Do Apartments above Shops fall under Residential or Commercial Leases?
We frequently get asked this question, and the truth is, it depends.
The good news is, understanding the correct law and frameworks for mixed-use buildings or ‘shop-top housing’ is quite straightforward once you understand how these buildings work.
Mixed‑use buildings, such as those with a shop on the ground floor and a residence above, are treated as having separate building classifications. The shop is identified as a Class 6 building, while a single dwelling within the same structure is categorised as Class 4.
Example: A Shop Downstairs, A Flat Upstairs
Imagine a landlord, Professor X, owns a building with a private tutoring and mentorship studio downstairs and a flat upstairs.
Scenario 1: One person rents the whole building
If Professor X leases the whole property to Hank, this property is treated as a commercial/retail tenancy, as long as the building isn’t used primarily as a residence.
In this tenancy, Professor X is obligated to maintain and look after the building structure and major systems like plumbing, electrical systems, heating/cooling equipment and other essential fittings in good working order. The only time these rules don’t apply is if, the total rent and outgoings are above a set legal limit, or the tenant is a very large corporation, or the government has officially declared that this type of property or tenant isn’t covered.
Scenario 2: Two different people rent the two spaces
If Professor X leases the studio to Hank and leases the flat upstairs to another person, then each area is treated separately. This means the flat is simply a normal residential tenancy, and all the usual renting rules apply. The shop is treated as a retail tenancy, with completely different expectations.
Why getting this wrong can be a problem
As landlords, using the wrong type of lease agreements can create real issues. Using retail agreements for residential properties, or vice versa, may lead to the agreements being void and unenforceable. This may also mean that the landlord’s obligations haven’t been fulfilled under relevant laws, which can lead to financial penalties and consequences.
What you can do if you think your Lease was set up incorrectly
Some simple methods to rectify issues can be to setup a lease variation agreement to incorporate the small changes in the lease, catchup on overdue obligations, or update the lease and have everyone re-sign the updated version.
If you remain unsure, we can look at your situation and tell you quickly which rules apply and what steps you need to take.
Queries
Please contact the authors, or any member of our Corporate Real Estate team, should you have any questions about this article, or if wish to discuss how we may be able to assist you or your business.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.