Commercial Tenants in Residential Buildings The Neighbor Downstairs

Finding a good neighbor—it’s what we all hope for when we move into a new building or community. The same is true for commercial properties in residential buildings.  Making a good match, one that benefits both the commercial tenants and unit owners, can go a long way in creating a harmonious and happy building. 

There are a number of different scenarios that involve the presence of a commercial entity within a residential building. The condo may have been set up to include a mix of residential and commercial units or spaces. These commercial spaces would have been intended as spots for businesses from the outset. In another scenario, someone else may own the first few floors of the building and it’s not part of the association or condo, meaning it falls outside of the purview of the board. 

Key Components

In order to determine what factors will help cultivate and maintain a healthy relationship between tenants, residents and board members, everyone involved should have a good handle on what is allowed and not allowed by the building’s governing documents. “The condo declaration or CC&Rs usually limit the type of tenant allowed,” says Patricia O’Connor, an attorney and partner in the Community Associations Group at the law firm of Levenfeld Pearlstein, LLC in Chicago. 

They also limit the location of those tenants. “Typically in condo associations, there are either residential units or commercial units,” says O’Connor. “And typically, there is a provision that residential units cannot be used for commercial purposes. There is a small minority that are set up as live-work spaces, like artist’s lofts.” But for the vast majority of properties, O'Connor says the lines are clear and distinct on where commercial entities can exist and where they cannot. 

Limitations on the types of tenants also exist and some are rather quaint. “Older declarations have restrictions such as no hotel, motel and transient purposes, no veterinarians, pet shops, taverns and liquor stores, tattoo parlors or pawn shops,” says O’Connor. “A lot will also say no to health clubs or gyms. They have to give careful thought to them because they can be noisy with music, group classes and the sound of equipment.”  

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