How to Deal with Mixed-Use Condo Changes

Business issues that were prominent in our practice this past year included matters involving commercial condominiums. These have ranged from apartment buildings that have a commercial condominium unit to purely commercial towers that have office and retail space.
With the increase in commercial rents and the interest in investment in New York, we have seen expanded attention to these issues. On the mixed-residential-retail side we see in apartment buildings, there have been significant confrontations as new operators of retail space seek to perform alterations to modernize space and maximize the utilization of the space for contemporary purposes. Often the concerns are over aesthetics and value, asking whether values in the residential portion of the building would be enhanced by the work. At the same time, the residential owners want to make sure the work to be performed will be lawful and will not impinge on the structural integrity of the building. They will also often be concerned that work be performed safely and in compliance with the requirements of the condominium documents to avoid unnecessary disturbance of the operation of the property and of the occupants.

Understandably, the world of purely business condominiums has grown as well. Many of the significant new office and mixed-use office/retail buildings, or even hotel/retail/office buildings, have been developed on this basis. The condominium format can help with financing as each owner can finance independently. The condominium structure can also assure different users that there will be a balance of independent operation and input to limit any negative effect from the operation of another section of the building.

Takeaway

The conclusion is that the prediction of past years that the condominium form of ownership would become the norm has extended from the residential realm to the commercial. Both residential and commercial purchasers, as well as lenders and tenants, should recognize that their purchases or their leases are liable to be taken in the context of a property with other owners who are using the property for a different purpose.

Each party (each unit-owner, each tenant, each lender) should review the relevant condominium documents to determine their rights to make changes to their own portions of the property, and ask whether their portions of the property can be negatively affected by the operation of another section.

For example, can the commercial condominium be rented to a store that would offend the residential owner? Does the residential unit-owner have enough voting power to amend the condominium documents in ways that would eliminate protections of the commercial owner to operate as it wants — can they change permitted uses of the property or the allowed hours of operation? Unquestionably, this is the way of the future, and the future is here.