Commercial Tenants in Residential Buildings: the Neighbor Downstairs

We all hope for good neighbors when we move into a new building or community. The same is true for commercial properties in residential buildings. Making a good match, one that benefits both the commercial tenants and unit owners, can go a long way in creating a harmonious and happy building. 

There are a number of different scenarios that involve the presence of a commercial entity within a residential building. The condo may have been set up to include a mix of residential and commercial units or spaces. These commercial spaces would have been intended as spots for businesses from the outset. In another scenario, someone else may own the first few floors of the building and it is not part of the association or condo, meaning it falls outside of the purview of the board. 

In order to determine what ingredients will work in cooking up a healthy relationship between tenants, residents, and board members, everyone involved should have a good handle on what is allowed and not allowed by the building’s governing documents. 

“In co-ops, there is a greater ability to rent because the building itself is leasing to its tenants,” says Attorney Marc Schneider, managing partner at Schneider Mitola, LLP, with offices in New York City and Long Island. “With condos, most governing documents refer to space other than apartments as common elements. The ability to lease these common areas are depending on the governing documents. Sometimes when the condo is formed, the documents will say there are 'x' number of units for residents and 'y' amount of space for commercial tenants.”

Beyond the governing documents, Schneider says it is also important to make sure that the legal right to rent space exists from the municipal perspective. If boards want to rent out to a restaurant, for example, they need to make sure they understand the details, like how many parking spots would be required based on the number of seats the restaurant will have. “You need to make sure that the board has the power to lease the space for what it wants to lease the space for,” Schneider says.

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