What to consider when making your pop-up restaurant permanent

Pop-ups are an ideal way of testing the market response to a new food or drink concept. Quick and cheap to set up, they can be unravelled at limited cost and short notice if the venture is not successful.  

However, pop-ups are just the first step in building a business. To create value and a saleable brand for a restaurant or bar business an operator must have a credible forecast of future revenues based on trading locations which are secure for the medium to long term. 

If you are thinking about making that huge step from pop-up to perm, here are a few pointers which will help you plan the transition:

Find the right location​

Even the best concepts will fail to fulfil their potential if they are not in the right location. Prime locations may be prohibitively expensive, but you must try to secure the best location which you can afford and try to assess whether that location will generate both lunch and dinner trade and a good footfall during the weekend as well as mid-week

Get the branding right​

Reinforcing the brand at every opportunity is important. It is expensive to re-brand, so make sure you have invested in your brand and that you are satisfied that the brand in its current form will see you through the next stage of growth of the business.

Check the length of the lease​

A landlord will want you to take a lease for 25 years and most tenants would prefer the lease to be no longer than five years.  It is important to know that you have the ability to trade from that location up to the date you are targeting to sell the business plus five to 10 years, so that any purchaser of the business knows that they have security a reasonable period after the purchase.  The ideal solution is to take a long lease with a right for the tenant to terminate the lease at certain times but the landlord will expect you to pay a higher rent.

Landlord & Tenant Act 1954​

This Act gives the tenant of business premises a statutory right to request a new lease of up to 15 years, when its existing lease comes to an end.  The parties are entitled to contract out of the Act, which means that when the lease comes to an end the tenant has to vacate, unless it agrees to whatever terms the landlord dictates.  Relocating is a nuisance and expensive and for a restaurant or bar operator, it may not be possible to replicate a successful trading location. If the landlord tells you that he wants the lease “outside the Act”, push back, and tell him why it is important that your lease is protected

Provide security for the landlord​

As a minimum, a landlord will want to see three years of accounts and will expect to see profits in each year which are three times the amount of the proposed rent.  Not many pop ups are going to pass this test.  Accordingly, the landlord is going to ask for additional security. This will be in the form of a rent deposit where the landlord asks you to deposit anything up to one year’s rent (plus VAT) which the landlord can then dip into if you do not pay the rent.  Alternatively, it will be personal guarantees from you and your co-directors which can be risky.

Carry out a survey​

The lease will make you responsible to put the premises into good repair either directly or through a service charge. You should have a survey to help identify any material expenditure which is likely to be required during the short or medium term.

Pay Stamp Duty​

Within 30 days following the grant of a new lease, a tenant must pay Stamp Duty Land Tax.  In rough terms, if you are taking a 15 year lease with no premium and at a headline rent of £60k per annum, you will be paying Stamp Duty Land Tax in the region of £6,790 i.e. at about 11.3 per cent of the headline rent. 

Factor in business rates​

Councils maintain a register of the rateable values of all commercial premises.  The rateable value is multiplied by the appropriate factor to calculate the rates payable and this is currently in the order of 0.48, which in rough terms means that the rates you will pay to the Council are about 48 per cent of the open market rental value of the premises.

Register with the council​

All food operators (including pop-ups and mobile operators) should be registered with the local council.  You need to apply at least 28 days before you intend to start trade. The penalty for breach is a fine and imprisonment for up to two years.

Enjoy the experience​

This is an exciting time. You have tested your concept, so you know it works. Now it is time to grow the business.

Nigel Mason, Partner at Hamlins LLP.