Co-existing in mixed-use condominiums

Five common issues faced by communities that blend residential and commercial uses
Tuesday, July 8, 2014
By Nancy Houle and Cheryll Wood

Mixed-use condominiums, which include both a commercial and a residential component, provide commercial owners with potential on-site clientele and condominium owners with the convenience of having a restaurant, grocery store, or a variety of other businesses available in their own building. Depending on the nature of the development, the location of the condominium, and the way the condominium corporation itself is structured, mixed-use condominiums can work well and have benefits for all owners.

In addition to having their benefits, though, mixed-use condominiums are prone to certain problems. Herewith is a round-up of five common issues these communities face:

1. Allocation of common expenses

The developer determines the allocation of proportionate shares for common expenses when preparing a condominium declaration. In many cases, the allocation of proportionate shares of the common expenses does not reflect the actual contemplated usage of the common elements, or expenses for services. This can lead to some resentment, or ill will, between residential and commercial owners.

For example: If a commercial unit is a restaurant/bar, the usage of the utilities and services by this owner (e.g. water, energy for dishwashers, coolers, etc.) will likely be disproportionate to the usage by the residential owners. If common expenses are allocated by square footage, the disproportionate usage may not be reflected in the proportionate shares.

Developers utilize various methods for determining the breakdown of proportionate shares, and it’s important to recognize that there is no legal requirement that the allocation of proportionate shares be fair. In some cases the developer may not know what type of commercial owner will be purchasing the unit; therefore, the developer may not be able to consider the impact the commercial owner’s use will have on common expenses.

While options do exist for the owners who feel that the situation is oppressive, or unfair, to seek some relief, there is no guarantee that such relief will be available, or easy to achieve. For example, in order to determine whether an individual unit, or category of units, has excessive usage it would be necessary to measure the exact usage. To enforce an excessive usage bylaw in condominiums where units are not individually metered, it may be necessary to install sub-meters, which could be cost prohibitive.

2. Representation on the board of directors

In a situation where a condominium has 10 commercial owners and 90 residential owners, it is not difficult to see how there can be inequities with respect to representation on the board. The residential owners, in this situation, would certainly have the ability to ensure that the commercial owners don’t have representation on the board.

In some cases, mixed-use condominiums will have a bylaw which requires that a certain number of positions on the board be reserved for commercial owners. However, it can tip the scales the other way, and can prove to be inequitable for the residential owners. Accordingly, such a bylaw must be carefully crafted to ensure that the best interests of the corporation are granted first priority.

3. Safety and security

One of the central concerns in a mixed-use setting is to ensure that the development is built in such a way as to provide for the security of all residents of the complex. In other words, the development must take into account how each of the users, owners, occupants, or tenants, or their agents or guests, will access their portion of the development, without creating security risks for others.

For example, if the nature of a development allows the patrons of a commercial tenant access to interior parking, then the development should also contemplate how to separate access from the residential versus commercial portion of the complex.

Residential owners certainly do not want to face the risk of the general public having access to their units, or the residential common elements. What’s more, commercial owners would not want the liability of being responsible for possible damages that could be caused to the common elements by guests who may have overstayed their welcome.

4. Complaints

Given the nature of communal living, every condominium corporation must deal with complaints from owners from time to time. However, the type of complaints that arise in a mixed-use setting can be a little trickier to manage, given that the expectations of the occupants are not necessarily common.

Consider the competing rights of a residential owner to quiet enjoyment of the premises, and a commercial owner who operates a 24-hour gym located beneath the residential owner’s unit. Assume also that the nature of the commercial use was fully disclosed. Complaints will inevitably arise. How is a condominium corporation expected to balance these competing rights?

Condominium corporations should consider implementing a policy for addressing complaints in a consistent manner. If the corporation determines a complaint has merit and requires action, it should have a process in place for analyzing solutions and what obligations it has to involve owners in the decision.

The corporation would need to consider whether changes are required, and, if so, what its obligations are under the Condominium Act. In the example of the 24-hour gym, the condominium corporation could review noise reduction solutions and the respective cost of each solution.

5. Human rights considerations

The upcoming implementation of the new standards pursuant to the Accessibility for Ontarians with Disabilities Act (AODA) may result in some interesting issues for mixed-use condominiums, due to differing obligations for certain commercial owners versus residential owners. Boards of directors will have to carefully consider, and navigate, these new waters.

The AODA legislation affects all organizations that provide goods and services, and have at least one employee. However, organizations with one to 19 employees are exempt from certain requirements. Some condominium corporations do not have any employees, and others may only have a couple. Therefore, the condominium may be exempt from some or all standards under the AODA.

Under the Customer Service Standard, which has been a requirement since 2012, if one of the commercial owners employs 20 or more employees, they would be required to have a written AODA policy and file an accessibility report. These requirements could affect the condominium corporation if increased accessibility to the common elements is required due to the size of the commercial owner.

The Integrated Accessibility Standard is currently being implemented. It also has different obligations (and dates for compliance) depending on the size of an organization. As a result, mixed-use condominiums must be aware of the various requirements and determine whether there are increased obligations as a result of having commercial owners.

At the end of the day, a mixed-use development is what each member of the condominium community makes of it. Assuming that purchasers are educated, and aware, of the design and concept when purchasing, one must assume that each purchaser sees a benefit to living or owning in a mixed-use community. Owners need to be aware of the potential for these types of issues and develop a proactive strategy for resolving them if they arise. Both residential owners and commercial owners need to work together to ensure the success of this type of condominium.

Nancy Houle is a partner at Nelligan O’Brien Payne LLP, and practice group leader of the firm’s condominium law group. Cheryll Wood is an associate with the group. Their practices include general corporate advice to condominium corporations, financing and secured transactions, construction law, building deficiency litigation, and proceedings involving disputes between condominium corporations and residents.  

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