Many co-op and condo board members know the difficulty of working to resolve arguments between residents. In mixed-use buildings, the problems may be greater. With both commercial and residential unit owners or shareholders in a building, the board may find the disputes unmanageable. Compromise may seem unworkable, because the two sides have such fundamentally different interests.
There are several common varieties of mixed-use buildings. Many condos have both commercial unit owners and residential unit owners. Co-op buildings often have professional apartments, and less frequently, retail or other commercial space. Buildings referred to as "cond-ops" are actually condominium buildings with only a handful of units. One condo unit is owned by a cooperative apartment corporation and divided into residential co-op apartments. The rest of the building can be one or a small number of commercial condo units.
Recently, litigation between commercial and residential shareholder/ owners seems to be increasing. Of course, this may be because the number of mixed-use buildings is also increasing. It also may be because problems develop over time. Generally, conflicts do not mature until after the project has been sold by the sponsor, and direction of the board turned over to the residents. This could be because until the project is largely sold, the sponsor has a significant incentive to prevent disputes. Also, until they are in control, the opportunity for residents to raise concerns is limited.
Regardless of the form of organization, many - if not most - disagreements between the different kinds of owners are almost unavoidable. It can be argued that they are often caused by the sponsor's initial development strategy. Frequently, sponsors are more eager to sell residential space than commercial space. This may be because the profits in renting commercial space can be greater, and may be significant depending upon the location. In any event, potential purchasers of commercial space are likely to be more sophisticated than residential purchasers.
With this in mind, the sponsor may develop the project to favor the commercial space. One common way is to understate the percentage of common interests or shares given to the commercial space. This will make monthly charges relatively less for the commercial owner. Years ago, this could also result in commercial condo units receiving low tax assessments in proportion to the percentage of common interests allocated to those units. However, New York City became wise to this practice, and now largely ignores the percentage of common interest when it establishes tax assessments for commercial units.