Managing Commercial Tenants Benefits, Drawbacks & Considerations

While having goods and services like retail stores, banks and dry cleaners on-site can be convenient and viewed as a positive by condo unit owners and neighbors, not every commercial tenant is a good fit for every condo community or HOA. Leasing space to the right businesses—and really understanding the nature of the association/commercial tenant relationship—is key to a successful, mutually beneficial arrangement between the two.

Know the Score

For boards and managers, the biggest issue is often misunderstanding the nature of the relationship between the business owner and the association.

“If the commercial unit is actually a deeded unit, the board has very little control other than enforcing the governing documents,” says Attorney Matthew Goldberg, who is with the Chicago-based law firm of Bancroft, Richman & Goldberg, LLC. “Major issues raised or caused by the tenant need to be addressed through the unit ownership. The board has to understand, in this type of relationship, they are not the landlord.”

Conversely, when the commercial unit is a common element owned by the association, the association is the landlord. For less experienced board members, this distinction can be a little confusing—particularly the ways in which the nature of a commercial tenancy is different from a residential tenancy.

“The board is obligated to make sure that any lease they enter into complies with the requirements of the community's governing documents before signing the lease,” says Goldberg. “Once the lease is signed, any incongruities may be considered a waiver of the requirement - and a breach of fiduciary duty by the board.”

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