Shop-in-shop agreement
A department store offers your label twenty square metres on the first floor, with your own rails and your name above the department. Sales go through the store’s tills, and the store keeps a percentage of the turnover for that. The contract later decides who may give up that space and who bears the loss if the store goes under. It also decides whether the money from the tills ever reaches you.
A shop-in-shop agreement is the agreement under which a shop or department store gives a brand its own space on its sales floor, where a fixed, defined area provided in return for payment can count as a lease of retail premises with the tenant protection of Article 7:290 onwards of the Dutch Civil Code. The brand then cannot simply be sent away. As a result, the store is sometimes tied in for years longer than the contract suggests.
Been offered a shop-in-shop, or want to bring a brand into your own shop? Call 020 675 88 21 or get in touch. You will have a reply within one working day.
Three forms of shop-in-shop: buying in, consignment or a sales area of your own
Two corners of the same department store can look identical and still rest on very different contracts. The difference lies in who owns the clothes until a customer pays for them.
When it buys in, the store purchases your collection, pays your invoice and sells the pieces in its own name in the area fitted out for your brand. In legal terms you are then a supplier. In your terms of sale you use a retention of title clause to set out what happens if the store does not pay. You sometimes also pay the store a fixed contribution for the space.
On consignment the collection stays yours until a customer buys it. For a new label that is the easiest way in, because the store does not have to buy any stock.
More about selling on consignment →
In the third form you get your own piece of floor. You put your own stock there and decide for yourself whether a sales assistant of your own stands there. The store receives a fixed fee, a percentage of your turnover or a combination of the two. In fashion this form is also known as vendor managed inventory. It is precisely in this turnover model that the question arises whether you are actually a tenant. Mixed forms exist too, such as a collection on consignment in a fixed spot that you pay for separately.
When a shop-in-shop is a lease of retail premises
If you get a fixed, defined spot in the store in return for payment, the agreement soon starts to look like a lease. The law asks for no more than that an item, or part of it, is provided for use in return for consideration (Article 7:201(1) of the Dutch Civil Code, in Dutch). A percentage of your turnover can also be that consideration. If the contract designates the spot for selling to customers who walk in, it is business premises within the meaning of Article 7:290(2)(a) (in Dutch).
What the contract is called makes little difference. In the Bijenkorf department store in The Hague, a hair salon had operated since 1995 under what the parties called an operating agreement. The subdistrict judge (kantonrechter) treated it as a lease. In 2007 the parties wanted to exclude tenant protection on termination entirely and to cut the notice period from twelve to six months. They jointly asked for approval to do so. The subdistrict judge refused. After more than ten years of working together, the court saw no good reason to deprive the salon in advance of the chance to have a notice of termination reviewed (ECLI:NL:RBSGR:2007:BB3026, in Dutch).
If it is a lease of such business premises, the agreement in principle runs for five years and is then extended by operation of law for another five (Article 7:292). Notice can only be given for the end of such a term, by bailiff’s writ or registered letter, with a notice period of at least one year (Article 7:293). A clause that departs from this to the brand’s detriment can be annulled (Article 7:291(1) and (2)). For a shop-in-shop of two years or less, these rules on duration and termination do not apply (Article 7:301(1)).
If the store does not want to give that protection, either party can put the departing clauses to the subdistrict judge for approval. The judge only approves them if they do not substantially affect the brand’s rights, or if the brand is in such a strong position against the store that it reasonably does not need that protection (Article 7:291(3)). A fixed area with walls of its own points more towards a lease than a spot the store can move each season. You can read more about leasing retail premises under landlord and tenant law.
Subletting when the department store itself rents the building
If your shop-in-shop is a lease and the store itself rents the building, you are a subtenant. A tenant may in principle let someone else use all or part of the leased property, unless the tenant had to assume that the landlord would have reasonable objections (Article 7:221). The store’s own lease may contain its own arrangement on this. So ask whether the owner of the building has agreed to your shop-in-shop.
Your space also depends on the store’s lease. If that lease ends and the court, at the owner’s request, sets a date for vacating the premises, your sublease ends on that same date (Article 7:306(1)). So ask how long the store’s lease runs. If the store fails to inform you about that or informs you incorrectly, or does not look after your interests properly when its own lease ends, it has to compensate you for the loss (Article 7:306(2)).
If the store goes bankrupt, both the trustee in bankruptcy and the landlord of the building can terminate the store’s lease early. A notice period of three months is then sufficient in any event (Article 39 of the Dutch Bankruptcy Act, in Dutch). Even if your own shop-in-shop agreement still has years to run, you should then allow for needing a new space within a few months.
Settling up through the department store’s tills
In the turnover model and on consignment, the customer pays at the store’s till. The store later passes that money on to you, after deducting its own percentage. Until it does, all you have is a claim against the store. If the store goes bankrupt, you submit that claim to the trustee and join the queue with the other ordinary creditors.
If you settle weekly, a bankruptcy leaves at most a week’s turnover outstanding instead of a month’s. Record as well that you can inspect the till data for your items, and who pays for the store’s discount campaigns. Otherwise a 20% off everything sale costs you margin you never signed up for. Agree too how returns and exchanges are settled, especially when a customer brings something back to another branch.
Your rails and fittings in a bankruptcy or a tax seizure
You had the walls, rails and screens in your shop-in-shop made yourself. Record that they remain yours and attach a list with photos to the contract, so that a trustee can keep them separate in a bankruptcy.
Then there are the Dutch tax authorities. For, among other things, additional assessments of the store’s wage tax and VAT, the Belastingdienst may seize fittings that are on the store’s premises, even if they belong to someone else. As the owner, you cannot object to that (Article 22(3) of the Dutch Tax Collection Act 1990, in Dutch). In Dutch this is known as the floor right, bodemrecht. Under its own policy, the Belastingdienst spares goods that, both legally and economically, belong predominantly to someone else (Tax Collection Guidelines 2008, section 22.9.1, in Dutch). If you lend your rails free of charge, as a loan for use (bruikleen), and the risk of their losing value stays with you, that in principle falls within the policy. Rails you supply against payment under retention of title are given in the guidelines as an example of goods that are not spared. A loan for use does not help either if the store has also undertaken to you to buy a minimum amount of your collection. So do not tie the shop-in-shop to such a purchase obligation if you lend the fittings.
Your brand name and campaign images hang on the walls of the shop-in-shop too. Agree that the store uses them only for your shop-in-shop and that the use stops when the relationship ends.
Who does the selling and which brands may hang next to yours
If you put your own sales assistant in the store, you remain the employer. The store will still want that assistant to follow the house rules, from opening hours to the way customers are served at the central till. Record who manages that assistant and who covers the floor if someone is off sick on a busy Saturday. If the store’s own staff do the selling, agree how often you brief them on your collection and what happens if the service falls short.
The store sells more brands than yours. If you don’t want a direct competitor three metres away, define what a competing brand is. A list of names works better than a description such as comparable brands in the same segment, which everyone will later read differently. The store may in turn ask you not to open a second shop-in-shop in the same city.
Terminating a shop-in-shop agreement
If your shop-in-shop is not a lease or the contract runs for two years or less, it is mainly the contract that decides how and when the relationship ends. Without such an arrangement, the rules on terminating a long-term contract apply.
More about terminating a long-term contract →
In any case, agree within how many days your fittings and remaining stock will be collected and when the final settlement follows. If you settle up per season, make the end coincide with the end of a season, so that you are not left with half a winter collection in storage. Include as well the condition in which the space is handed back and who takes down the walls you had built specially for your brand.
A lawyer for your shop-in-shop agreement
We at Liaise find that a shop-in-shop often starts with an email from the buyer and a floor plan. The contract only arrives once the rails are already in place. We draft and review shop-in-shop agreements for brands that get a space in a department store or concept store, and for shops that bring brands under their roof. Because we also handle landlord and tenant law and trade mark law, we look straight away at whether a corner in a department store is a lease and what happens to your brand and your campaign images. Fashion law explains how those rights come together for fashion brands.
Been handed a shop-in-shop agreement, or want one drafted? Get in touch or call 020 675 88 21.
