- Starting with a short term lease agreement or a sublease can enable a landlord to assess a new occupant’s trading record before entering into a long term retail lease.
- Subject to initial agreement with a short term occupant, a landlord can arrange to recover possession of the premises quickly if a suitable long-term tenant becomes available.
- A pop up restaurant can often be set up and operated quickly, possibly as a start up business, at limited cost, with minimal initial fitout required, and minimal make-good obligation when the occupancy ends.
- Opening a pop up restaurant enables a person who has cooking or catering experience to experiment to find out if they really enjoy, and are capable of, this type of work without making an up-front, long-term commitment to a retail lease.
- A pop up restaurant or a pop up bar enables taking advantage of short, high-demand opportunities such as Christmas, Easter, and popular community events such as film festivals, music festivals, and Good Food Month.
- A pop up restaurant can also be used to test the market in a new location, promote the interests of a sponsor, or raise funds for a charity.
- A popup restaurant or a popup bar can attract new customers by focusing on an interesting location, a unique menu, a theme, a rare ingredient, or a visit by a celebrity.
- Pop up businesses can be effective in attracting customers who are happy to spend money on novelty and exclusivity, and who are influential in their social groups and can provide strong word-of-mouth advertising.
Using a non-restaurant space is likely to require more fitout and modification of the space, and development approval from the local council. If available, it will probably be easier to use an existing restaurant or café when it would normally be closed, or else rent a space in the restaurant, or on the adjacent footpath, when it is open.
This approach may allow use of the existing business’ current licenses, permits, and development consent. It may also be possible to engage the existing restaurant’s staff, either as your own casual employees, or with them continuing to be paid by the existing restaurant.If you intend to sell or supply alcoholic beverages in a popup restaurant or a popup bar, you will need to comply with relevant laws and regulations, such as Responsible Service of Alcohol regulations, and employ formally trained staff - even if they are casual or temporary staff.
It is possible to obtain a “limited” or “occasional” liquor licence to cover a temporary business, or an event that is not covered by a permanent liquor licence. Relevant regulations and procedures for doing this vary between states and territories, and may involve some delay.
Differences between a retail lease agreement and an occupation license agreement
A retail lease agreement provides comprehensive security for a tenant. For example, a retail shop lease provides the tenant with exclusive possession, giving the right to exclude all others from the shop, subject to any rights that the landlord retains.
A sublease grants part or all of an existing tenant’s leased premises to a sub-tenant, who generally has no legal right to communicate with the landlord if modification of the premises, maintenance, or repair is required. The sub-tenant must comply with the conditions of the original lease, and possibly also with other conditions that are imposed by the original tenant.
Property rental agreements for short term business activities, or situations in which premises or space are being shared rather than occupied exclusively, are generally recorded in the form of a license agreement rather than a lease. The person who rents the site (who is referred to as an occupant or licensee rather than as a tenant) thereby has the right to occupy premises or a space, but does not have a legal interest in the land.
Other issues to consider when planning to set up a popup restaurant or a popup bar
If you will be sharing physical space, or operating time, with an existing restaurant, you may become either a primary licensee, who has a direct relationship with the landlord, or a licensee or sub-lessee of an existing tenant. In the latter situation, you will usually need to have the landlord’s approval, and you will be generally required to honour the conditions in that tenant’s lease (which you - or a lawyer - should inspect carefully).
If there is a possibility of continuing an initially successful pop up restaurant or pop up bar indefinitely, you should consider implications of state and territory retail leasing legislation, as they are regarded as retail businesses. You should obtain legal advice if you are in doubt.
For example, in NSW if a retail occupant remains in occupation for six months or longer (or 12 months or longer via a series of agreements that are each for less than six months, or via holding over provisions of a single agreement), and the landlord has not obtained a “Section 16 certificate”, the occupancy then becomes subject to the Retail Leases Act. The occupant will then be entitled to obtain a five year lease.
This and other aspects of retail lease legislation vary between states. For example, in Victoria, the Retail Leases Act 2003 does not generally apply to a shop lease for a term of less than one year, whereas in South Australia the Retail and Commercial Leases Act does not apply to a retail shop lease that is for a term of one month or less.
You should not rely on a verbal agreement to set up a pop up restaurant or a pop up bar, or to share time or space in an existing restaurant. Matters that should be recorded in a written, signed and dated agreement include the following:
- Record the legal date on which the license agreement begins. This may be the earliest of the date of occupation, the date on which rent is first paid, the date on which both parties sign the agreement, or some other agreed or assumed date.
- Specify the period of the licence agreement; it can be a fixed period, or can be flexible, continuing until one party gives notice that it wants to terminate.
Specify any rights that each party will have to prematurely terminate the rental period, and whether an initially fixed rental period can be extended.
- Specify the licence fee (rent) and when it must regularly be paid. If the licence fee includes a turnover rent component, specify how turnover rent will be calculated.
- Specify what you will be permitted to do in terms of modification, fitout, and signage. The proposed use of the premises, and any building work, may require development approval from the local council.
- Specify any limits on what the licence will permit you to do in the premises, and when you will be permitted to do so.
- Specify conditions regarding any bond, security deposit, or bank guarantee that is required.
Also specify make-good and repair obligations that will apply when the rental period ends, how inspection will be carried out, and how damage and cleaning costs will be assessed. If appropriate, prepare a condition report containing photographs as evidence of the state of the premises at the beginning of the occupation period in order to avoid disputes.
- Ensure that the proposed activity is adequately covered by all relevant types of insurance, such as workers’ compensation, public liability, and plate glass insurance.
- Ensure that the occupant’s and the landlord’s obligations under work health and safety legislation will be satisfied. A landlord may seek to pass these obligations on to an occupant, but this can be ineffective if the landlord retains any control and management of the workplace and is aware that the occupant is acting contrary to these obligations.
Avoiding and managing problems and disputes
Pop up leasing, casual leasing and space sharing arrangements for popup restaurants and bars can become problematic. It is important that all relevant legal issues be addressed rather than ignored in what you might think is a simple situation.
After the commercial terms of the arrangement have been negotiated, a Heads of Agreement document (letter of offer) can be prepared. Those commercial terms are then inserted into a licence agreement, together with other relevant terms and conditions.
Make no mistake! A sublease, a licence agreement or a sub-license is a legally binding and often complex agreement. It is possible to make mistakes in the wording that can have serious consequences. You may want to obtain legal advice when negotiating the terms of the agreement, and before signing anything.
TurksLegal is a specialist commercial law firm with 32 partners and over 90 lawyers in Sydney and Melbourne. Ratnadeep Hor specialises in retail and commercial property leasing and contracts throughout Australia. Ratnadeep can assist you by:
- Providing guidance regarding terms and conditions to consider and address in a Heads of Agreement regarding a pop up restaurant, a pop up bar, or a start up business
- Preparing an occupation or space-sharing agreement, a license agreement, a lease, or a sublease
- Transferring from a short term licence agreement to a long term lease or a sublease if required
- Assisting resolution of occupancy and contracting disputes between landlords, property occupants, and tenants
We can prepare an occupancy license agreement or a space sharing agreement at a very reasonable price. Please feel free to contact Ratnadeep directly:
T (02) 8257 5710
Disclaimer: This website is intended to provide general information only. It should not be regarded as comprehensive legal advice from a solicitor regarding your individual circumstances. TurksLegal accepts no responsibility for information that may be found on other websites that our website includes links to.