BGBG

Mixed Use Development

What happens if a property is used for residential and commercial use?

What happens if a property is used for residential and commercial use?

Not all properties are exclusively residential or exclusively commercial.  Indeed, it is increasingly regarded as desirable for different types of property to sit alongside each other. A property can also start as purely residential and then turn into being used for commercial purposes.  A house that starts being used as a hostel, for example, can change from residential use to business use.

The distinction between residential property and commercial property is important because the regulations governing residential properties are different and much more onerous that those covering commercial properties.  In certain circumstances a freeholder can find himself having to follow two completely different sets of rules at the same time as he seeks to manage the building.

The areas of concern in relation to mixed use developments are:

  1. rent and non-payment of rent;
  2. costs of repairs and services;
  3. security of tenure rights;
  4. rights to enfranchise and manage; and
  5. rights of pre-emption.

Generally speaking, as far as commercial premises are concerned, all of these points are a matter of contract between the landlord and the tenant.  Even the right to security of tenure can be excluded by agreement between the parties (see Security of Tenure). See Granting a Commercial Lease and Commercial Developments for lots more information on the considerations relevant to commercial property.

For more information on mixed use developments...

Please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 for a free discussion or email geoffrey.cotterill@everymanlegal.com

This is not the case, though, for residential properties where the following additional rights need to be taken into account.

  1. Rent and non-payment of rent. Although rent is not controlled at present, this may not be the case in the future.  The landlord’s rights in the event of non-payment of rent or indeed any breach of the terms of the lease are restricted.  The tenant can only be evicted with a court order which courts are reluctant to order if this will render someone homeless. See Ending a Tenancy for further information.
  1. Costs of repairs and services. Tenants of leases of less than 7 years cannot be charged the costs of maintaining a large number of items which would normally be passed onto a tenant. All residential tenants have the rights to challenge service charges and to be consulted about work to be carried out in advance.  Failure to do so may mean that the costs are irrecoverable.  It is also worth considering that a tenant of a commercial unit may be happy for maintenance to be carried out to a much lower standard than a residential tenant may.
  1. Security of tenure rights. It will almost be impossible to get the residential and commercial leases to end on the same day not least because the residential tenants will have security of tenure rights. These will vary depending on the type of occupation but for example long leaseholders will have the right to extend their leases by 90 years. See Residential Leases for more information.
  1. Rights to enfranchise and manage. Residential tenants can in appropriate circumstances take over the management of their block or even buy the freehold from the landlord whether or not he wishes to sell. See Property Management and Leasehold Enfranchisement for further information.
  1. A freeholder who seeks to sell a property that is subject to long leases may find himself having to offer it to his tenants first otherwise he will not be able to sell it to anyone else. See Residential Leases for more information.

If you are buying a mixed use development or taking a lease in one or planning to create one, it is vital that all the pitfalls are properly considered otherwise you may find that the costs of management are far more than the amounts you can recover and the freehold is not capable of being sold to anyone else.

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

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