Understanding Condo Board Rights to Manage Commercial Unit-Owners

When a condo unit-owner or their tenants adversely impact your building …

KNOW YOUR ENFORCEMENT RIGHTS

Having commercial unit-owners at your condo can be a great revenue stream, but it’s important to understand what rights they have. That’s crucial if problems arise so you know what leverage you have and don’t have.

FEWER LIMITS.  Often condo boards can’t choose their tenants, because the space is typically owned by a unit-owner who pays common charges just like everyone else in the building. And sometimes the commercial space has been held back and retained by the developer or sponsor and has additional rights and privileges built into the original governing documents that give the board even less control. 

We represented a condo on the Upper East Side where the commercial unit-owner had leased the space to a tenant and was allowing the tenant to make modifications. That’s normal, and commercial unit-owners typically have full rights to renovate and build out without condo approval. But in this case, the tenant was interfering with building systems and the common elements. That’s fair game for the board to say, “We’re stepping in to protect our unit-owners, which is within our purview.” There were letters back and forth and threats to sue, but we negotiated an agreement with the commercial unit-owner that set some new guardrails, especially with respect to adverse impact on common elements, without having to resort to litigation.  

PREVENTIVE MEASURES. To prevent this kind of dispute, boards can sometimes have a commercial unit-owner sign an alteration agreement — it all depends on the status of the ownership and your relationship with that owner. You may have a really great commercial unit-owner with seats on the board who participates in meetings and understands how construction might be disruptive and won’t be met kindly by residential unit-owners. So building a good relationship is important. 

CHAIN OF ENFORCEMENT. Another challenge is to have an enforcement mechanism when a commercial unit-owner has a tenant — say, a restaurant — causing code violations or creating a nuisance. The restaurant owner has obligations under its lease with the commercial unit-owner, who in turn has obligations to the condominium association under the bylaws, which are considered a contract between the board and unit-owner. If issues such as noise or odors arise, the condo board first approaches the commercial unit-owner. The board might issue fines if allowed by the bylaws, and the commercial unit-owner can potentially pass the fines or penalties to the restaurant tenant under the lease terms. It can also take action such as starting an eviction proceeding if the tenant does not comply. If a unit is sold, the condo retains the same rights of enforcement against the new owner as with the previous one.

BE PROACTIVE.  Condo boards must actively manage their commercial spaces, addressing issues early and ensuring that the commercial unit-owner takes responsibility for their tenant’s behavior. Vigilance and timeliness are critical to avoid escalating problems.