Canadian Lawyer - sample

w w w . c a n a d i a n l a w y e r m a g . c o m M A R C H 2 0 1 9 21 longer-term retail operators and with that our members." Susan Rosen, a partner in Gowling WLG's Toronto office, thinks back to the days prior to Target's short Canadian sojourn. It began promoting its brand and a key designer during a two- day pop-up on Queen Street in Toronto. She's since seen the approach used for musicians with branded material, returns and promotions and as a way for some brands to expand their physical presence at key times of the year, such as Easter, Halloween and Christmas. This allows them to keep their permanent space as is instead of having to clear an area for popular seasonal offerings. "When people think about renting or leasing or licensing, you're thinking about them selling a product. But it isn't neces- sarily simply that. One of the most important things actually is the brand, the image, the hype which draws people," says Rosen. Space that is left empty and purposely unadorned by the land- lord and serviced with hydro, plumbing and lighting, known as "vanilla shell," can be quickly transformed using racks, tables and branding material to accommodate temporary needs. Licence agreements, she says, fit those needs. "They're really personal agreements between two parties, and when you have a short-term situation you typically want that." But there are pros and cons for both the landlord and the tenant in the negotiation of temporary use of spaces, says Ruddy. Individual considerations for the landlord include the traction the tenant has as a retailer, if the brand is known and any financial background. A landlord may want to seek a higher deposit from a pop-up, particularly one that isn't so well known to the landlord to ensure the space is properly maintained and left in the same condition in which it was found, adds Rosen. For the tenant, ensuring the wording of the agreement reflects what they intend is important for them in getting that deposit back. A commercial lease typically reflects a long-term agreement between a retailer and a landlord and anticipates a variety of eventualities as the tenant seeks property and land rights and a right of exclusive occupation. Many aspects of a lease — incentives for leasehold improvements, exclusive use and lease renewal or termination — may not all apply to short-term arrangements. Rosen says the licensing agreement can be kept short and sweet. It does not include a right of exclusive possession of the space or an interest in land, but it can permit use or a portion of the landlord's property. It also can't typically be assigned. So, the negotiation for the pop-up tenant, who usually requires a space that can be transformed to fit their needs often in a very short period of time, doesn't need to be as detailed and complicated. "Pop-ups do happen quickly and the turnaround from a deal to opening a store can be quite quick, and I think that given simply the time pressures associated with the short-term and quick nature of a pop-up shop, the parties will want to settle an agreement quickly and, therefore, these licence agree- ments will continue to be used," says Michael Gilburt, a senior associate at Blaney McMurtry LLP, whose Toronto practice concentrates almost exclusively on commercial leasing with the majority in retail. Typically, a lease will lay out terms of the rent and address considerations such as property tax, utilities and insurance. This wouldn't apply to a pop-up that only needs the space for a day or even six months. Another approach allowed through a lease is percentage rent, which reflects the volume of sales conducted in the space and may include related sales con- ducted online. A proportionate rate might also be reflected in rents for pop-ups, particularly for startups that are just getting a sense of their market. Gilburt says landlords are often amenable to a percent- age structure where a pop- up sells products directly from the premises. But it all depends on the situation. There's no point in consider- ing a percentage rent if the space will be used largely as a showroom or a return centre. Or the space may be used to drive online sales, which may include on-site use of tablets through which the customer can place their order for delivery. The landlord and the tenant then should determine how to capture those online sales. "Parties are trying to grapple with that issue, in my experi- ence" in the agreement when addressing the definition of gross revenue to include online sales for the purposes of calculating percentage rent, he says. Trying to capture the right amount or percentage of online sales that touch the store can be difficult and needs to be carefully worded, Gilburt says. And while the licence agreement is designed as a simple way to formalize a short-term relationship, the landlord must ensure it doesn't conflict with pre-existing tenants who have exclusive-use clauses. "So, the landlord has to be very, very careful about the exclusive use clauses and how you word them," says Ruddy. Typi- cally, he adds, landlords want to be as specific as possible to limit eventualities, while the opposite is true for the tenants, who want as much flexibility as possible. A use-clause for the temporary tenant, therefore, can be important to restrict what the pop-up does and what they can sell in the space. And if it's more of an experiential pop-up, Gilburt says they need to ensure that the applicable zoning and munici- pal regulations permit what they want to do, which may include applying for a liquor licence or an event licence. "It's important at the outset for both parties to be clear as to what the intended use of the intended pop-up space is going to be and for the tenant and the tenant's perspective doing their due diligence at the beginning to ensure that . . . the space is zoned to allow for all the various uses they're intending to carry out and that the uses are permitted . . . by the landlord or the applicable regulations governing use in that space," says Gilburt. Licence agreements What to consider in a licence agreement for a pop-up shop: • A use clause for the tenant; • Whether there are zoning or other regulatory requirements; • The need for any special licences; • Whether the rent is structured on a fixed amount, is based on a percentage of sales in the space and/ or online and how that is captured or a combination of base rent and a percentage.

• Cover