There is an increasing trend to incorporate residential elements in to mixed commercial schemes be that on the high street, with shops on the ground floor and residential above or in purpose-built mixed-use developments. This is demand led and it makes sense on many levels. That is the opportunity but there are risks. These include damaging conflicts that can have an impact on public relations but also a whole series of statutory compliance issues including the service charge and major works requirements comprised within the Commonhold and Leasehold Reform Act 2002 and the Landlord & Tenant Act 1985.
Key summary of what to look out for:
• Major Works – there is a clear process of consultation required where any single residential unit has a share that is greater than £250.
• Recurring Services – again, there is a process of consultation where there is a contract for ongoing services of greater than 12 months and any single residential unit has a share of greater than £100 per annum towards the resultant costs.
1. In both cases, failure to follow the consultation process can mean resultant costs are not recoverable. The process includes sharing the proposals and seeking alternative contractors as well as taking on board comments throughout.
2. Be mindful that it might not always satisfy the consultation process to serve notices on the immediate tenant if there are a series of sub-tenants on long leases in place i.e. you might need to include the full chain lessees and underlessees.
• You must certify all service costs incurred within 18 months – if you are too late, the costs cannot be recovered.
• All costs must be incurred, and services must be provided to a reasonable standard.
• In the event of disputes (on reasonableness or non-compliance), Tenants have a cost-effective means of resolution through referral to Tribunal.
• Residents can effect a change in management of the residential parts through Right to Manage.
These statutory measures are designed to protect residential tenants and not commercial occupiers. Perhaps that should change. However, the primary point of this article is to flag up the risks and challenges of management of blocks that comprise both residential and commercial parts. The residential statute needs to dictate the approach to secure full recovery.