Mixed-Use Buildings Facing the Potential for Conflict

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.

Read More...

Related Articles

Inheritance and Rights of Succession

Who Gets What?

Doing it the Right Way

Establishing Protocols in Smaller Buildings

Avoiding Litigation

Arbitration and Mediation as Options

 

5 Comments

  • Hi, I was wondering if someone could advise me of my rights. We own a commercial unit within a coop building and the building is making it difficult for us to rent the space. We also own a residential unit in the same space. There are only 3 other units so in effect we cover 2/5ths of the buildings operating charges. When we purchased the unit, the building covered basic street maintenance and leased the space to wholesalers. They even gave them long term or 5 year leases. Originally the space was a design school. Since we have owned the space – about 12 years – they have severely limited the type of tenant. The building no longer seem to permit any wholesale, makes it difficult to give leases longer than one year, and for the first time every use the occupancy on the C of O which is 10-20 for 2,000 to 4000 square feet. They also do not allow any type of business that involves food. When there are time sensitive matters they take days, even weeks, to respond. Most commercial businesses want long term leases. The building no longer funds street maintenance but says we are responsible even though the space has been largely empty for years at a time. They also charge us a fee for leasing the space though such surcharges are not in the bylaws. In addition, people sit in on board meetings who are not even leaseholders/owners. While initially they were treated as guests attending as a courtesy, some participants I believe are often hostile to our interests and frequently making contributions in a manner that I constantly find offensive. Since the coop board basically appears not to enjoy any activity downstairs so it seems to have made leasing of the space close to impossible. Since our commercial lease indicated we could use the space residentially we tried to rent is as such but discovered based on our C of O as a commercial Unit, that was not legal. The building assumed no responsibility for the misleading lease. Basically we carry a huge % of the buildings overall costs yet seem not to have any rights - Is there anything we can do to protect our interests? Sincerely, A concerned property owner in NYC
  • I have a mixed use co-op apartment. When I buy was a doctor's office and now I use it as doctor office but Now I want sell as mixed use. My co-op board want me sell as residence with no kitchen. How can I sell my apartment ?
  • I live in a mixed use building with a factory on the first floor. The original owners of the building operated machinery from 8am to 4 pm weekdays and rarely on weekends. Since the building changed hands, the new owner gradually began to run machinery as early as 5 am and will work arbitrarily on weekends. My unit is on the second floor directly above the shop and it is noisy. I looked for some information regarding hours of operation in a mixed use building but without finding anything specific. If you could give me some information that explains this or point me in the right direction, I would appreciate it. Thank you
  • The restaurant in our building (on ground floor) has a very poor presentation. As the result the building looks terrible, like a dump in Hong Kong. What can we do?
  • Hello, I live in a mixed-use condo. It has 250 apartments, 3 commercial spaces, and 1 garage. Recently, the sponsor has sold off the commercial spaces and garage. The board, however, still consists of a representative from the garage and the commercial space. Is this right? Thanks